Financial Information and Authorization Documentation. Financial and background information on the borrower and any guarantor to substantiate the expertise and financial strength of the borrower or guarantor to complete the project.
Construction Loan Agreement. The construction loan agreement sets forth the rights and obligations of the lender and borrower, conditions for advancing funds, and events of default. The loan agreement should specify the performance of each party during the entire course of construction. Any changes to the borrower’s plans should be approved both by the construction lender and the take-out lender because changes can increase the cost of construction without necessarily increasing the sale price of the completed project. A sample Commercial Construction Loan Agreement is located at the end of this Chapter. If tenant improvements are included in the construction loan, a Tenant Improvements Rider to Commercial Construction Loan Agreement should also be used. A sample form is located at the end of this Chapter.
Promissory Note. See the sample forms Commercial Construction Note and Commercial Construction /Permanent Note located at the end of this Chapter.
Deed of Trust. A recorded mortgage or deed of trust that can be used to foreclose and to obtain title to the collateral.
Guaranty. An appropriate guaranty of each guarantor should be executed and delivered. See Chapter 17, “Guaranties.”
Survey, Title Commitment and Title Insurance. A title insurance binder or policy, usually issued by a recognized title insurance company or, in some states, an attorney’s opinion. The policy should be updated with each advance of funds, if such additional protection is available. See Chapter 4, “Surveys, Title Commitments and Title Insurance”
Comprehensive Liability Insurance. Insurance policies and a proof of premium payment as evidence that the builder has adequate and enforceable coverage, including: liability, fire and builder’s special risks. See Chapter 7, “Other Insurance.”
Flood Determination. (and additional flood documents where appropriate). See Chapter 6, “Flood Insurance.”
Appraisal. An appropriate appraisal or evaluation showing the market value of the property on an “as is” and “as completed” basis, and when a stabilized level of occupancy is achieved. See Chapter 3, “Appraisals.”
Plans and Specifications. Project plans, feasibility study, and construction budget showing the development plans, project costs, marketing plans, and equity contributions. The documentation should include a detailed cost breakdown for the land and “hard” construction costs, as well as the indirect or “soft” costs for the project, such as administrative costs, and architectural, engineering, and legal fees. If internal expertise is not available, the Bank may need to retain an independent construction expert to review these documents to assess the reasonableness and appropriateness of the construction plans and costs.
Take Out Commitment, if any, from a permanent lender and the terms of the loan. The documentation files should indicate that the Bank verified the financial ability of the permanent lender to fund the take-out commitment and reviewed the take-out agreement to determine the circumstances in which it could be voided. Although documentation for take-out commitments vary, it often includes:
•The amount of the commitment.
•Details of the project being financed.
•Expiration date of the commitment.
•Standby fee requirement.
•Floor and ceiling rental rates and minimum occupancy requirements.
•An assignment of rents.
•A requirement that the construction loan is to be fully disbursed and not in any way in default at the time settlement occurs.
The Commitment Agreement, sometimes referred to as the buy/sell contract or the tri-party agreement, signed by the borrower, the construction lender, and the permanent lender. The agreement prevents the permanent lender from withdrawing the take-out commitment because of unacceptable documentation. It also protects the construction lender against unforeseen events, such as the death of a principal, before the permanent loan documents are signed. The Agreement provides the permanent lender with an assurance that the loan will be available at the stipulated time and usually eliminates the need for a standby fee. On occasion, the agreement may include an assignment of rents giving the permanent lender the right to receive lease payments and/or rents directly from the lessees.
Payment or Performance Bond. A completion of performance bond written by an insurance company.
Evidence of Taxes. Evidence that property taxes have been paid to date.
Environmental Assessment. Any environmental surveys deemed necessary given the location and type of project including a soil test. See Chapter 5, “Environmental Issues.”
UCC-1 Financing Statement on equipment which may become fixtures.
Construction Contract.
General Contractor’s Consent and Acknowledgement.
Architect’s Agreement.
Architect’s Consent and Acknowledgement.
Disbursement Schedule. See the forms Construction Disbursement Schedule Voucher Plan and Construction Disbursement Schedule Progress Plan located at the end of this Chapter.
Subcontractor Subordination Agreement. Consider requesting them from electrical, plumbing, foundation and framing subcontractors.
Evidence of Utilities, water, sanitary sewer, drainage, electricity, etc.
Building and Other Required Permits together with evidence of compliance with all city codes and state and federal handicap regulations.
Affidavit of Commencement. [See TPC § 53.124] filed by the owner and general contractor in the county clerk’s office not later than 30 days after the commencement of construction or delivery of materials.
Appointment of independent supervising architect, selected and retained by the Bank at borrower’s expense to make inspections.
Affidavit of All Bills Paid.
Affidavit of Completion.