Application for Credit. A written application for credit must be received by the Bank at least five days before the construction contract is executed.
Construction Notice which must be given by the contractor to the owner before the construction contract and Builder’s and Mechanic’s Lien Contract is executed. A sample form is located at the end of this Chapter.
Construction Contract describing work to be done and materials provided. This document must be executed at the offices of an attorney, a title company or Bank. The Construction Contract can be the Builder’s and Mechanic’s Lien Contract. In this instance, the Bank should receive a copy of the Plans and Specifications referred to in the Builder’s and Mechanic’s Lien Contract. The Builder’s and Mechanic’s Lien Contract includes an assignment of the contractor’s lien to the Bank under the contract. This must be filed in the Real Property Records in the County where the real property is located. A sample Builder’s and Mechanic’s Lien Contract is located at the end of this Chapter.
The Bank should consider adding an addendum to this contract which sets out the procedure for disbursement of the loan proceeds to the Contractor. Consult Bank Counsel regarding the procedure your Bank wants to follow and draft an addendum to reflect this policy.
Title Search/Title Insurance Policy. A title and lien search conducted by an abstract company indicating the ownership and lien status of the property may be obtained in lieu of title insurance when the amount of the loan does not justify purchasing a title policy. This document does not directly protect the Bank like a title policy does.
Promissory Note. A sample Home Improvement Note is located at the end of this Chapter.
TILA-RESPA Loan Estimate.
Verification of Construction Trust Funds Account.
Evidence of Insurance on Improvements showing Bank as mortgagee. Require a provision that the insurance company will notify the Bank of cancellation or a major change in coverage. Consider obtaining evidence of premises liability coverage.
Flood Hazard Verification, Notice to Borrower and Flood Insurance Policy, when required.
Notice of Right of Rescission. The Bank should not disburse any funds or allow delivery of materials or improvements to be made for three business days following delivery of the notice. See the Notice of Right of Rescission form at the end of this chapter.
Disbursement Disclosures. If the Bank disburses funds directly to the contractor, including through a check jointly payable to the owner and contractor, each time the Bank disburses funds it must obtain from the contractor a statement which discloses the bills or expenses for which the contractor is seeking reimbursement or which the contractor represents it will pay from the funds being requested (see the form Residential Contractor’s Payment Disclosure letter located at the end of this Chapter) and forward it with the Bank’s Disbursement Disclosure letter (see form located at the end of this Chapter) to the owner before the Bank makes the disbursement.
Affidavit of Commencement.
TILA-RESPA Closing Disclosure.
Checklist of Documents Required For Home Construction Loans
:
Residential Loan Application.
TILA - RESPA Loan Estimate.
Promissory Note.
Construction Loan Agreement.
Deed of Trust, Security Agreement and Absolute Assignment of Leases and Rents.
Construction Contract.
Assignment of Construction Contract (with consent thereto) - General Contractor.
Architect’s Agreement.
Assignment of Architect’s Agreement and Plans and Specifications (with consent thereto).
Contractor Subordination Agreement.
Subcontractor Subordination Agreement.
Disbursement Schedule and Disclosures.
Plat or Survey.
Title Insurance Policy or Construction Binder, if required by the Bank.
Payment and Performance Bond, for general contractor and possibly the subcontractors.
Evidence of Insurance on Improvements as built.
Environmental Audit Report.
Flood Hazard Determination, Notice to Borrower of Property in Special Flood Hazard Area and flood Insurance Policy when required.
Soil Test.
Plans and Specifications.
Evidence of Utilities, water, sanitary sewer, drainage, electricity, etc.
Building and Other Required Permits.
Affidavit of Commencement.
TILA - RESPA Closing Disclosure.
Appointment of independent supervising architect, selected and retained by construction lender at borrower’s expense to make inspections.
Disbursement Disclosures. If the Bank disburses funds directly to the contractor, including through a check jointly payable to the owner and contractor, each time the Bank disburses funds it must obtain from the contractor a payment disclosure and forward it with the Bank’s disbursement disclosures to the owner before the Bank makes the disbursement.
Verification of Construction Trust Funds Account.