Construction Loan Application click here

Construction Loan Agreement

Sample Construction Loan Agreement

The Construction Loan Agreement Document is used to spell out the responsibilities of the owner (borrower.) the builder, and the lender.

This agreement is between the builder, the home buyer and the lender. It specifies how the loan will be disbursed by the lender and what happens if the builder or the borrower do not perform as required. THIS AGREEMENT is made_________________, and is by and between ________________________________("Owner") whose address is ________________________________ and _________________________, a lender organized and existing under the laws of the State of ________________ ("Lender") whose address is _____________________________ .

PRELIMINARY STATEMENT

Owner has applied to Lender for a loan ("Loan") and Lender has agreed to make the Loan pursuant to a mortgage loan commitment to Owner ("Commitment").

The Loan is to be evidenced by a Note of even date herewith in the amount of the Loan ("Note"), the repayment of which is to be secured by, among other things, a first mortgage of even date herewith ("Mortgage") encumbering certain real property ("Property") owned by Owner and described on Exhibit A attached hereto and made a part hereof.

The Loan proceeds shall be used to construct certain improvements ("Improvements") on the Property as more particularly set forth in Exhibit A attached hereto, to be completed no later than 9 months from the date hereof ("Completion Date").

In consideration of the statements set forth above and the agreements herein made, the agreements and covenants contained in the Commitment, Note and Mortgage, Owner and Lender do hereby make the agreements set forth herein.

ARTICLE I. REPRESENTATIONS AND WARRANTIES OF OWNER

Owner represents and warrants to Lender as follows: Existence Owner, if a corporation, is duly authorized, validly existing and in good standing under the laws of the state of its incorporation and the laws of the state in which the Property is located, and has all necessary corporate power to enter into these Owner, if a partnership, is validly existing and in good standing under the laws of the state of its formation and, if required, is qualified to do business in the state in which the Property is located, and the partners executing this agreement and the Note and Mortgage have lawful authority to bind the partnership in accordance with the terms of this agreement, the Note and Mortgage and any other documents being executed by the partnership for the benefit of Lender. No Default Owner is not in default and has not breached in any material respect any agreement or instrument to which it is a party or by which it may be bound, and the execution and delivery of this agreement, the Note and Mortgage, and the consummation of the other transactions contemplated herein do not conflict with or result in (i) a violation of any regulation, order, writ, judgment, injunction or decree of any court or governmental or municipal instrumentality or (ii) the breach of or default under any agreement or instrument to which Owner is a party or by which it may be bound.

Non-Commencement of Work

There has been no commencement of operations on the Property incident to the Improvements and no activities have occurred prior to the date hereof which could result in any mechanic's lien or similar lien being filed against the Property which would be superior to the lien of the Mortgage. No notice of commencement has been filed in the public records of the county in which the Property is located. Compliance with Laws Owner has obtained all necessary governmental approvals, including FHA and VA approvals, if applicable, necessary to commence construction of the Improvements. Utilities and Zoning Sewer, water and all other necessary utilities are available to serve the Property and the Improvements in sufficient quantity for their intended use, and the current zoning classification of the Property and any covenants and restrictions affecting the Property permit the construction and intended use of the Improvements without the necessity of obtaining further approvals, authorizations, waivers, consents, exceptions or variances.

Absence of Proceedings and Actions

There are no actions, suits or proceedings pending or, to the knowledge of Owner, threatened against or affecting Owner or the Property, or any guarantors of the Loan.

Financial Statements

All financial statements of Owner and any guarantors of the Loan submitted to Lender are true and correct as of the date of this agreement.

ARTICLE II. COVENANTS OF OWNER

Owner covenants to Lender that: Development Work Criteria Development of the Property and construction of the Improvements shall be in accordance with approved plans and specifications. Therefore, all engineering reports and studies, soil reports and other similar matters which have heretofore been submitted by Owner to Lender for the basis of the Loan shall be in compliance with all restrictions, conditions, ordinances, codes, regulations and laws of governmental departments, including, if applicable, FHA and VA, and agencies having control over or jurisdiction over or an interest in the Property and the Improvements. No deviation shall be made in the approved plans and specifications without the prior written consent of Lender and to the extent applicable, no change shall be made in any contracts Owner has entered into with respect to construction of the Improvements without the prior written consent of Lender.

Commencement and Continuity of Work

Development of the Property shall commence within 15 days from the date of this agreement and shall be carried on diligently and without interruption or delay until completed and the same shall be constructed in a good and workmanlike manner, and in accordance with the approved plans and specifications referred to above. A notice of commencement shall be filed immediately after recordation of the mortgage and a certified copy thereof shall be posted on the Property in accordance with state law. Development of the Property shall be completed no later than the completion date.

Use of Proceeds and Deficiency in Loan Amount

Owner will use the proceeds of the Loan only for the payment of costs directly associated with the construction of the Improvements and shall not divert such funds for any other purpose. If it appears the construction costs of the Improvements will exceed the net amount available from the Loan, Lender may, at its option, require Owner to deposit, and Owner shall deposit with Lender within 10 days after receipt of notice sufficient sums, which, together with a net amount remaining available for disbursement will be sufficient to pay all construction costs and related costs of completing the Improvements in accordance with the approved plans and specifications. The judgment and determination of Lender as to any such deficiency shall be final and conclusive.

Liens

Owner will have any mechanic's liens or other encumbrances which may be filed against the Property released or bonded off within 10 days of the date Owner receives notice thereof. Alternatively, Owner shall have the option of satisfying any of these liens or encumbrances. Access to Books and Records Owner will permit Lender or its agents to have at all reasonable times unrestricted access to its records, accounting books, contracts, subcontracts, bills and statements, including any supporting or related vouchers or other instruments, as relate in any manner to the development and construction of the Improvements, and Lender or its agents shall have the right to copy the same.

Financial Statements

Owner will furnish to Lender signed, semi-annual un-audited statements of its financial condition, including a profit and loss statement, and will permit Lender through any means deemed appropriate by Lender to verify the correctness of such statements. The semi-annual statements shall be delivered to Lender within 30 days after the close of Owner's semi-annual fiscal period.

If the Note has been guaranteed by one or more guarantors, Owner will cause such guarantors to furnish Lender such updates of their financial statements as Lender may from time to time reasonably request. Delivery of Materials to Property Owner will cause all materials, supplies and goods to be incorporated as part of the Improvements to be delivered to the Property free and clear of all liens and encumbrances so that no other party shall have an interest therein, whether superior or inferior to the lien of the Mortgage.

Compliance with the Construction Lien Law

Owner and its contractor will comply in all respects whatsoever with the Florida Construction Lien Law as the same may from time to time exist, and Lender shall not be obligated to disburse any funds to Owner if, in the opinion of Lender or its counsel, such disbursement would result in violation of such.

Access to Property

Owner will permit Lender and its agents at all reasonable times to have the right of entry and free access to the Property and the right to inspect the Property and all work done, labor performed and material furnished thereon or thereabout.

Services to Benefit Lender

All inspections and other services rendered by or on behalf of Lender and whether or not paid for by Owner shall be rendered solely for the protection and benefit of Lender, and Owner shall not be entitled to claim any loss or damage against Lender or its agents or employees for failure to properly discharge their duties to Lender. Lender's Right to

Approve

Lender shall have the right to approve all contracts, subcontracts, purchase orders, or other similar agreements to be entered into by Owner with respect to any portion of the construction of the Improvements or any materials, supplies or labor to be rendered in connection therewith.

Promotion

Owner will permit Lender to publicize its involvement in the Property and construction of the Improvements and will at Lender's request name Lender as the construction lender, in all publicity and promotion which Owner or its agent publishes in connection therewith, and will permit Lender to place and keep its signs upon the Property at all times during the term of the Loan.

Joinder by Contractor

If Owner is employing a contractor with respect to construction of the Improvements, Owner will require such contractor to join in the execution hereof, and, in the event of a conflict between the terms and conditions of any such contract and this agreement, the terms and conditions of this agreement shall govern and control. Further Assurances Owner will, at any time on Lender's request, make, do, execute and deliver to Lender and where appropriate shall cause to be recorded or filed at Owner's expense any and all further acts, mortgages, documents and assurances as may be reasonably necessary to effectuate, complete and confirm the transactions sought to be consummated hereunder. Compliance with Commitment, Note and Mortgage Owner will comply with and abide by all the terms, conditions, covenants, agreements, representations and warranties contained in the Commitment, Note and Mortgage, each of which documents are incorporated herein by this reference thereto. In the event of a conflict between this agreement and the Commitment, Note or Mortgage, the terms and conditions of this agreement shall govern and control.

Disputes

Should any dispute arise between Owner and Lender with respect to the construction or meaning of the approved plans and inspections, the same shall, at the option of Lender, be decided by a competent architect to be selected by Lender but paid for by Owner or, if the Improvements are subject to FHA or VA regulation, then, by a representative of the appropriate governmental agency. The decision of such architect or the FHA/VA representative, as the case may be, shall be conclusive and binding upon the parties hereto.

Inspection Fees

If the terms of the Commitment require that Owner pay Lender inspection fees with respect to the supervision, inspection and disbursements in connection with the Loan, Borrower will pay such fees in the manner prescribed by the Lender.

ARTICLE III. DISBURSEMENTS OF FUNDS.

Disbursement Schedule Upon satisfaction of all conditions required and specified in Exhibit B, Lender shall disburse funds in accordance with the Draw Schedule and Disbursement Authorization executed at time of closing.

Method of Disbursement

Lender may, at its option, disburse the Loan funds through a title insurance company, mortgage company, or other third party, to or for the account of Owner, or directly to any subcontractor, materialman or laborer directly, but except as may be required by agreements with the title insurance company insuring the validity and priority of the Mortgage, such election shall not prevent Lender from making subsequent disbursements in a different manner and through a different party.

Requests for Disbursements

Requests for Loan Disbursements shall be submitted to Lender in the manner prescribed by Lender. Funds shall be deemed disbursed to Owner and shall bear interest at the rate set forth in the Note when disbursed by Lender.

Disbursement Obligation of Lender

Nothing contained in this agreement, the Note or Mortgage shall impose upon Lender any obligation to see to the proper application of any disbursements made pursuant to this Loan, and the sole obligation of Lender shall be to disburse funds as set forth herein, provided there exists no default under this agreement, the Note or Mortgage.

ARTICLE IV. EVENTS OF DEFAULT

The happening of any one or more of the following events shall constitute a default under this agreement, the Note and Mortgage: Nonpayment of Money Owner's failure to pay on the due date thereof any required payment of principal or interest due under the Note or any other sums due under the Mortgage or this agreement. Breach of Condition Owner's violation or breach of any terms, condition, covenant, representation or warranty contained in this agreement, the Commitment, Note or Mortgage, or the existence of a material misrepresentation of any fact contained in the documents submitted in support of the Loan and the continuance of such condition for a period of ten (10) days after Lender has given notice thereof to Owner.

Transfer of Property

The sale, assignment, pledge, transfer, hypothecation, or other disposition of any proprietary or beneficial interest in Owner or the Property by the Owner without the prior written consent of Lender.

Impairment of the Property

The occurrence of any condition or situation which, in the sole determination of Lender, constitutes a danger to or impairment of the Property or repayment of the Loan and such condition or situation is not remedied within ten (10) days after written notice to Owner of such condition or situation.

Waiver by Lender of any breach or default by Owner under any terms of the Note, Mortgage or this agreement shall not be deemed to nor shall the same constitute a waiver of any subsequent breach or default on the part of Owner.

ARTICLE V. LENDER'S REMEDIES

Upon the occurrence of any event of default hereunder or under the Note or the Mortgage, Lender shall have the absolute right to refuse to disburse any funds hereunder, and Lender shall have the absolute right at its option and election and in its sole discretion to:

Possession

Take immediate possession of the Property as well as all other security for the Loan as is necessary to fully complete the Improvements as required hereunder and to do anything in its sole judgment to fulfill the obligations to Owner hereunder.

Acceleration

Accelerate the maturity of the Note and Mortgage and demand payment of the principal sums due thereunder with interest, advances, costs and attorney's fees, whether incurred at the trial or appellate level and enforce collection of such payment by foreclosure of the Mortgage or other appropriate action in a court of competent jurisdiction. Exercise Exercise any of the rights, privileges or remedies available to Lender under the Note or Mortgage, or as otherwise may be permitted by applicable law.

The remedies and rights of Lender hereunder and under the Note and Mortgage shall be cumulative and not actually exclusive. Lender may resort to any one or more or all of the remedies but not to the exclusion of any other remedies. No party, whether contractor, material man, subcontractor, or supplier shall have any interest in Loan funds withheld because of default, and shall have no right to garnish, require or compel payment thereof to be applied toward discharge or satisfaction of any claim or lien which such party may have for work performed or materials supplied for the development and construction of the Improvements.

ARTICLE VI. MISCELLANEOUS

Notice

All notices provided for herein shall be sent by certified or registered-return receipt requested mail addressed to the appropriate party at the address designated for such party in the preamble to this agreement, or such other address as the party who is to receive such notice may designate in writing. Notice shall be completed by depositing the same in a letter box or other means provided for the posting of mail addressed to the party with the proper amount of postage affixed thereto. Actual receipt of notice shall not be required to effect notice hereunder.

Governing Law

This agreement, the Note and the Mortgage shall be governed and construed in accordance with the laws of the State of Florida.

Modification and Waiver

No provision of this agreement, the Note or the Mortgage shall be amended, waived or modified except by an instrument in writing signed by the parties against who such amendment, waiver or modification is sought to be enforced.

Severability

The inapplicability or unenforceability of any provision of this agreement, the Note or Mortgage shall not limit or impair the operation or continued validity of any other provision of this agreement, the Note or Mortgage.

Assignability

Owner shall not assign this agreement or any part of any advance to be made hereunder or convey, encumber, mortgage, lease, in whole or in part, any portion of the Property without the prior written consent of Lender. The rights of Lender under this agreement are assignable by Lender in whole or in part without the consent of the Owner. This agreement is binding upon the heirs, personal representatives, successors and permitted assigns of Owner and Lender.

Expenses

Owner shall pay Lender the commitment fee, if any, Lender's architect, inspector and counsel fees incurred in connection with the closing of this Loan, the administration of the Loan, and the completion of Improvements, and will pay all costs and expenses required to satisfy the conditions of this agreement or incidental to the Loan, including, without limitation, all taxes, insurance premiums, recording expenses, stamp taxes, all brokerage fees, appraisal fees, survey costs and title insurance costs.

Beneficiaries

This agreement is an agreement only by and between Owner and Lender and for their benefit and the benefit of their successors and assigns permitted by this agreement. No other person or party, including any contractor that assents hereto, shall be a beneficiary hereof or have any rights hereunder, and no rights are conferred by this agreement upon any other person or party, whether or not their name may be used or otherwise identified in this agreement or in the Assent of Contractor below. IN WITNESS WHEREOF, Owner and Lender have executed this agreement on the date set forth above.

Witnesses:

Signed, sealed and delivered in the presence of:

As to Lender:

Witness:

Officer:

Witness:

As to Owner:

Witness:

Borrower:

Witness:

Co-Borrower:

As to Builder:

Witness:

Borrower:

Witness:

Borrower: