Underwriting a Construction Loan

Construction loans include a very unique set of conditions requiring special attention when issuing a title policy. The loans are normally for the specific purpose of constructing improvements upon real property and are usually of a very limited length of time.

One of the many reasons, a construction loan is unique from a title perspective, is that it will include disbursements after closing.  A title policy is effective as of the date of recording, and matters occurring after that date are typically not covered by the policy.  Additionally, a property will normally increase in value with each disbursement.

The lender and counsel must structure and document the loan in accordance with state law to ensure the priority of those advances made post-closing and obtain title insurance which ensures the priority of those advances and provides increasing coverage for each advance. Lender and counsel must also be aware of the possibility of mechanic’s lien risks with a construction loan.

Below, I have provided a short list of items we will request in Nevada at the beginning of a transaction that involves a construction loan.  We will present the items as received to the underwriter and may request additional items or forms based on specific transaction details.

1. Site Plan
2. Draft Construction Loan Agreement
3. Appraisal
4. Project Budget
5. Borrower Sources and Uses
6. General Contractor Construction Agreement
7. Borrower Financial statements
8. Copies of current payment applications and lien waivers to date

Shoot me an email at michele@seiboldgroup.com if we can answer any questions you may have.