Construction Lending: Negotiation and Documentation Issues
Construction Draws, Balancing, Retainage, Payment and Completion Guaranties, HVCRE ADC Equity Requirements
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Real Property - Finance
- event Date
Thursday, November 16, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will provide lender's counsel with guidance in negotiating and documenting construction loans, including provisions for making loan advances, budgeting and loan balancing, payment and completion guaranties, pre-leasing requirements, retainage, and project completion. The panel will also discuss due diligence practices and how construction loans can be documented to avoid HVCRE ADC classification.
Mr. Goldstein specializes in resolving complex business disputes for a diverse cross-section of clients, ranging from national banks to insureds, private money lenders, credit unions, individuals, loan servicers, landowners, pharmaceutical companies, vaping companies, equipment finance companies, brokers and investors. He is Co-Chair of the firm’s Mortgage Banking Group, a fellow of the American College of Mortgage Attorneys (ACMA) and a member of the ACMA Title Insurance Committee. Mr. Goldstein has an extensive legal background in state and federal courts across the country, which includes business litigation, real property related litigation, “private money,” title insurance claims and litigation (as well as CGL, D&O, etc.), escrow claims and litigation and misappropriation of trade secrets litigation. He also handles litigation involving wrongful foreclosure, lender liability defense, leases (commercial, residential and equipment), general contractors, receiverships and judicial foreclosures.
Mr. Hosack focuses his transactional practice on commercial real property loan documentation, loan workouts, REO sales and foreclosures. He represents secured lenders and property owners at trial and on appeal in complex real property disputes, including lender liability, fraud, class actions, breaches of contract, wrongful foreclosures, mechanic’s liens, stop notices, judicial foreclosures, receiverships, escrow claims and title insurance claims.
Mr. Weissmann has represented real estate developers, managers and lenders in a variety of transactions and operational matters for over 25 years. These transactions include construction and permanent financing, revolving credit facilities, loan workouts, foreclosures, condemnation matters and claims, zoning matters and real estate sales, acquisitions, development, construction and leasing.
La Mesa Fund Control & Escrow is a full-service escrow company located in La Mesa Cal. We are Licensed by the Department of Business Oversight and specialize in traditional as well as construction fund control escrows. Our unique platform allows us to deliver both types of escrows which gives us a distinct competitive advantage in the marketplace. Our clients consist of banks, private money lenders, real estate agents and brokers, construction companies, and insurance companies.
Construction loans are inherently more fraught with risk than standard property loans. Additional risks include design defects by architects and engineers, inaccurate budgeting, unanticipated costs and delays, misapplication of construction draws, contractor liens, labor and contract disputes, force majeure, and the failure of contractors and subcontractors to complete the project on time and under the lender's approved plans and specifications. Lender's counsel must negotiate and document construction loans that address these risks.
The volatile commercial real estate market has had a devastating economic impact on construction loans, resulting in a marked increase in the filing of complaints to foreclose mechanic's liens and stop notices and the need to convert properties from their original intended use to a more economically viable alternative. Construction loan documents must be drawn in anticipation of economic stress, the possible need to materially change the planned improvements, and possible mechanic's lien and stop notice litigation.
Construction loan documents should provide detailed conditions for making loan advances, budgeting and loan balancing, payment and completion guaranties, pre-leasing requirements, retainage of funds pending project completion, and more. Due diligence is essential to the construction loan process because plans and specs, budgets, and construction schedules will loom large in the construction loan agreement.
Payment and completion guaranties are critical components of a construction loan agreement. The borrower will heavily negotiate regarding the limitation of liability, calculation of damages, and other matters. Lenders will also be concerned with the treatment of the construction loan as an HVCRE ADC asset. If possible, they will want to document that the borrower has met the equity funding requirements for exemption from HVCRE ADC treatment.
Listen as our authoritative panel examines the foregoing issues as they relate to structuring and documenting construction loans.
- Parties involved in a construction loan
- Construction loan risks
- Due diligence
- Construction loan documents
- Other crucial issues
The panel will review these and other critical issues:
- What additional risks and concerns arise in construction lending as opposed to standard commercial property loans?
- What are the contentious provisions in construction loan documents and the points of negotiation?
- How do plans and specs, budgeting, and retainage figure into the loan funding process?
- How do payment and completion guaranties address construction risks, and how do they vary?
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