Question
nnnnUnder a construction loan, the final payment to the borrower is generally released when the:
nnnnSelections
nnnnA. Lien period has expired
nnnnB. Owner has accepted the property
nnnnC. Notice of Completion has been filed
nnnnD. Work has been completed
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Answer: A
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5 Keys Summary
nnnn• Under a construction loan (or interim loan), the final payment to the borrower is generally released when the Lien period has expired.
nnnn• Lenders release the final payment only after the lien period expires to mitigate the risk posed by Mechanic’s Liens.
nnnn• A Mechanic’s Lien can be filed by unpaid contractors, subcontractors, or material suppliers and could take priority over the construction loan.
nnnn• The filing of a Notice of Completion by the owner can shorten the statutory timeframe (lien period) for these claimants to file their liens.
nnnn• By waiting for the lien period to expire, the lender protects their security interest and ensures their loan remains in the desired priority position.
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