Construction Loan Agreement
Note: In any sample text from the Loan Agreement provided here, I, me and my refers to the borrower and you and yours refers to the lender.
Construction Project Information The SDC questions in this section will always appear for you to answer. The first question is optional, if you do not answer the first SDC question, text will not print in the heading regarding the Project Information. The construction project name that you enter into the first question below will print under the title “Construction Loan Agreement.” You must answer the second SDC question in this section or a date will not print at all. The date that the construction project will begin, which you enter into the question below will print under the Agreements section under the subheading of Construction. The following text will print for the second question in this section under the Construction heading: “I will cause the Project development, construction and equipping to begin on date construction will begin…”
Type the name assigned to this construction project or leave blank if no name was assigned.
Type the date when the project's construction will begin; for example, December 31, 19xx.
The SDC question in this section will always appear and you must answer it or you will not get a date to print in this section. Type the date of the permanent loan commitment. This text will print in the Commitment section. The following text will print if you are not doing a Construction Permanent Loan and you are doing a permanent loan commitment: “Commitment. The Commitment, includes your commitment to me or my assignor (if any) to
make the construction Loan, and the Permanent Lender’s tri-partite agreement, takeout commitment or other arrangement to extend a Permanent Loan and dated Commitment Date.” The following text will print if you are doing a Construction Permanent Loan: “Commitment. The Commitment, dated Commitment Date, is your commitment to extend a Permanent Loan to me or my assignor.”
Type the date of the permanent loan commitment; for example, December 31, 19xx.
The SDC question in this section will only appear for you to answer if you are doing a two phase Real Estate Loan with Permanent financing, you must answer this question or the date will not print. Type the date by which the borrower and owner must meet all of the necessary conditions to convert this into permanent financing. This text will print in the Conversion section. The following text will print: “Conversion. Conversion will occur when the Permanent Loan takes effect under the Commitment, which will occur when I complete the Project’s development, construction and equipping and I comply with all of this Commitment’s conditions precedent. Prior to this Conversion date, I will strive to fulfill all conditions for Conversion of the Loan into a Permanent Loan on or before Date To Fulfill Conversion Conditions.”
Type the date that the borrower and owner must meet all of the conditions necessary for converting the construction loan into a permanent loan; for example, December 31, 19xx.
The SDC questions in this section will always appear for you to answer. You must answer the questions in this section or the text will be missing information. Type the date the construction project will be complete. This text will print in the Definition section, under the subheading of Completion Date and it will also print in the Agreement section under the subheading of Construction. The following text will print in the completion date section if you are doing a consumer transaction: “Completion Date. The Project’s development and construction and the installation of all fixtures and equipment specified
under the Plans and Specifications will be fully completed on the Completion Date of Construction Completion Date.” If you are doing a non-consumer transaction the following text will print: “Completion Date. By the Project’s Completion Date of Construction Completion Date I will complete or cause to be completed: the Project’s development and construction; the installation of all fixtures and equipment that are required for the operation of the Property; and at your request for any or all leases, the tenants’ execution of letters of acceptance for possession of their leased premises.” The following text will print in the Construction section: “…and be fully completed no later than Construction Completion Date.”
Type the date when the construction project will be fully completed by the plans and specifications; for example, December 31, 19xx.
Title Insurance (Answer each question unless otherwise indicated.) The SDC questions in this section will always appear for you to answer. This section will print in the Construction Title Insurance Policy section. You can only answer one of the following two questions. If you choose an option from the drop down box, that is the text that will print in your document. If you choose to answer the second question and type in “other” insurance, that is the information that will print in your document. The following text will print after you’ve answered one of these questions: “Construction Title Insurance Policy. The Construction Title Insurance Policy is the Type Of Title Insurance form, revised to the most recent date, and any endorsements that you require.”
Choose the type of title insurance policy required for this loan.
ALTA Extended Coverage Loan Policy
Type a description of the "Other" Title Insurance when it is required for this loan.
If you check “true” for this SDC question, the following text will print in the Conditions Precedent To First Loan Disbursement section, under the heading of Title Insurance: “The Construction Title Insurance Policy will also provide a title policy endorsement or its equivalent prior to the initial loan disbursement to reflect the initial loan disbursement and increase the coverage in an amount acceptable to you. I will also furnish you with whatever you reasonably require to secure and protect your interests.”
Check "True" if you will require the title insurance to include a "bring down" endorsement stating that there are no mechanics or material liens filed through the date of each construction loan disbursement. True False
Other Insurance The SDC questions in this section will always appear for you to answer. These questions are optional. You can choose to answer all of the questions or any single question that applies. If you choose to answer any one of the questions in this section, the applicable text listed below will print in the correct order. This text will print in the Liability Insurance section. If you do not answer any of the questions listed below, the following text will print: “Liability Insurance. I will furnish certificates from the Project’s general contractor and subcontractors that evidence workers’ compensation insurance coverage as required by law and liability insurance, including contractual liability, for the course of the Project’s development, construction and equipment and that names you an additional insured.”
This section is for you to indicate the types and coverage amounts of insurance that you will require the borrower to cause to be furnished. The borrower will obtain certificates from the general contractor and subcontractors that evidences this insurance coverage and names you as an additional insured during construction. All questions in this section are optional.
This is the text that you are being asked to complete in questions A, B and C: "The liability insurance limits for death of or injury to persons will be $__A__ or more. The liability insurance limits for property damage will be $__B__ or more. Workers compensation insurance limits will be $__C__ or more. A. Type the minimum amount of liability insurance coverage for death or injury to persons.
B. Type the amount of minimum liability insurance coverage for property damage.
C. Type the minimum coverage amount required for workers compensation insurance.
Construction Property Information The SDC questions in this section will always appear for you to answer. These questions are optional. If you check “true” for the first question, you can skip the next two questions in this section. If you check “true” for the first question, you will not see any additional text in your document. If you check “false” for the first question, you have the option of answering the second question, however you must answer the third question in this section. If you do not answer the third question you will get an incomplete sentence stating: “The property owners are…” If you check “false” for the first question and answer the next 2 questions, the following text will print in the Property section: “Property includes all of the real property on which this Project will occur. Property description. The property owners are Property owners.”
Check "True" if the construction will occur on only ONE parcel of real estate and that real estate parcel secures the loan; otherwise, check "False." If you check "False," answer the following two questions; if you check "True," leave the next two questions blank. True False
If there is more then one parcel of real estate securing the transaction type the location and the description of the real property on which the construction project will occur. Or If the real estate on which the construction project will occur does not secure the loan type the location and the description of the real property on which the construction project will occur. For example, type "The Property is located in Dane County at 571 Park Lane, Madison, Wisconsin and is legally described as Lot 27, Block 10, Westmoreland Plat, Village of Westmoreland, County of Dane, State of Wisconsin."
Type the owners of the real property on which the construction project will occur when construction will occur on more than one parcel of real estate that secures the loan or will occur on real estate that does not secure the loan. For example, type "Tehan, Wrocklage & O'Neil, a Wisconsin limited partnership, and Lois Busby, a married individual".
The SDC question in this section will only appear for you to answer if you have Real Estate Collateral securing your transaction. If you check “true” for this SDC question, the mailing address that you entered into the application will print in the Property section. The following text will print if you check “true” for this question: “The Property is located in, Property County, County at, Property Address, Property City, Property State, Property Zip Code, and is legally described as: Legal Description Of Property.” If you check “false,” the mailing address will not print in the property section. The following text will print if you check “false” for this question: “The Property is located in, Property County, County and is legally described as: Legal Description of Property.”
Check "True" if a mailing address exists for the real estate securing the loan and on which construction will occur. True False
The two following SDC questions in this section will only appear for you to answer if you are doing a transaction in the Jurisdiction of Alaska. If you check “true” for the first question and type in the post office box in the second question, the following text will print in the Property section: “The Property is located in the Property County, Recording District, Judicial District Judicial District, Alaska, at Property Address, PO Address, Property City, Alaska, Property Zip Code, and is legally described as: Legal Description Of Property.”
Check "True" to include the post office box address. True False
Type the post office box address.
The SDC question in this section will only appear if you have Real Estate Collateral securing your transaction AND you are lending in the Jurisdiction of California. If you type a description in this box, the following text will print in the Site Improvements section: “Site Improvements. Site Improvements include any demolition or removal of existing improvements and vegetation, and physical development and improvement of the Property and adjoining real estate. Site Improvements that are planned for the Project include, but are not limited to: ….”
Type in a detailed description of the Project's planned physical development and site improvements, including those on adjoining real estate, that this Loan will help fund. Site improvements include, but are not limited to: drilling test holes; demolishing or removing improvements and vegetation; grading, filling and other excavating of any street highway or sidewalk on or adjoining the Property; constructing or installing public utilities; or constructing any areas, vaults, cellars, or rooms under the Property.
Existing Improvements (Answer each question unless otherwise indicated.) The SDC questions in this section will always appear for you to answer. This section will print in the Improvements section. If you check “true” for the first question and type in a description in the second question, the following text will print: “Improvements. Improvements include all existing physical development of the Property, all buildings or other structures on the Property and all of the Project’s future improvements and construction, except for any demolition as specified in the Plans and Specifications. Existing Improvements include, Description of Existing Improvements: ….” If you check “true” for the third question, the following text will print after the Description of Existing Improvements: “The Plans and Specifications call for the demolition of all or part of these existing Improvements.” If you check “false” for the first question, the following text will print: “Improvements. Improvements include all existing physical development of the Property, all buildings or other structures on the Property and all of the Project’s future improvements and construction, except for any demolition as specified in the Plans and Specifications.” If you check “false” for the third question in this section, you will not see any additional text in your document.
Check "True" if there are existing improvements on the property subject to the construction project. True False
Type a description of existing physical development, structures, buildings and other improvements on the property subject to the construction project.
Check "True" if the plans and specifications call for the demolishment of all or part of the existing improvements on the property subject to the construction project. True False
Architect and General Contractor Information (Answer each question unless otherwise indicated.) The SDC questions in this section will always appear for you to answer. These questions are optional. You can answer one or both of the questions in this section. This section will print in the Architect and General contractors section. If you answer the first question, the following text will print: “The Project’s general contractor is General Contractors Name.” If you answer the second question, the following text will print: “Your consulting architect is Consulting Architects Name.”
Type the full name of your consulting architect, professional engineer or other construction consultant who will periodically inspect the construction project's progress and quality for the sole purpose of protecting your interests or leave blank if unknown at this time.
Type the name of the construction project's general contractor.
Additional Conditions Precedent for Disbursement (Answer each question unless otherwise indicated.) The SDC questions in this section will always appear for you to answer. These questions are optional. If you answer the following questions, the text that you type for the first question will appear in the Conditions Precedent to First Loan Disbursement section under the heading of Additional Disbursement Condition. The text that you type for the second question will appear in the Conditions Precedent to All Loan Disbursements section under the heading of Additional Disbursement Condition.
The text that you type for the third question will appear in the Conditions Precedent to the Final Loan Disbursements section under the heading of Additional Disbursement Condition. The text that you type for the fourth question will appear in the Disbursement Loan Proceeds section under the heading of Additional Disbursement Term.
Type any additional conditions precedent for the first disbursement
Type any additional conditions precedent to making all disbursements.
Type any additional terms or conditions for the final disbursement.
Type any additional terms for the disbursement of loan proceeds.
The SDC question in this section will always appear for you to answer. This question is optional. If you check “true,” the following text will print: “Retainage. After providing for reserves and payments of Loan fees and expenses, you may limit the available Loan proceeds disbursed. You may do so by excluding the retainage amount required under the Construction Contract in an amount up
to 10 percent of the value of the materials and labor provided to date for the Project, excluding the Project general contractor’s profit and overhead. You may disburse the retainage attributable to each Construction Contract as the Project’s general contractor or subcontractors complete their respective Construction Contracts. You will disburse any remaining retainage in your final disbursement, subject to the terms and conditions of this Agreement.” If you check “false,” you will not get any text pertaining to Retainage to print in the Agreement.
Note: This next question relates to retainage. During construction, you may want the right to fund only a portion of the construction costs, such as 90-95 percent. You may hold back the remaining portion of the loan, called "retainage" until each Construction Contract is substantially completed or until you make the final disbursement. The Construction Loan Agreement provides for a retainage amount of up to 10 percent of the value of the materials and labor provided at the time of the disbursement, excluding the general contractor's profit and overhead. Some jurisdictions limit the retainage amount and the time it may be retained. Check "True" if you want this agreement to delay disbursing any retainage amounts. True False
Tenant Improvements (Answer each question unless otherwise indicated.) The SDC questions in this section will only appear if you have: 1. Real Estate collateral on the loan AND the transaction is Commercial purpose AND it is initial or improvement construction OR 2. If you have Real Estate collateral on the loan and it is a commitment for permanent financing. If you check “true” for the first two SDC questions in this section, the following text (or a variation of it) will print, depending on your loan characteristics: “UNDISBURSED LOAN PROCEEDS FOR TENANT IMPROVEMENTS. At Conversion, you will apply the remaining Loan reserves and proceeds that are allocated to the construction of the Project’s tenant Improvements to reduce the Promissory Note’s principal amount.” “DISBURSEMENTS FOR TENANT IMPROVEMENTS. From time to time, you (or the escrow agent) will advance to me Loan proceeds allocated to complete tenant Improvements after performance of the following conditions.”
“ESCROW AND DISBURSEMENT OF LOAN PROCEEDS FOR TENANT IMPROVEMENTS. At Conversion, you will disburse into an escrow account any remaining Loan proceeds allocated to the construction of the Project’s tenant Improvements. This final disbursement is conditioned on the Permanent Lender’s payment to you of the full amount disbursed under this Agreement, including this final disbursement for tenant Improvements.” If you check “true” for the third question, you do not need to answer the fourth question in this section. If you choose to type in the number of months in the fourth question you will not see additional text print in your document. If you check “true” for the third question, the following text will print: “You will be acting on behalf of Permanent Lender when you disburse into escrow this amount allocated to tenant Improvements. The escrow agent will be the Title Insurance Company or another person acceptable to Permanent Lender and I. These funds will be disbursed as agreed to between me and Permanent Lender.” If you check “false” for the third question, you must answer the fourth question in this section or you will be missing text in your document. If you check “false” for the third question and type in the number of months within which the escrowed funds must be disbursed, the following text will print: “The escrow agent will be the Title Insurance Company or another person acceptable to you and I. You periodically will authorize releasing these escrow funds under this Agreement’s terms and conditions, particularly those for disbursing Loan proceeds to construct tenant Improvements. If all the escrowed funds are not disbursed for the construction of the Project’s tenant Improvements within, Tenant Improvement Escrow Term Months, months after deposit into escrow, then the escrow agent will pay you the balance and you will apply this balance to the debts, liabilities and obligations that I owe you.”
Check "True" if the loan's reserves and proceeds allocated for tenant improvements will be paid by the permanent loan. True False
Check "True" if the loan's reserves and proceeds allocated for tenant improvements will be escrowed when the construction loan is converted into a permanent loan. The escrow agreement will govern the disbursement of the remaining funds for the construction of the project's remaining tenant improvements.
True
False
Check "True" if the permanent lender will serve as the principal of the escrow for any remaining tenant improvement disbursements. This final disbursement is conditioned on the permanent lender's payment to you of the full amount under this agreement, including this final disbursement for tenant improvements. True False
This is the text that you are being asked to complete in the following question: "If all the escrowed funds are not disbursed for the construction of the Project's Tenant Improvements within ____ months after deposit into escrow, then the escrow agent will pay you the balance and you will apply this balance to the debts, liabilities and obligations that I owe you." Type the number of months within which the escrowed funds must be disbursed for constructing the project's tenant improvements before being returned to you to apply to the debts borrower and owner owe you; for example, 9.
Certificate of Occupancy or Completion The SDC question in this section will always appear for you to answer. This question is optional. If you answer this question, the following text will print: “RESERVES AND DEPOSITS. You may set aside and reserve Loan proceeds for Loan interest, fees and expenses, taxes, insurance, unpaid Commitment fees and expenses and, if you request, the sum of $ Reserve Amount For Procuring Certificate Occupancy Completion, to ensure my procurement of a certificate of occupancy or completion or similar document.” If you do not answer this question, the following text will print in the Reserves and Deposits section: “You may set aside and reserve Loan proceeds for Loan Interest, fees and expenses, taxes and insurance.”
Type the amount you will reserve for securing a certificate of occupancy or completion or similar document at construction's completion from the applicable governing unit where the construction occurred; or leave blank if you will not hold a reserve.
Franchise The SDC questions in this section will always appear for you to answer. This section will print in the Warranties and Representations section, under the heading of Franchise. Check “true” if any party to the loan, other than you, has a franchise. If you check “true” for the first question, you must type in the franchise name in the second question or you will have an incomplete sentence in the Franchise section of your document. The following text will print if you answer true to the first question in this section and fill in the name of the franchise in the second question: “Franchise. I warrant that I have a franchise with Name Of Franchiser, this franchise is in full force and effect and no party has defaulted under its franchise agreement.” No text will print in your document regarding a franchise if you answer “false” to the first question in this section.
Check "True" if anyone who is a party to this document, other than you, has a franchise. True False
Type the name of the franchiser with whom the party has a franchise or leave blank if neither the borrower nor the owner has a franchise.
Equity Investment The SDC questions in this section will always appear for you to answer. This text will print in the Equity Investment section. If you check “true” for the first question and type the amount of the borrower’s equity investment to acquire and improve the real estate in the second question the following text will print: “Equity Investment. I have invested $Equity Investment Amount, to acquire and improve the Property and this investment is not subject to any secured or unsecured credit and is not required to be repaid.”
If you check “false” for the first question you will not get any text to print in the Agreement. The Equity Investment section will not print if you check “false” for the first question.
Check "True" if the borrower or owner has or will make an equity investment to acquire and improve the real estate under construction, this investment is not subject to any secured or unsecured credit and need not be repaid during the loan's term. True False
Type the amount of the borrower's equity investment to acquire and improve the real estate under construction or leave blank if neither the borrower nor the owner has or will make an equity investment.
Material Change Amounts The SDC questions in this section will always appear for you to answer. These questions are optional. The text printed below will print in the Change Order section and the Extras and Contract Changes section.
This section is for you to define any limitations you will place on the borrower with respect to "material" changes in change orders, extras and contract changes, and any notification requirement as to legal proceedings. Questions A, B and C are all OPTIONAL. Text in () will not print if you choose not to answer the related question. This is the text that you are being asked to complete in questions A and B: "The Plans and Specifications will not be materially changed until you give written approval of each material change. (A material change will amount to $__A__ or more.) I will obtain your prior written approval of any substantial extras or any material changes to any contract or subcontract with any contractor, subcontractor, supplier, architect or professional engineer. (Substantial extras will amount to $__B__ or more.) A. Type the amount of a material change to the construction project's plans and specifications at or above which requires your written approval before making this change.
B. Type the amount of substantial extras or material changes to contracts or subcontracts with any contractor, subcontractor, supplier, architect or professional engineer at or above which requires your prior written approval.
This is the text you are being asked to complete in question C: "I will promptly inform you in writing of any threatened or pending lawsuits, arbitration or other proceeding against me, the Project's architect, the general contractor or the Property (whose claim exceeds $__C__ or) that singly or together with other proceedings may adversely affect my ability to materially perform this Agreement, the Construction Contract or the leases required under the Loan." A. The borrower must report to you if any litigation, arbitration or other dispute resolution claim exceeds this dollar amount.
Additional Terms The SDC questions in this section will always appear for you to answer. You have the option to type additional terms into the following sections: Permanent Loan Provisions, Warranties and Representations, Agreements, Default, Remedies and Arbitration. The information that you type into these areas will print as the last letter in the section.
All of the items in this section are OPTIONAL. They are intended to provide you with the ability to add additional contract terms to the major sections of the loan agreement. We recommend that you consult your own attorney before you add any of these additional terms. Type any additional terms for the Permanent Loan Provisions section.
Type any additional Warranties and Representations.
Type any additional terms for the Agreements section.
Type any additional terms for the Default section.
Type any additional terms for the Remedies section.
Type any additional terms for the Arbitration section.
Other The SDC question in this section will only appear if you are lending in the Jurisdiction of Kansas under the General Interest Loan Act.
Does the loan to value ratio (LTV) exceed 100 percent for this loan?. Generally, the LTV is a fraction expressed as a percentage, the numerator of which is the aggregate unpaid principal balance of all loans secured by a mortgage encumbering the real estate and the denominator is the appraised value of the real estate. True False