Guidelines & instructions for construction draws
A lender, with the help of the title company, coordinates construction draws to be taken by the homeowner or builder. The title company reviews sworn statements, waivers of lien, and checks the chain of title; then gives an endorsement to the lender. The builder looks for quick turnaround time, cash flow is the name of the game when working in new construction.
THE DRAW PROCEDURE
- A signed and notarized sworn statement must accompany each draw request, as well as, proper waiver forms for each requested item to be funded, the Owner/Designee Affidavit, and Construction Disbursement Authorization.
- We will accept Full and Partial Unconditional and Conditional Waivers of Lien.
- In some cases Waivers can be turned in after the Draw request. Those Waivers must be turned in prior to the next Draw request.
- Most lenders will only advance for items 100% complete at the time of the inspection.
- Lenders will not advance funds for deposits and do not reimburse for deposits until items are actually installed in the house.
- The original Sworn Statement must go to the title company and a copy to the lender and Owner/Designee so they can do an inspection.
- A lender’s title insurance policy insures the lien of a mortgage recorded against the property. Claims of construction lien can upset the priority of the mortgage lien. Lenders, therefore, require title insurance for the total amount of money the lender has disbursed in draws. After Cislo Title Company has reviewed and approved the Sworn Statement and Waivers and has determined the amount they are willing to insure, they will issue an Endorsement Letter to the lender based on the bank’s inspection for the amount to be disbursed. This letter endorses the policy so that the lender is insured to the extent of the amount of the loan disbursed.
- Lenders cannot pay the sub-contractor/supplier for items purchased but not yet installed because they generally require a “secured loan”. This means the loan is secured by the property (i.e., land and house). When materials are not attached to the house, they are still considered personal property and not real estate, therefore providing no additional value to the real estate.
- IF A BUILDER’S RISK INSURANCE POLICY AND COPY OF A PAID RECEIPT was not required at closing, you should provide a policy and copy of a paid receipt to the lender prior to requesting the first Draw.
Download the Guidelines and Instructions for Construction Draws