Question

Under a construction loan, the final payment to the borrower is generally released when the:

Selections

A. Lien period has expired

B. Owner has accepted the property

C. Notice of Completion has been filed

D. Work has been completed 

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Answer: A

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5 Keys Summary

• Under a construction loan (or interim loan), the final payment to the borrower is generally released when the Lien period has expired.

• Lenders release the final payment only after the lien period expires to mitigate the risk posed by Mechanic’s Liens.

• A Mechanic’s Lien can be filed by unpaid contractors, subcontractors, or material suppliers and could take priority over the construction loan.

• The filing of a Notice of Completion by the owner can shorten the statutory timeframe (lien period) for these claimants to file their liens.

• 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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