Explanations

For a construction loan, the final payment to the borrower is typically released once the lien period has expired. This practice is crucial for lenders to mitigate the risk associated with mechanic’s liens. A mechanic’s lien can be filed by unpaid contractors, subcontractors, laborers, or material suppliers who have worked on the property. If such a lien were filed and enforced, it could potentially take priority over the construction loan, even if the loan was filed earlier, depending on the start date of the work.

Therefore, to ensure that no mechanic’s liens will be placed on the property, the lender will wait until the period for filing these liens has passed. While the work being completed (D), the owner accepting the property (B), or a Notice of Completion being filed (C) are important milestones, the expiration of the lien period (A) is the critical step for the final release of funds from a lender’s perspective to protect their security interest. Filing a Notice of Completion (C) can shorten the time frame within which contractors and subcontractors can file their liens, making the lien period expire sooner.

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