Policies & Procedures CRE Post-Close

Commercial Real Estate Construction

Post-Close Policies & Procedures

 

About This Document

This document, in conjunction with the order form, contains the Client’s policies and procedures for post-closing loan administration for construction and renovation loans. Updates to these policies and procedures may occur to reflect program changes, regulatory issues, and industry best practices. Client’s ‘Loan Program Point of Contact’ designated on the order form will be notified of updates and changes when they occur. Please note that this policies and procedures document is specific to CRE Construction and Renovation projects.

Initial File Set-Up Process

Company will review the client-provided data file and documents for acceptability. If issues are found, Company will place the request On Hold and alert the Client. Servicing is not included in the scope of Company’s responsibilities. Client is responsible for all servicing-related actions.

Company will provide:

  1. Online credentials to the Borrower
  2. Online credentials to the General Contractor
  3. Welcome message and information to Borrower
  4. Welcome message and information to General Contractor
  5. Balanced budget with restricted visibility to General Contractor that presents only items under contract between the borrower and General Contractor

Required Documents

  • Construction Loan Agreement between Client and Borrower
  • Construction Underwriting Worksheet from Client (Showing Funding Sources to cover the total project costs)
  • Construction Contract between Borrower and General Contractor
  • General Contractor’s Construction Budget and/or Borrowers total cost breakdown
  • Sworn Statement for Contractor or Subcontractor (blank or completed to date)
  • Architectural Exhibits (Plans & Specifications)
  • General Contractor’s Documents
    1. Contractor Profile Information or review application
    2. Liability Insurance
    3. Worker’s Compensation
    4. State General General Contractor License
    5. W9
  • General Contractor’s Risk (Course of Construction) Insurance if available prior to close
  • Building Permits if available prior to close

Construction Contract Review

Company will review the construction contract and the loan agreement for the following provisions to establish the practices of the loan:

  1. Acceptable draw forms and if exclusive use of AIA forms are required.
    • If AIA forms are required, digital workflows will be adjusted to remove the detailed draw request forms programmed to the Client’s account, with the only option for borrowers and General Contractors to use is the ‘Upload Documents’ draw request option.
  2. Retainage requirements will be mapped into the loan fields to auto calculate.
  3. Construction contract expiration date (if applicable)

User Setup

To reduce errors on overfunding and to streamline the draw process, the Company will provide loan access to borrowers and General Contractors to securely communicate, exchange information, and manage from the Client’s budget of record. Company will review the General Contractor contract and remove non-contract related items such as borrower reserve line items for contingency and interest reserve accounts, along with any line items that are outside the General Contractor’s contract. All draws and change orders must be submitted through the user’s account and reconciled against the budget of record. General Contractors will submit draws through their online account and Company will design workflows to allow General Contractors to submit draws based on:

  1. A detailed draw request
  2. Document Uploads of AIA documents

First Draw (Non-Deposit)

Company will provide the following items for approved first draws:

  1. All deposits shall be netted from the draw.
  2. Executed Draw Request Form by General Contractor and Borrower
    • AIA g702 and g703 are acceptable forms; or
    • Client’s Draw Request form programmed into the Land Gorilla system
  3. Conditional Lien Waiver from the General Contractor
  4. Lien Waivers and invoices reconciled from the ‘Sworn Statement of Contractors and Subcontractors’
  5. Land Gorilla On-Site Progress Inspection Report demonstrating work in place. Billed to Client unless prepaid to Land Gorilla from the loan closing.
  6. Building Permits.
  7. Change Orders (If Applicable), reconciled against the total contract amount with any overages accepted by Client with a determination of the funding source.
  8. Mechanic’s Lien Insurance Endorsement demonstrating the Client’s first-lien priority with no mechanic’s or tax liens. Billed to Client unless prepaid from closing, or, when included within a line item of the budget, processed as a separate draw.
  9. Copy of any State Statute Documents as referenced within Company’s loan-level Resources.
  10. Copy of General Contractor’s Risk (course of construction) Insurance If not already provided.
    • General Contractor’s risk coverage shall be the lesser of the construction contract or the loan amount.
  11. Confirmation of foundations of structures are within the boundaries of the land, the location does not encroach upon easements, and that the location does not violate particular Covenants, Conditions, or Restrictions as either certified by land surveyor or title service provider. The below options may be used to demonstrate this requirement:
    • Foundation Survey Certified to the Client, borrower and title company; or
    • Foundation endorsement designation from the title provider.

Closing Draw (Builder’s ‘Up Front’ Deposits For Construction Contract)

Deposit draws should be disbursed directly to the Builder from closing and reflected properly on the final CD. In instances where the deposit was not disbursed, the discovering party will inform the other party of the situation and steps to resolve. Company will then provide the following items to the Client to process the deposit draw.

  1. Executed Draw Request Form by Builder and Borrower
  2. Conditional Lien Waiver from Builder
  3. Hold Harmless & Indemnification Agreement

First Draw (Non-Deposit)

Company will provide the following items for approved first draws:

  1. Executed Draw Request Form by Builder and Borrower. All deposits shall be netted from the draw.
  2. Land Gorilla On-Site Progress Inspection Report demonstrating work in place. Billed to Client unless prepaid to Land Gorilla from the loan closing.
  3. Building Permits.
  4. Change Orders (If Applicable).
  5. Conditional Lien Waiver from Builder and any parties that provided pre-lien notifications.
  6. Mechanic’s Lien Insurance Endorsement demonstrating the Client’s first lien priority with no mechanic’s or tax liens. Billed to Client unless prepaid from closing, or, when included within a line item of the budget, processed as a separate draw.
  7. Copy of any State Statute Documents as referenced within Company’s loan-level Resources.
  8. Copy of Builder’s Risk (course of construction) Insurance If not already provided.
    • Builder’s risk coverage shall be the lesser of the construction contract or the loan amount.
  9. Confirmation of foundations of structures are within the boundaries of the land, the location does not encroach upon easements, and that the location does not violate particular Covenants, Conditions, or Restrictions as either certified by land surveyor or title service provider. The below options may be used to demonstrate this requirement:
    • Foundation Survey Certified to the Client, borrower and title company; or
    • Foundation endorsement CLTA Form 102.5-6 designation from the title provider.
  10. Local authority approval of an acceptable well-water test when appraisal report indicates a well is the property’s primary water source. Conditions must be satisfied before or during the first draw to demonstrate availability of safe drinking water to the property.
  11. Flood Insurance when the appraisal indicates the property is located in a flood zone designated by SFHAs.

Interim Draws

Company will provide the following items for interim draws:

  1. Any outstanding items from deposit draws, first draw, or previous interim draws that were deferred to a later date.
  2. Executed Draw Request Form by General Contractor and Borrower
    • AIA g702 and g703 are acceptable forms; or
    • Client’s Draw Request form programmed into the Land Gorilla system
  3. Conditional Lien Waiver from the General Contractor
  4. Lien Waivers and invoices reconciled from the ‘Sworn Statement of Contractors and Subcontractors’
  5. Land Gorilla On-Site Progress Inspection Report demonstrating work in place. Billed to Client unless prepaid from closing or when included within a line item of the budget shall be processed as a separate draw.
  6. Mechanic’s Lien Insurance Endorsement demonstrating the Client’s first-lien priority with no mechanics or tax liens. Billed to Client unless prepaid from closing or when included within a line item of the budget shall be processed as a separate draw.
  7. Change Orders (If Applicable), reconciled against the total contract amount with any overages accepted by Client with a determination of the funding source.
  8. Copy of any State Statute Documents.

Final Draw

Company will provide the following items for the final draw:

  1. Any outstanding items from deposit draws, first draw, or previous interim draws that were deferred to a later date.
  2. Executed Draw Request Form by General Contractor and Borrower
    • AIA g702 and g703 are acceptable forms; or
    • Client’s Draw Request form programmed into the Land Gorilla system
  3. Conditional Lien Waiver from the General Contractor
  4. Lien Waivers and invoices reconciled from the ‘Sworn Statement of Contractors and Subcontractors’
  5. Land Gorilla On-Site Progress Inspection Report demonstrating work in place. Billed to Client unless prepaid from closing or when included within a line item of the budget shall be processed as a separate draw.
  6. Final Title Endorsement demonstrating the Client’s first lien priority with no mechanics or tax liens. Additional requirements from title may be required to obtain the Final Title Endorsement such as surveys, affidavits, and/or recorded documents. Company to coordinate these requested items with the borrower and General Contractor.
  7. Copy of any State Statute Required Documents.
  8. ‘Borrower Letter of Completion’ stating that the improvements have been completed to satisfaction. This document will be provided by a Land Gorilla team member and must be signed.
  9. ‘Final Contractor’s Affidavit and Release of Lien’ documents stating exceptions to the final payment. This document will be provided by a Land Gorilla team member and need to be notarized.
  10. Certificate of occupancy or equivalent by the local jurisdiction.
  11. Final As-Built Survey
  12. Final Permit card (if not included with Certificate of Occupancy)

General Contractor Transitions

Progress Approval

Company will approve the draw request when work in place is evidenced by the following:

Cost Type Evidence Examples Allowable Limit
Hard Costs (aka Direct Costs) Inspection report demonstrating work in place Foundation, framing, drywall, roofing, landscaping Up to the amount of the work in place as it equates to the applicable line item of the budget. Must include appropriate lien waiver
Hard Costs (Materials Securely Stored Progress inspection report shows that the materials are securely stored on site. Items stored OFF SITE are not acceptable.
  • Appliances that have been securely stored at the job site
  • Roofing materials stored on the roof of a structure.
  • Tile stored in the enclosed/locked structure
May not exceed supplier invoice. Must include appropriate lien waiver
Soft Costs (aka Indirect Costs) Paid invoice for service Architectural exhibits, permits, 3rd party inspections, ect. Up to the amount paid on the invoice. Must include appropriate lien waiver
Soft Costs (Operational) As requested by the General Contractor via a draw request Profit, Overhead, Supervision, port-a-potty, Operational Expenses As stated in the construction contract, if the construction contract is silent, this value may not exceed the aggregated hard cost completion percentage as demonstrated by the most recent inspection

Lien Waiver Control

Company will require lien waivers and invoices (if applicable) from the General Contractor and all parties that appear on the ‘Sworn Statement for Contractor or Subcontractor’. The waivers shall be provided by the General Contractor and be reconciled to the amounts stated under the statement. Lien waivers shall be on the appropriate state form. Unconditional or Conditional waivers shall be acceptable as applicable, with final waivers collected upon final payment.

The ‘Sworn Statement for Contractor or Subcontractor’ or equivalent document should contain a table that lists the contractors and suppliers on the job and include the following information:

  1. scope of work they are providing
  2. contract price for the project
  3. total amount due to date
  4. amount previously paid to them
  5. amount owing at this time
  6. balance on their contract

The submission of the ‘Sworn Statement for Contractor or Subcontractor’ must include the appropriate lien waivers.

Change Orders

Company will review all change orders for acceptance on behalf of the Client using industry best practices to help ensure that the Borrower will have enough funds to complete the project, project stakeholders agree on the change, and the change order document is properly executed. Company will provide notice and involve the Client in all instances change orders are provided. Use of AIA change order form will be used if contract requires its exclusive use.

Title Endorsements

Not to be confused with Title Updates which are not a form of title insurance. “Mechanics Lien Endorsements” and “Date Down Endorsements” provide coverage against loss for lack of priority of the lien of the Insured Mortgage over liens found on the original title policy or the actual endorsement. Company will request a title endorsement at the time of each draw request through the original title service provider. Title companies, abstracts and attorneys have different processes to request endorsements and the experience level will vary by title service provider.

The California Land Title Association has corresponding endorsements similar to the American Land Title Association (ALTA) but have different corresponding numbers. The following matrix can be used to reference which endorsements correspond with each other. Unless specifically addressed in the Clients Order form the Company may request either types of endorsements.

Endorsement Type American Land Title Association (ALTA) California Land Title Association (CLTA)
Series Of Construction Loan Endorsements Issued at start of loan 32-06, 32.1-06, or 32.2-06 group (the “ALTA 32 Series”) CLTA 137-06, 137.1-106, or 137.2-06 group (the “CLTA Series”)
Mechanics Lien Endorsement 33-06 138-06
Date Down Endorsement 10.1-06 104.13-06

Company will review exceptions on each endorsement. These exceptions are at the determination of the endorsement issuer (service provider) and may void the protection of the Client’s lien priority if not reviewed cautiously. Company will present all restrictions to Client that may impact lien priority.

In the event that a service provider is unresponsive or time to produce endorsement exceeds 2 business days from date of initial request, Company will post a complaint against the service provider, notify the borrower and General Contractor regarding the delays, and collaborate with Client on next steps. After a period of 5 business days, Company will contact Client to review the impact of delays and collaborate on a strategy to help resolve the service issues related to the service provider.

Dispute Resolution

Company will direct the Borrower and General Contractor towards any contractual obligations such as the Construction Contract, Borrower’s Loan Agreement, and General Contractor’s Acknowledgement to the Construction Loan Agreement to resolve the dispute. Company will attempt to keep the disputing parties communicating by setting ‘next steps’ to facilitate resolution of the dispute and keep the client updated. Company’s involvement in disputes is limited to facilitating communication between the Borrower and General Contractor and documenting next steps expected by the involved parties. Company will not be expected to serve as a mediator or participate in legal matters regarding the dispute. Disputes arising between the Borrower and their General Contractor shall be marked as a complaint to notify the Client.

General Contractor Transitions

Occasionally General Contractors are not able to complete the project due to a variety of circumstances. In the event that the Borrower’s General Contractor can not proceed with work, either by right of the Borrower or decision by the General Contractor, Company will work with the Borrower to transition the current General Contractor and assist the Borrower regarding next steps in acceptability of a new General Contractor. Company will collect the new General Contractor package and submit to Client for a New General Contractor review. Company will update the Contact’s status to reflect any negative impact caused by the contact to provide visibility of the acceptance status.

Disbursement Methods

Company will be responsible for collecting the payment instructions from the payee and storing them within the Construction Loan Manager. ACH, Wire and Check will be considered acceptable disbursement methods unless stated within the Order Form.

File Closeout

Client will be responsible for all modifications, takeouts, conversions, payoffs and/or paydown processes related to the loan. Company will process the final draw disbursement and notify the Client in the process that this will be considered the final draw. Client will be responsible for all financing related transactions regarding payoff, takeouts, conversions, modifications or other transactions.

Loan Term Extensions

The Company will monitor the loan term in relationship to project progress. Client will be solely responsible for managing the loan term and any extensions needed with the Borrower. Company will notify client when the loan term has expired for a draw in process when presenting the draw for funding.

Client Responsibilities

Client will be responsible for the following:

  1. Submit all orders for services through the API or online order submission and provide all documents required to provide loan administration service.
  2. Verify that the Construction Loan Manager software loan balances match the Client’s holdback at the following events:
    • Loan onboarding
    • Each draw disbursement
    • File closeout
  3. Manage Loan Term and Extensions.
  4. Respond to issues and complaints in a timely manner.
  5. Serve as point of contact for disbursement payment tracking and mortgage related inquiries.
  6. Notify Company of any State notices received regarding liens and pre-liens filed.
  7. Activate servicing of the loan and manage any servicing-related configurations, managing relevant transactions pertaining to the loan, and reviewing statements as applicable.
  8. Assume management of loans that have a risk level of 4, as determined by the Company.
  9. Process all disbursements within 1 business day of receiving funding advice from Company.
  10. Perform any document retention actions at file closeout.
  11. Perform all aspects of the conversion, takeout, modification, payoff and default processes to the mortgage.
  12. Move loan from Active loan status to Completed loan status.
  13. Clearly communicate these policies and procedures to Borrowers, General Contractors, and Client employees. Field all inquiries from Client’s employees and Clients vendors.
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