Capital is hard to come by in today’s constrained credit market. This is encouraging parties to grab a share of the construction loan proceeds as quickly as possible, leaving less money for construction and compromising the positions of those parties downstream. Two recent cases illustrate this phenomenon.
A California lender wrote a construction loan agreement in a manner which reserved the right to take interest and fees out of the loan proceeds. The bank promptly took more than $1.6 million in interest and fees out of the loan proceeds and then disbursed the balance to the property developer over a period of time. When an unpaid contractor served the bank with a stop notice – a lien on the construction loan proceeds – the bank responded that there were no more proceeds.
A Texas developer created an “architectural firm” even though the developer was not a licensed architect. The developer then paid his firm over $881,000 in design fees from a construction loan insured by the federal government. The drawings proved to be useless and the project was not constructed.
Have you seen situations where parties have crashed the line and taken construction loan proceeds on the front end? What are the ramifications of these practices? As always, I welcome your comments.
Featured in Next Week’s Construction Claims Advisor:
- “Good Faith Dispute” Determined Objectively under Prompt Payment Statute
- Contractor May Have Received Delay Damages Prohibited by Disclaimer
- Court Distinguishes Direct and Consequential Damages
The Navy has adopted a policy of building to the Leadership in Energy and Environmental Design (LEED) Gold standard for new construction. Navy Secretary Ray Mabus announced the new policy at the U.S. Green Building Council’s annual Government Summit May 10 in Washington, D.C.
Beginning in fiscal 2013, LEED Gold will be required for every new Navy and Marine Corp. military construction project, Mabus said. For every new building that is going to bid in fiscal 2011 and FY’12, the department will require a LEED Gold option package whereby “if we can get it in in the contract price and it doesn’t involve a significant delay, we will execute the LEED Gold option as part of the normal design and construction process,” he noted.
Autodesk Inc. earlier this month announced an app for iPhone and iPad that provides Buzzsaw collaboration software users with “more secure, remote access and exchange of building project information.” Buzzaw Mobile enables users to view DWF files and standard office documents and images as well as upload project photos to a designated Buzzsaw project site.
“With support for mobile viewing of DWF files, one of the most widely used design exchange formats, Buzzsaw Mobile app users can collaborate across teams,” Autodesk stated. “When used in conjunction with the AutoCAD WS mobile app, iPad and iPhone users can view and edit AutoCAD DWG and DXF files and save the changes to a Buzzsaw project site directly from AutoCAD WS. Buzzsaw Mobile is considered a key component of the Autodesk BIM 360 (building information modelling) strategy for collaboration and data management for the architecture, engineering, and construction (AEC) industries.