Construction Mortgage & Financing Law Firm In Calgary, Alberta
Whether it is a new construction mortgage when you buy a piece of property or the refinancing for a construction mortgage of your existing property, the construction mortgage lawyers at Kahane Law Office in Calgary, Alberta can help. There types of mortgages are a little different than regular mortgages. It is important to have a law firm that understands construction mortgages and construction financing so that your project runs on time. Call today to learn more 403-225-8810.
What is a Construction Mortgage?
A construction mortgage is exactly as it sounds. It is lender construction financing that is secured against property with a mortgage for the purpose of construction. Like any mortgage, a construction mortgage is secured against the property by registering the construction mortgage at the land tittles office. Learn more with our video on mortgages for construction in Alberta.
Types of Construction Financing
There are two basic types of construction mortgages and construction financing. First, there are construction mortgages that fund completely on the first draw. A draw is when funds are actually advanced to the borrower. In these situations, the construction project is usually mostly completed. The second, and more common, construction mortgage is one that is funded in stages. The number and timing of these staged draws vary from mortgage to mortgage. Construction mortgage lawyers can help you to understand the differences. As a general guideline the mortgage draws will fund in stages at the following stages of construction:
- purchase of the land
- when the foundation is completed
- at the lock up stage (when framing is complete and the doors/windows are on: thus the building can be locked up)
- After the drywall is completed
- When the property is finished / Occupancy permit is issued.
How Draws Work With Construction Mortgages
Your construction mortgage lawyer will receive mortgage instructions from your mortgage lender. These instructions will details not only the stages that the draws will be funded but also the terms on how they will fund. There are several ways that lenders will determine if a draw stage is completed prior to funding. These methods are dictated by the lender and your lawyer cannot change them. It is a very good idea to negotiate these with your lender. Depending on the type of construction being done on the property, there may be little negotiation room. Some draw funding determination processes are:
- On presentation of receipts for construction/ renovations to the property. At this stage the borrower gets paid back;
- On presentation of the contractor invoice to the construction mortgage lawyer. At this stage the contractor will be paid directly by the construction mortgage lawyer.
- On inspection of the property by an appraiser. The appraiser will the notify the lender directly and the lender will then fund money to the construction mortgage lawyer who will transfer the funds to the borrower.
Why this Process of Draws is Used in Construction Mortgages?
Lenders want to make sure that they have equity in property. By paying a borrower back for work, at stages, done to the property, the lender can be sure that the value of the property is increasing prior to funding. This means that their security in the property remains at a certain percentage to loan ratio. These ratios are often dictated by policy, some set by CMHC policy, for construction financing. Again, this is not dealt with by the construction mortgage lawyer but in negotiations in advance with the lender or your mortgage broker.
Builders’ Liens and Construction Mortgages
As construction mortgages are used for construction on a property, builders’ liens may result. There is an absolute requirement for 10% to be held back from each draw for 45 days. This 45 day period is the lien period set out by statute. Your construction mortgage lawyer will hold these funds and release them to you after the expiration of 45 days. Learn more about builders’ liens here. Lenders need to protect themselves and will not usually accept a declaration from the borrower that all the trades have been paid in full. This is because, a borrower will not be aware if any sub-trades have been paid by someone paid by the borrower. With construction financing, a lender is always concerned about unpaid trades.
Construction Mortgage Lawyers in Calgary
If you are building a new home, commercial project or are refinancing to start a construction project, the construction mortgage lawyers at Kahane Law Office can help in Calgary. Contact our experienced team today to see how we can help in your construction financing situation. We are located in Calgary, Alberta. Call toll-free at 1-877-225-8817 (403-225-8810 locally), or email us directly here.