Building

THE TITLE COMPANY, BUILDER, LENDER, & YOUR NEW HOME
A BEHIND THE SCENES LOOK AT A CONSTRUCTION ESCROW
During the construction period, your lender, builder and Knight Barry Title work closely together toward the goal of a brand-new home with a brand-new mortgage. The lender hires Knight Barry Title to disburse the loan funds to the people who are doing the work in exchange for a legal waiver of lien rights.   
 
Before construction begins, Knight Barry Title is tasked with helping to pay the loan funds needed to complete your home. But instead of paying all of those funds to the builder at the closing, those funds are paid out periodically, as needed. These periodic payments, called draws, are a series of checkpoints to monitor the construction progress. 
 
Before the first draw, your builder gives Knight Barry Title a cost breakdown/budget of the project – sort of a road map for Knight Barry Title to follow. The cost of the work is listed by categories, such as excavation, plumbing, carpentry and electrical. Each subcontractor and supplier are listed; along with the associated budgeted amount. 
 
Several times during construction, your builder will ask your permission to request funds (draw request) from the lender, to be paid through Knight Barry Title’s escrow account for work completed to that point. Knight Barry Title, an inspector or the lender conducts an inspection of your new home to determine if the work shown on the draw request has been substantially completed.  You or your architect should also inspect the home before approving each draw to make sure that it is being built to your satisfaction.   
Contractors and suppliers have a legal right to file a lien against the property if not paid for their work and materials. When loan funds are used to pay the amounts specified in the draw request, Knight Barry Title collects lien waivers from the appropriate contractors and suppliers if required by the escrow agreement. By giving the lien waiver, the contractor gives up the right to file a lien against the home for the work shown on the waiver.   
 
When the project is completed, the general contractor gives Knight Barry Title an Affidavit of Completion and, if required by the escrow agreement, final lien waivers from subcontractors and suppliers. In many communities, an occupancy permit is issued by the local building authority, which allows you to move in and begin decorating. 
 
NOTE: This article may be re-printed with permission only. Lenders are encouraged to distribute this to homeowners during the construction process.