Brian Mingham Provides a Breakdown of Construction Loan Management
Construction loan management is a far more robust discipline than its name might suggest, encompassing everything from the assessment of a construction project’s feasibility and risk before its inception, to the complete management of the loan itself during the construction process.
By utilizing construction loan management firms, home buyers and lenders alike benefit from the expertise they bring to a highly complex and regulated field. They oversee and manage the entire process, ensuring that construction projects stay on budget, are completed on time, and are free of mechanic’s liens that could result from payments not being made according to CFSI Loan Management Founder and CEO Brian Mingham.
Let’s take a more detailed look at each of the services that typically fall under the umbrella of construction loan management.
Contractor Profile Reviews
The most important aspect of residential and commercial construction is the choice of general contractor. The construction loan management process should contain a comprehensive review of contractors that thoroughly examines and validates the following elements:
· their experience and references (from the perspective of both clients and suppliers)
· their licenses
· the scope of past projects they’ve completed and their applicability to the current project
· their credit report and accounts with suppliers
· a criminal background check
· the number of ongoing projects they’re currently involved in
Brian Mingham adds that contractors’ license and insurance expiration dates should also be tracked throughout the construction process.
Project Feasibility Reports
Assessing the financial and overall viability of a project should be a vital step before it’s given the green light by lenders. Such a report includes validating the scope of the work and reviewing the budget, plans, and permits to identify any weaknesses or potential issues.
Having extremely detailed plans is a must according to CFSI’s Brian Mingham, ensuring that every single aspect of the construction is well documented and won’t be made with unwanted or inferior parts.
Thus, rather than a lump sum budget for an entire kitchen, each individual component of the kitchen (e.g. cabinets, countertops, plumbing, fixtures, electrical, flooring, appliances) should be accounted for individually, right down to their type, color, style, and brand.
Draw management entails assessing the completion of work on a line by line basis and ensuring that it complies with the project’s budget and cost breakdown. Documentation is also collected before contractors are paid, including invoices and lien releases, the latter of which proves that everyone with lien rights on the construction has been paid for their services.
As Brian Mingham points out, unpaid subcontractors or suppliers can file mechanic’s liens against the property, regardless of whether the contractor itself was paid. This can severely impact the property owner’s credit score for up to seven years, even if the lien is subsequently paid.
Lastly are property inspections, which Brian Mingham says should entail examining the issued workmanship documents and photos to determine the level of valid completion of the project, culminating in the release of payment for successfully completed work.
This step can also include an on-site inspection as well as additional communication with any parties involved in the project to confirm that it’s on budget and to specifications.
By utilizing effective construction loan management, lenders, property developers, and home buyers can avoid many of the headaches and much of the uncertainty that frequently accompanies property construction, while enjoying the benefits of projects that are completed on time, on budget, and to exacting specifications.