This summer my house was destroyed in one of the devastating wildfires in Colorado that you may have heard about. I’m on the cusp of getting the construction started for the replacement home, but I’ve run into an odd situation with the bank that I’m getting the construction loan from.
I’ve done the application and gotten an official letter of approval. Of course, the final final approval was predicated on an investigation of the contractor I’ve chosen to build my new home.
The contractor I’ve chosen is a small company that builds maybe 2 or 3 homes a year among other projects, but has been in the local community for well over 10 years. He’s had a relationship in the past with the bank that I’m procuring the loan from for other homes he’s built in the past years. However, yesterday he let me know that the loan officer was requesting his personal tax returns, credit report, and financial statements (and not those of his company).
I was a little surprised by this, and of course, I would not expect him to have to provide such documentation. After all, I’m the one taking out the loan. I understand that the bank has an interest in knowing that the construction will be completed fully, but I think they’re going a little too far with their request.
Is this something that’s typical? Both my builder and I have pushed back on the bank. It’s surprising to me since my credit score came out near impeccable and I’ve proven to them that I have more than enough liquidity to cover any contingencies that might arise.
The loan officer responded that since my builder and I have signed a ‘fixed price contract’ that the builder is responsible for any overages and the bank wants to be sure he can cover it. My reading of the contract is that it doesn’t state anything of that sort and it clearly spells out that I’m responsible for any overages due to things such is material prices rising since the budget was made, changes I request, or unforseen difficulties at the building site (since this is in a fire-scorched neighborhood now). I don’t think the bank should be asking for this information.
So the bank is holding the builder responsible for overages and the builder is holding you responsible for overages.
So, let’s say there are overages of $100.
The $100 bill is sent from the bank to builder.
Then the $100 bill is sent from builder to you.
Your contract with the builder is separate from his contract with the bank. Ultimately he’s on the hook for the $100 to the bank and you’re on the hook for the $100 to the builder.
The loan market is tight and he’s a small potatoes builder on a scorched site, of course they’re requiring his shoe and cup size for this.
Builders - even higher end ones - have surprisingly thin margins even in the best of times.
I see what you’re saying. The odd thing is that I have a contract with the bank and I have a contract with the builder, but there is no contract between the builder and the bank. My contract with the builder specifically says that I’m the one that’s responsible for getting them any money that they need, and as I understand this is pretty typical for construction agreements around here.
I understand the bank has a vested interest in getting the building completed at the amount they approve, though. However, I’d think that my builder’s business account statements should be sufficient…
The “contract” between the builder and bank is the loan terms, etc.
And it wouldn’t be the first time that a builder or any business owner/president/board member stole from Peter to pay Paul, so they wanna know everything they realistically can get their hands on.
Oh – and mazeltov on the new house, of course
My two cents:
-Go with polished nickel or aged bronze bath fixtures (all the nicer builder shows now have polished nickel and aged bronze – brushed nickel is on its way out)
-Vessel sinks are a nightmare to keep clean and are also on their way out.
-Get skirted high powered American Standard or Kohler toilets. Don’t get chair height unless you’re 100% sure you like it (many people hate it, myself included).
-Go with a quartz or poured concrete kitchen countertop if you guys cook and granite or marble if you don’t
-And don’t skimp on paint – Ben Moore or Sherwin Williams Duration. Make the painters add drops of pure vanilla extract to their cans if you’ve got allergies or just hate the smell and plan to move in ASAP.
While the bank’s contract is not with the builder on a practical basis a lot of their real world risk is (ultimately) invested in how capable he is and whether he can do the job in a timely and professional manner, and a lot of that is related to how financially stressed he is. If he screws up it’s going to become their problem.
Banks will be peeking into your undershorts these days. It’s the new reality. If you don’t like this as builder or a borrower you can do business elsewhere.
I get that in this particular situation it’s a more convoluted relationship than what I’m about to describe, but I am always amused when I talk to new or inexperienced entrepreneurs who smugly insist they’re going to organize or incorporate so there have no personal liability.
Of course it almost always makes sense to organize some business entity for the liability protection you can get. But every bank is free to say, “fuck you, we want your personal information, if not a personal guarantee, for exactly that reason or we’re not interested.” I wouldn’t expect a bank to care that it’s the builder’s private information not your own.
