Sec. 05.06.01.12. Special Criteria for Construction Advances

A. This regulation is applicable to any construction advances under a mortgage insured by the Fund. This regulation applies to all construction advances, and in the case of a conflict between the provisions of this regulation and Regulations .08 ----- .10 of this chapter, the provisions of this regulation shall control.

B. Insurance of Construction Advances. Loans to finance construction of multifamily projects are eligible for the insurance of advances by the Fund if either:

(1) The Fund also insures the permanent loan for the project; or

(2) At the time the construction loan is endorsed for insurance by the Fund:

(a) There is a commitment for a permanent loan for the projects,

(b) Terms and conditions on the commitment are acceptable to the Fund, and

(c) The lender is acceptable to the Fund.

C. Construction Term.

(1) The Fund may insure construction advances for a period of 24 months. Depending on the size and complexity of a project, the Fund may extend the period of insurance for construction advances for up to an additional 12 months.

(2) For the purposes of this chapter, the construction period shall begin at initial endorsement of the insured loan, and shall end at the final endorsement of the insured loan for permanent mortgage insurance.

D. Construction Period Disbursement. The insured lender shall:

(1) Conduct or contract for regular independent on-site inspections of the construction;

(2) Make construction loan disbursements on the basis of work in place, plus materials acceptably stored on site, less a retention of 10 percent of the construction contract amount; and

(3) Make disbursement for materials acceptably stored off site, if the materials are:

(a) In a bonded warehouse,

(b) Set aside and labeled with the project's name,

(c) Inspected by the insured lender or its contract inspector, and

(d) Documented by evidence of payment for the materials.

E. Each construction draw shall be approved and endorsed by the Fund before its disbursement. Approval is based on:

(1) An acceptable title endorsement;

(2) Evidence of waivers of mechanics' liens; and

(3) At the option of the Fund, an on-site inspection to:

(a) Verify that the project is proceeding on schedule, and

(b) Confirm that there are sufficient funds in the construction budget to complete the project.

F. In addition to the requirements of §E of this regulation, the final construction draw is subject to review and approval of certificates of completion and cost certification.

G. If at any time during construction the Fund determines from its reconciliation of the project budget, in accordance with §E of this regulation, that the project does not have sufficient funds in the construction budget to complete the project, the Fund may refuse to endorse further construction advances until the construction budget is returned to balance through approved budget adjustments or contributions by the borrower.

H. Disbursement records are subject to review by the Fund at any time, with or without notice. The Fund may also, at any time and with or without notice, conduct inspections of the project.