Christina Jenkins, Attorney and Director of Customer Support, of MRG Docs shares her expertise on state-specific compliance issues lenders will face with one-time close construction loans.

1. CONSTRUCTION
S U M M I TA U G U S T 2 2 D A L L A S
G R O U N D U P
LENDING

2. Attorney / Director of
Customer Support
christinajenkins
Christina advises clients through a broad range of mortgage
banking compliance issues, assisting lenders from
origination to closing, as well as in post-closing compliance
review. Before joining MRG, Ms. Jenkins served in private
practice as mortgage banking compliance counsel, and she
also has significant experience in mortgage asset resolution
and commercial loan originations.
Before becoming an attorney, she worked in loan operations
at two large, national banks. Ms. Jenkins has been a speaker
at continuing legal education panels addressing various
issues impacting mortgage lending, and Chairs a group
within the American Bar Association’s Real Property Trusts
and Estates Section. In addition to her work at MRG, Ms.
Jenkins serves clients through the Dallas Bar Association’s
Dallas Volunteer Attorneys Program.MRG Docs

3. State Specific Compliance
For
ONE-TIME CLOSE
CONSTRUCTION LOANS
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4. 3
Construction – One-Time Close Loans
What is a One-Time Close Construction/Permanent Loan?
A one-time close loan is the combination of a construction loan and
permanent loan. It is one loan with two phases and one closing. In
addition to the construction costs, the loan may also include funds to
purchase the lot or refinance an existing lot loan.
By the provisions contained in the loan, it rolls over from the
construction phase terms to the permanent phase terms upon the
specified completion date.

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Construction – One-Time Close Loans cont’d
Construction Financing Phase:
The initial phase of a one-time close loan is referred to as the
Construction Financing Phase. It can be any duration, but is typically
twelve months or less for an average non-Jumbo build.
Common Features:
 Interest only (typically)
 Interest rate differences and accrual
 Staged disbursements

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Concepts Unique toTexas?
Homestead: is the land and improvements thereon used for the purposes of a
home or both a home and a place to exercise a calling for business.
Texas Homestead: law protects real property, which qualifies as homestead,
from forced sale by general creditors. Courts have interpreted the laws broadly
to help accomplish their goals.
A Homestead can be either Urban or Rural.

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Valid Liens AgainstTexas Homestead
Texas Constitution Article 16, Section 50(a) 1-8
The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the
payment of all debts except for the following:
 Purchase money [50(a)(1)]
 Taxes on the property (ad valorem taxes) [50(a)(2)]
 Owelty of Partition (one joint owner purchasing the outstanding interest of the other joint owner) [50(a)(3)]
 Refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if
the homestead is a family homestead, or from the tax debt of the owner [50(a)(4)]
 Work and materials used in constructing new improvements or repair/renovation of existing improvements [50(a)(5)]
 Home Equity loan (meeting the requirements of Article 16, Section [50 (a)(6)] of theTexas Constitution
 Reverse mortgage (meeting the requirements of Article 16, Section [50(a)(7)] of theTexas Constitution
 Conversion and refinance of a personal property lien secured by a manufactured home to a lien on real property
[50(a)(8)]

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Construction – One-TimeClose Loans (a)(5)(cont’d)
 One-Time Close Documentation:
 The Note will reflect the terms of the permanent financing.The first principle and interest
payment date will be at least one month after the completion of construction and conversion to
the permanent phase of the loan.
 The Allonge to the Note specifies the terms, including the applicable interest rate during the
construction phase. It also contains provisions for modifying the interest rate in the Note for the
permanent phase of the loan.
 In the Loan Agreement are the requirements applicable during the construction phase of the loan
and the requirements for converting the loan to the permanent phase. It contains the terms for
the staged disbursements, requirements for each advance of loan proceeds, the elements of
default and remedies in the event of default.

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Construction – One-TimeClose Loans (a)(5)(cont’d)
One-Time Close Documentation:
 Mechanic’s Lien Note and Contract: These documents are required only inTexas for construction on homestead
property.They create a mechanic’s lien in favor of the contractor which is transferred to and renewed and extended
by the lender. They are for construction costs agreed to between the owner and the contractor.They do not include
any sums not being paid to the contractor.They must be executed before any work is performed or any materials
are delivered.
 State Specific Lien Releases, Affidavits, etc.: In theTexas package there will be an Affidavit of Commencement,
Affidavit of Completion, Lien Releases, All Bills Paid Affidavit, etc. Packages for other states will contain any
specific forms for such states.

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Package – Documents/information received from client:
 Contract’s proposal
 Purchase contract (if any)
 Title commitment
 Confirmation of raw land
 Raw land vs. vacant land
Loan package:
 Index
 TX MLC docs
 Closing Instructions, Special Requests, Note,
Security Instrument, MLC docs, State Specific
releases
BuildingYour Construction Loan File

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Common Errors
 First Pay Date vs. Completion Date
 Builder/Contractor Entity Signatories and Documentation
 Unsigned bid/Changed bid without updated contract
Fatal Errors/Traps for the Unwary
 Math – no cash back!
 Raw land vs. Material Delivered
Common Errors/Fatal Errors/Traps for the Unwary

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ATexas Case Study
“THE PEABODY FAMILY”

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ATexas Case Study
“Mr. Peabody’s Dream”
 Buy New Land
 Construct New Home ~ InThe ‘Burbs!
 $250,000 Loan Approval

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Epic Fail #1
Raw Land… Vacant Land?

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Scenario:
Materials were delivered to
the construction site before Closing…
RED LIGHT

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Epic Fail #2:
What is the Source of
My Lien?

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Scenario:
Documentation Presented for
Document Preparation
Loan Amount: $250,000;
Sales Contract: $50,000;
Construction Contract: $150,000
PROBLEM?
250,000
- 50,000
-150,000
50,000

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Epic Fail #3:
Who (Really) IsThe
Contractor?

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Scenario:
A to Z Construction, LP
 Created in 2004
 Forfeited its existence in 2010
 Has Mr. A to Z, General Manager of the LP
signing for the company

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Contractor Disputes:
After months of disagreements
Mr. Peabody decides to take the reins
and make his dreams come true!

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