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40 S. Cal. L. Rev. 439 (1966-1967)
Construction Lending and the Equitable Lien

handle is hein.journals/scal40 and id is 443 raw text is: CONSTRUCTION LENDING AND THE EQUITABLE LIEN George Lefcoe* Mark Schaffer* * I. THE CONTEST FOR UNDISBURSED CONSTRUCTION FUNDS: LENDER V. MATERIALMEN A developer buys land with a tiny down payment, borrows funds for construction, and starts a few houses or a speculative apartment house. He borrows the costs of the construction project from an institutional lender-a commercial bank or savings and loan association-which disburses the loan to the developer-builder in a series of progress pay- ments.' From loan proceeds he is supposed to pay materialmen for the * Professor of Law, University of Southern California. A.B. 1959, Dartmouth College; LL.B. 1962, Yale University. I wish to thank Robert Sutro, President, Ralph C. Sutro Company for his generous financial support of our research for this paper. Many of my colleagues at the University of Southern California have provided useful guidance and criticism, and I wish espedally to thank Martin Levine and Howard B. Miller. Finally, C. Chester Brisco and Barry D. Kohn, University of Southern California class of 1968, have contributed valuable field research assistance. ** Executive Editor, Southern California Law Review; Ralph C. Sutro Company Research Fellow, 1966-67. 1 The loan disbursements, normally five in number, are tied to project completion. When a predesiguated stage of construction is reached, the lender releases a correspond- ing percentage of the loan funds, often retaining ten percent until after the time for filing a mechanic's lien has expired. A typical progress payment plan for a single family residence is programmed ac- cording to the following schedule: 1. When foundation is in, first floor subflooring in place or slab laid, all rough lumber is on the ground, and foundation survey, if required by Company, is delivered to Company. 2. When the structure and all mechanical systems are roughed in, and passed by all inspectors, roofing is in place, and before interior lathing is commenced. S. When inside plastering is completed, and the exterior, if stucco, has received two coats, or, if frame building, siding is in place and has received prime coat. 4. While tile, or equivalent, cabinets and flooring are installed, and painting has commenced. 5. Balance when all improvements are fully completed and passed by all inspectors, Notice of Completion satisfactory to Company has been filed for record, chattel mortgage requirements have been fulfilled, and, if loan is induced by commit- ment of third party, that party's inspection has been made and approved in 439

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