If our construction loan expired because of our contractor’s delays, am I responsible to pay him?

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If our construction loan expired because of our contractor’s delays, am I responsible to pay him?

Asked on January 30, 2012 under Real Estate Law, Texas

Answers:

Joseph Gasparrini

Answered 9 years ago | Contributor

Based on your question, I understand that you hired a contractor to perform renovations on you house, and you obtained a construction loan for the pupose of obtaining the money with which to pay the contractor.  The contractor's delays may give you certain rights under the construction contract.  Some construction contracts contain a provision stating that if the work is not performed within a certain period of time, the homeowner has the right to terminate the contract and recover any payments made for work that was not performed as of the date of termination.  However, the mere fact that the commitment you received for a construction loan expired before you closed on that loan does not give you the right to terminate the construction contract; and it does not give you the right to withhold payment for work the contractor has performed.  Typically, a bank will allow the borrower to close on the construction loan prior to commencement of the work.  If that is the case with your bank, then the contractor's delay in performance would not be the responsible factor for the expiration of your commitment.  Moreover, banks will typically renew a commitment for a loan when the borrower has not been able to close prior to the expiration.  When the contractor is ready to start the work you should ask the bank to renew or reinstate the commitment so that you can move forward with your construction project.  Unfortunately, delays in construction are all too common.  When there is a disagreement with a contractor over delay or other issues, It is usually preferable to negotiate a reasonable compromise with the contractor (even if it means that you give up something to which you believe you are entitled) rather than to get into a knock-down drag-out fight with the contractor that might end up with costly litigation.


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