A
construction lender may be liable to the contractor with
a direct contract with the owner if the lender decides to
cease making advances on the construction loan prior to
distribution of all funds available under the loan, and
if the lender fails to give written notice to the contractor
within five (5) days after the lender’s decision to
cease making advances has been made. The lender who fails
to give this notice will be liable to the contractor for
the actual value of the materials and direct labor costs
furnished by the contractor, plus fifteen percent (15%)
for overhead and profit, and all other costs from the date
the notice should have been given to the date the notice
is actually given, not to exceed the amount available under
the construction loan, unless the failure to give notice
was done for the purpose of defrauding the contractor. The
right of the contractor to receive this notice cannot be
waived by the contractor, and the contractor can bring a
direct lawsuit against the lender for these damages, although
the contractor cannot use this cause of action to alter
the priority of the contractor's lien in relation to the
construction loan mortgage.
As
a result of a 2003 amendment to the statutes, construction
lenders who make loan disbursements directly to the owner,
or jointly to the owner and any other party, must provide
the borrower with a specific form of written notice, in
bold type larger than any other type on the page, prior
to making the disbursement. The statute did not create civil
remedies for the lender’s failure to comply with the
statute, however.
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