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Construction Loan Funding and Title Insurance: Best Practices in Disbursement and Documentation

Drafting Effective Future Advance, Budgeting, and Draw Provisions; Lien Waivers, Title Updates and Endorsements

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, June 13, 2023

Recorded event now available

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This CLE course will examine the mechanics of construction loan funding and the interplay of construction advances with title insurance through the life of a construction loan. The panel will discuss drafting, budgeting, and construction-draw provisions, as well as best practices for preserving the lender's lien priority and title insurance protection for future advances.


In construction loans, the lender advances a small portion (or none) of the loan at closing since the proceeds are intended to fund construction costs as incurred. The conditions for advancing funds are often complicated because there are three participants--the lender, the borrower, and the contractor--and in part because actual costs may vary from the construction budget.

Most construction loan agreements provide for shifting cost savings from one item to another item in the budget. Construction budgets will usually incorporate "contingency" to be applied by the borrower to pay for cost overruns for items in the budget, subject to certain conditions. Documents must provide for retainage for unforeseen costs to ensure the completion of the project.

A construction loan is unique for title insurance because disbursements are made post-closing, and property increases in value with each disbursement. Title insurance must be in place to cover the loan amount as it is funded.

Counsel to the lender must structure the loan to ensure the priority of advances and procure title insurance (including appropriate endorsements at closing) consistent with that priority. Also, the borrower will typically need to obtain lien waivers or lien subordination as disbursements are made.

Listen as our authoritative panel discusses the construction loan funding process and the need for increasing title insurance coverage as funds are disbursed. The panel will discuss budgeting and construction draw provisions in loan agreements, future advance clauses, and other practices for preserving the senior position of the mortgage over mechanic's liens and the title endorsements to obtain at closing.



  1. Construction loans
    1. Budgeting: adjustments, retainage
    2. Draw procedures
  2. Mechanics liens: lien waivers, lien subordinations
  3. Title coverage and construction endorsements
  4. Future advance clause, title updates
  5. Survey coverage: new 2021 ALTA/NSPS Standards
  6. Owner's policy


The panel will review these and other relevant matters:

  • What are the issues to consider in drafting construction draw provisions?
  • How do construction draw provisions address variations from the construction budget?
  • How does title insurance for a construction loan differ from title insurance for a permanent loan?
  • What is the purpose of lien waivers or subordinations required with construction draws, and what are the standard forms?


Escobar, Jeffrey
Jeffrey R. Escobar

Locke Lord

Mr. Escobar focuses his practice on advising lenders, sponsors, investors, project companies, public and private...  |  Read More

Shirk, Megan
Megan H. Shirk

Kutak Rock

Ms. Shirk’s practice includes commercial real estate lending, with an emphasis on federal and state low-income...  |  Read More

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