We have a consumer who approached us about doing a construction loan for his primary residence. He is a credit worthy applicant with no apparent reasons why we would deny his loan request. However, he is using a contractor that is known to this bank to underprice his bid to get the bid and then not be able to build a house for the amount that he bid. This contractor has several mechanics liens and lawsuits and is basically someone who the bank wants nothing to do with as we’ve had misdealing’s with him in the past.

I don’t think we have a valid reason for denial other than not wanting (refusing) to deal with his contractor. Is there a way out for us?

I think that an unacceptable general contractor is a valid reason for the denial, since we are relying on his bids and plans to underwrite the loan. If your experience with him is negative, that should be plenty of reason to deny. If they customer decided he wanted to be his own GC, and that's not the nature of his business, you wouldn't accept him, would you?