I need some help. Not sure if this can be done or not and how it would be considered. We have two individuals that own a lot. They want to do a construction loan to build their house on the lot. The licensed contractor wants to be listed on the loan to so they can have control of the draws. They do not want to be listed as guarantors. How should this be handled with compliance disclosures and should it be done like this? I suggested that the loan be done in the construction companys name and the deed of trust be hypothecated by the individuals to them. Thanks for any input on this.

I would get with my legal council on this one. It's a weird setup. Personally, if I owned the lot, I would not want anything to jeapordize that in which I may not have control over. How can the builder be on the loan without being a guarantor, or really, a co-borrower?

Legal. Council.

Perhaps there can be some sort of legal side agreement authorizing the builder regarding draws...Having said that, I as the borrower and the one obligated, would want dual control over that as well.

Thanks. You mentioning the legal side agreement authorizing the builder regarding the draws was something I had brought up. This would make it less complicated and would satisfy what the builder is looking for.

He wants to be listed as a co-borrower on the loan instead of a guarantor for the draw reasons. That is were we get into the disclosure questions. How do you disclose your early disclosures when one of the borrowers is a business entity on a consumer loan?

The disclosures are the least of your worries, IMHO. Disclose it as a personal purpose loan. It appears the purpose of your loan is to construct a 1-4 family primary residence of 'a' borrower. Whether it needs RESPA and eTIL will depend on if you 'may' make the permanent, but that's another issue.

Ok. Thanks for your input.

I would strongly recommend going to legal on this loan. This sounds like a huge lawsuit waiting to happen. Your construction loan agreement should cover the terms of the draw set-up- and I would highly recommend having both the borrower and builder sign off on these requests.