A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
Correct Answer
B) Resolve the lien or satisfy the stated conversion condition before conversion
Why this is correct: The note states conversion requires completion, a certificate of occupancy, and no unresolved liens. If a mechanic's lien remains, the condition "no unresolved liens" is not met. Therefore, you must resolve the lien or satisfy the stated conversion condition before conversion. This protects the lender's first lien position and ensures clear title before the loan converts to its permanent phase. Why the other choices are wrong: The option "Convert because physical completion is the only relevant condition" is incorrect because it ignores the other explicitly stated conditions in the contract. The option "Delete the lien from the lender's records" is wrong; a lien is a legal claim against the property that cannot be removed by simply deleting a record—it must be resolved. The option "Advance additional funds without review" is incorrect; advancing more funds without resolving the existing lien would increase risk and violate prudent lending and the loan agreement. Exam tip: All contractual conversion conditions are conjunctive ('and'); failure of any one prevents conversion.
Why This Is the Correct Answer
Why this is correct: The note states conversion requires completion, a certificate of occupancy, and no unresolved liens. If a mechanic's lien remains, the condition "no unresolved liens" is not met. Therefore, you must resolve the lien or satisfy the stated conversion condition before conversion. This protects the lender's first lien position and ensures clear title before the loan converts to its permanent phase. Why the other choices are wrong: The option "Convert because physical completion is the only relevant condition" is incorrect because it ignores the other explicitly stated conditions in the contract. The option "Delete the lien from the lender's records" is wrong; a lien is a legal claim against the property that cannot be removed by simply deleting a record—it must be resolved. The option "Advance additional funds without review" is incorrect; advancing more funds without resolving the existing lien would increase risk and violate prudent lending and the loan agreement. Exam tip: All contractual conversion conditions are conjunctive ('and'); failure of any one prevents conversion.
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