A draw request includes payment for materials not yet delivered, although the draw schedule permits reimbursement only for installed work. What is the appropriate response?
Correct Answer
A) Apply the agreed draw schedule and do not fund the unsupported amount
Why this is correct: The appropriate response is to apply the agreed draw schedule and do not fund the unsupported amount. Construction loan disbursements are contractually governed by the draw schedule, which typically ties advances to completion of specific work stages. Funding only for installed work controls risk and ensures loan proceeds are used for their intended purpose. Why the other choices are wrong: The option "Fund it because the builder signed the request" is incorrect; a signature does not override the schedule's conditions for eligible costs. The option "Move the amount into permanent-phase interest" is wrong; you cannot arbitrarily reclassify an unapproved construction draw as a different type of charge. The option "Treat ownership of the lot as proof of installation" is incorrect; lot ownership is unrelated to whether specific construction materials have been delivered and installed. Exam tip: The draw schedule is the binding guide. Never fund outside its defined conditions.
Why This Is the Correct Answer
Why this is correct: The appropriate response is to apply the agreed draw schedule and do not fund the unsupported amount. Construction loan disbursements are contractually governed by the draw schedule, which typically ties advances to completion of specific work stages. Funding only for installed work controls risk and ensures loan proceeds are used for their intended purpose. Why the other choices are wrong: The option "Fund it because the builder signed the request" is incorrect; a signature does not override the schedule's conditions for eligible costs. The option "Move the amount into permanent-phase interest" is wrong; you cannot arbitrarily reclassify an unapproved construction draw as a different type of charge. The option "Treat ownership of the lot as proof of installation" is incorrect; lot ownership is unrelated to whether specific construction materials have been delivered and installed. Exam tip: The draw schedule is the binding guide. Never fund outside its defined conditions.
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