A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Correct Answer
B) Follow the draw-control requirements and obtain the required evidence before disbursement
Why this is correct: Construction loan agreements include draw-control requirements to manage risk. As the original explanation notes, if the agreement conditions advances on completion evidence, the lender must obtain that evidence before disbursement to comply with the contract and prudent lending practices. Why the other choices are wrong: "Release the full remaining commitment" is wrong because it violates the agreement's phased draw schedule and increases risk by over-advancing funds. "Convert the loan to permanent financing immediately" is wrong because conversion typically occurs only after construction is complete, not mid-construction due to a missing draw document. "Ignore the agreement if the borrower owns the lot" is wrong because lot ownership does not override the contractual disbursement conditions. Exam tip: Always follow the documented draw process—never disburse without the required completion evidence.
Why This Is the Correct Answer
Why this is correct: Construction loan agreements include draw-control requirements to manage risk. As the original explanation notes, if the agreement conditions advances on completion evidence, the lender must obtain that evidence before disbursement to comply with the contract and prudent lending practices. Why the other choices are wrong: "Release the full remaining commitment" is wrong because it violates the agreement's phased draw schedule and increases risk by over-advancing funds. "Convert the loan to permanent financing immediately" is wrong because conversion typically occurs only after construction is complete, not mid-construction due to a missing draw document. "Ignore the agreement if the borrower owns the lot" is wrong because lot ownership does not override the contractual disbursement conditions. Exam tip: Always follow the documented draw process—never disburse without the required completion evidence.
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