Hard Money Loan Draws

[Katrina O'Bannon]

I have a current deal in process and my hard money lender (Zeus Lending) is taking about a month to do a simple draw request for work that has been completed. With this timeframe it will take several months to complete a rehab. What is the typical timeframe for hard money lenders to release funds when you request a draw for work that is complete? 

[Erik Estrada]

It is usually 2 days or so. I would recommend contacting your lender to see what's the hold up. 

[Chris Seveney]

@Katrina O'Bannon

What’s your agreement state ? Typically it should be Less than 5 business days

[Kevin Hill]

Review your construction draw agreement in the executed loan documents. Typical turn time would be 1-2 days after support/inspection is completed unless there is crowdfunding or some other capital constraints involved. 

[Katrina O'Bannon]

The agreement is extremely vague. It states that they will release funds in accordance to their procedures that are in place at the current time. Which basically covers them if they want to take forever. This is my first deal and first time using a hard money lender so I was not aware this needed to be in writing. I’m mainly asking to learn the industry standard so that I am more prepared for my next deal.

[Jay Hurst]

Quote from @Katrina O'Bannon:

The agreement is extremely vague. It states that they will release funds in accordance to their procedures that are in place at the current time. Which basically covers them if they want to take forever. This is my first deal and first time using a hard money lender so I was not aware this needed to be in writing. I’m mainly asking to learn the industry standard so that I am more prepared for my next deal.

 Wow, a  month! That is nuts. I mean sure it is better in writing but good grief that is unacceptable in writing or not. 

[Jeff S.]

Something seems off here, @Katrina O'Bannon. One month is an unusually long time and your lender should know that. Your contractors will want to be paid without delay. A day or two one way or another shouldn’t be a big deal. A one-month turnaround, assuming you’ve given your lender everything they need, is unworkable.

Too late now, but this should be one of your due diligence items when you select a lender. Questions for them that you might consider include:

• What do I need from me to submit a complete draw request?
• What do you charge per request?
• From my first call or email to you, how long do you typically take to fund a request?
• Are your draw inspections performed in-house or by an outside inspection company?
• Who do you use and how fast from your call to them will they come out?
• Will you prorate payment if the work isn’t 100% complete?
• Do you send payment to me or to my contractor?
• Do you require a lien release for work performed?
  I agree that it doesn’t matter whether this is in writing or not. If you didn't do it this time, next time ask for references.
  

[Adam M.]

Agree with everything that's been said-- @Katrina O'Bannon  Usually our firm submits the request by 3pm Wednesday, Inspection happens Thursday, funds wired that Friday. It's a very quick turnaround so I can only echo my peers here in agreeing that is unacceptable.

Assuming also that when you closed you paid the lenders a draw fee perhaps? I would go through your closing statement and see if there was one. If there is, I would challenge them on paying a fee and getting the draw a month later. I would scour any documentation that gives you a leg up here as @Jeff S. hit the nail on the head this is something you should review before choosing a lender but all is not lost! Keeping communication as frequent as possible with them and simply following up consistently could get things back on track here. Hope this is helpful and good luck!

[Katrina O'Bannon]

Yes, something is definitely off. Our work was inspected and they did not give any indication that the work done was the issue. So my partners and I can only assume they don’t actually have funds to give us. We email, call, and text every day and ask for updates. They promise us a date to get us to stop hounding them, then that day comes and goes with no money released. It has been an absolute nightmare for our first deal. I really appreciate all of the advice everyone has given here on this post. This has been extremely valuable. And I do see that many of you are lenders and I have added you to my list of contacts so that on our next deal we will be giving you a call!!!!

[V.G Jason]

Quote from @Katrina O'Bannon:

Yes, something is definitely off. Our work was inspected and they did not give any indication that the work done was the issue. So my partners and I can only assume they don’t actually have funds to give us. We email, call, and text every day and ask for updates. They promise us a date to get us to stop hounding them, then that day comes and goes with no money released. It has been an absolute nightmare for our first deal. I really appreciate all of the advice everyone has given here on this post. This has been extremely valuable. And I do see that many of you are lenders and I have added you to my list of contacts so that on our next deal we will be giving you a call!!!!

That's more than likely correct-- they're short the capital. We will see this now more than often. 

[Stuart Udis]

I believe the lesson here is to take time to complete your own diligence on who you borrow from. Most approach borrowing solely as the applicant. However, the lender will be placing a lien on your property, and you want to be sure you know who you are transacting with. As for your current conundrum, it does seem there is a liquidity issue on the part of the lender. It is always wise to have some additional capital on the sidelines to help advance your projects rather than relying solely on the bank draws but one month is beyond reasonable. If you can prove the lender originated a loan with you and did not have the capital to fund the loan in its entirety, this might be a claim as you are going to experience delays, higher carrying costs etc.

[Kristen L Garner]

Turn time on draws varies but on average the holdback teams usually respond to your draw request within 24-48 hours of receipt outlining the process and what additional documentation will be required. Disbursements are made 24 hours after required documents/inspections/steps are completed.  I'm sorry you are going through this with your current lender! 

[Lou Forino]

Like most people are stating it should be a couple of days once all of the required documents are collected.  Sometimes a 3rd party inspection report is required, sometimes lien waivers by contractors and/or title lien searches as well. 

I don't know this particular lender, but the only time we have seen issues like this are 

1. Liquidity issues for the lender.

2.  There was some type of default issue where the loan has to be brought back in good standing.

3.  There is a term issue, and an extension has to be executed before a draw can be issued.

[Jacob Sherman]

it shouldn't take anymore than 3-5 days 

[Sophia Buesing]

Hey Katrina! Sorry you are going through this. That is such a long time. We wire the money within 3 days of the request. 

[William Hutch]

Since there's lots of hard money lenders on this thread. Where would one find out more information on the terms outline in the hard money loan? How does one review all these documents when they're not that easy to find in the first place? I've been dealing with some hard money lenders but I was trying to find out the various fees and cost for budgeting but everyone needs a buildings address to start the process. Its like a chicken and the egg situation 

[Mike Klarman]

That would worry me, I have to tell you.  It would make me think they don't have the money.

So, right now, there is a big push to go digital.  Use an app to share pics with the lender and then get them to approve the draw in 24 hours, have the money by 48 hours after request.

Some lenders still use the forms version where you email in a request, fill out two short forms, they send an inspector out to take pics, inspector prepares a report and sends to lender.  Lender reviews the report and approves the draw.  They then wire the money that was approved and borrower needs to wire it to contractor.  I've had this process take 5 - 7 days before.  I've also seen it completed in 3 days.

Here's a warning for everyone.  Lender's use 3rd party inspectors who are usually agents or appraisers taking on side work.  These inspectors do not check for quality of work and they do not check if mechanical work is up to code.  They provide no real protection at all for the borrower/contractor relationship.

So, if your house had some plumbing work that was done, and your contractor did not pull permits and they did not have the city inspect the work, then when you go to sell the house you will get caught and they will tell you that they need to open the walls to inspect the plumbing and then closing the walls and repainting are on you.

The draw process is way too easy, I've learned that it is sooooo worth paying your personal inspector like $100 to do a deep inspection.  Make sure all code laws are being followed, make sure the finishes are what they should be.  Cause once that contractor has that money it is his, you have no recourse whatsoever in getting reimbursed for shoddy work and pictures can lie.  Pictures could be taken at certain angles, with certain lighting, and taken very selectively.  You have to be careful, especially if the contractor is not a referral and you "found" them online.  Before you send that money to them, get a very clear look at exactly what was done and before you hire anyone ask them to describe the permitting/code enforcement process of their city.

[Alex Hunt]

That's a red flag, never heard of Zeus lending either. Should take 2-3 days

[Erik Estrada]

Did you end up finding a solution?