My commercial lender is having me pay for construction funds it hasn't yet disbursed to me yet. What do I do?

[Ivailo Dimov]

Hi,
I bought a home on a commercial renovation loan structured as follows. Before construction, the home was appraised for $80,000, and after-complete the appraisal value is $120,000. The lender was supposed to disburse 70% of the renovation home value improvement, or .7 x $40,000 = $28,000, in the form of up to 3 payments done after appraising the completion of each phase of the construction. During the construction process, the loan was to be interest-only, after which it would become a 15 year 5/1 ARM loan on 70% of the after-complete amount, i.e. $84,000.

Now, because of bad weather and 3 months of unexpected construction delays (contractor found plumbing and electric issues so I had to wait for permits and fix them out of my own pocket), I only got reimbursed $13,600, for phase 1 of my construction. The remaining $13,400 I did not get reimbursed for. But as the original construction was set to be complete for 3 months, which was the interest-only loan term, the bank automatically converted my interest-only loan into 5/1 ARM on the full amount, without me having received any of the $13,400.

The worst part is, my loan officer got fired from the bank and currently no one is responding to my requests to 1) get reimbursed for the amount of principal payment I've been paying them over the past 2 months for the extra $13,400 I haven't seen, 2) override the original 3 months interest-only term to a 6 or 7 month term so that the rest of the construction is complete and I get reimbursed for all phases of the renovations.

I am frustrated with the way my lender is handling the situation and I would like to see what my options are if they continue to be unresponsive. Could I take the lender to small claims, and what is the procedure for that? I wouldn't want to pay thousands for legal fees given that I just want to be reimbursed for $13,400 and for any unnecessary principal payments. The loan was issued by a Southhampton, PA lender.

Thanks