Internal Control Questionnaires and Verification Procedures

Building and Loan Agreements

  1. Is a building and loan agreement signed before a formal commitment or actual loan disbursement is made?

  2. Is the building and loan agreement reviewed by counsel and other experts to determine that improvement specifications conform to:

    1. Building codes?

    2. Subdivision regulations?

    3. Zoning and ordinances?

    4. Title and/or ground lease restrictions?

    5. Health regulations?

    6. Known or projected environmental protection considerations?

    7. Specifications required under the National Flood Insurance Program?

    8. Provisions in tenant leases?

    9. Specifications approved by the permanent financier?

    10. Specifications required by the completion bonding company and/or guarantors?

  3. Does the bank require all change orders to be approved in writing by:

    1. The bank?

    2. Counsel?

    3. Permanent financier?

    4. Architect or supervising engineer?

    5. Prime tenants bound by firm leases or letters of intent to lease?

    6. Completion bonding company?

  4. Does the building and loan agreement set a date for project completion?

  5. Does the building and loan agreement require that:

    1. The contractor not start work until authorized to do so by the bank?

    2. On-site inspections be permitted?

    3. Disbursement of funds be made as work progresses?

    4. The bank be allowed to withhold disbursements if work is not performed in accordance with approved specifications?

    5. A portion of the loan proceeds be retained pending satisfactory completion of the construction?

    6. The lender be allowed to assume prompt and complete control of the project in the event of default?

    7. The contractor carry builder’s risk and workmen’s compensation insurance?

    8. Builder’s risk insurance be on a non-reporting form or a reporting form that requires periodic increases in the project’s value to be reported to the insurance company?

    9. The bank authorize individual tract housing starts?

    10. Periodic sales reports be submitted from tract developers?

    11. Periodic reports on tract houses occupied under rental or lease, purchase option agreements be submitted?

    12. Periodic reports on the status of any other projects in which the developer may be involved in.

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