What is the usual process and time frame for a loan?
Church Extension Fund's Board of Directors generally meets in February, May, August and November. Meeting dates will be posted on the Southern District web site. Our office must receive completed loan applications no later than ten days prior in order to be given consideration at the Board meeting. This approximate two-week interval gives our office staff ample time to ask further questions of the potential borrower, as well as to gather any additional information needed in anticipation of the Board's analysis of the loan request. Also, the management of CEF prepares a loan application synopsis that is mailed to each Board member prior to the meeting, thereby making the best possible use of time spent in Board meetings. Certain loan requests may be approved by the management of CEF based upon their individual lending authority and may not necessarily need Board approval.
There are certain documents that most lenders, including Church Extension Fund, require in order to process a loan. The required documents are as follows:
What are the "Articles of Incorporation"?
A legal document filed with the State that the congregation is located in. This establishes the borrower (the congregation) as an incorporated entity. Each congregation in the Southern District is (or should be) incorporated under the laws of the State they are located in as a Corporation.
What do the Articles of Incorporation state?
The document identifies the legal name of the borrower, the governing body, the term of existence, any borrowing limitations, and any other pertinent information regarding the corporate structure.
Why is it necessary to submit a copy of the Articles of Incorporation when processing a loan application?
The document verifies the existence of the corporation. Also, the title insurance company issuing the title insurance policy often requires a copy of the Articles of Incorporation.
What are the constitution and bylaws?
These documents describe in detail the structure of the corporation (the congregation), responsibilities and duties of the officers and boards, membership, etc. Bylaws of the congregation sometimes change throughout the years as the need for the congregational structure changes. Therefore, it is necessary for our office to have a current copy of the constitution and the bylaws of the congregation. The above also reveals what governing body is authorized to borrow money and to mortgage property on behalf of the congregation. Further, the constitution and bylaws also identify the persons authorized to sign legal documents on behalf of the corporation.
What is a borrowing resolution?
A resolution is the means by which a corporate entity is able to officially express its will or intentions.
Why is a resolution necessary?
Additional Items Required by CEF To Facilitate A Loan...
To give assurance and direction to the lender and the title company of the official acts of the borrower. A resolution is signed by the elected secretary of the congregation, affirming that the congregation did, indeed, vote to borrow the money at a regularly scheduled or specially called meeting of the congregation.
What is fire and extended coverage insurance?
It insures the existing improvements against loss from fire, theft, storms, vandalism, etc. It must be written in an amount that meets or exceeds the amount of the loan. Insurance coverage, ideally, would be for the value of the property (which is generally in excess of the loan amount).
Who is insured under the policy?
The borrower is insured as the owner of the property with the Southern District Church Extension Fund, 100 Mission Drive, STE 1, Slidell, LA 70460 named as the mortgagee.
What is title insurance?
It is a contract with a title insurance company to provide coverage for owners of real property and for lenders who use real property as security for their loans.
Why does CEF require a Mortgage Title Insurance Policy?
To assure its investment has a valid, enforceable mortgage lien that has priority over any known or unknown interests or claims to the real property used as security for its loan.
What type of Mortgage Title Insurance Policy is required?
ALTA extended coverage policy which insures the mortgage against unrecorded matters and documents recorded in the public records which are not shown as exceptions to the policy are required. These exceptions could affect the validity, enforceability or priority of the lien of the insured mortgage.
What title insurance company is to be used?
The congregation usually orders title insurance through a title insurance company in your immediate area.
When is a Mortgage Title Commitment issued?
It is usually within a couple of weeks following receipt of the legal description by the title insurance company.
What is a Mortgage Title Insurance Commitment and why is it required?
It contains information regarding the real property and a list of the title insurance company's requirements to insure the transaction. It also lists any exceptions to the title to the property which must be addressed prior to loan closing in order to be eliminated or insured over by the Mortgage Insurance Title Policy. CEF uses this Commitment to prepare the documents needed for the loan closing and to meet the requirements necessary for the title insurance company to issue a Mortgage Title Insurance Policy after the loan closing.
What if there are exceptions which must be addressed prior to loan closing?
It is the responsibility of the borrower to address the concerns and requirements of the title company regarding any exceptions. An example of exceptions are items such as old mortgages which have never been discharged (from another lender), unpaid sewer assessments, unpaid water bills, discrepancies in legal descriptions, boundary disputes and any other items of record which may encumber the title to the property.
What is a survey?
It is a measurement of a parcel of real estate property, generally noting the placement of the improvements located thereon (such as buildings, parking lots, sidewalks, out buildings, etc.) and further shows any boundary problems (such as fences over the neighbor's line, easement of record, etc.).
Why is a survey required by CEF?
Often the title insurance company requires that a survey be supplied to them in order to give title insurance coverage "without exception".
What type of survey is required?
The Loan Closing And Loan Documentation Process...
A current survey prepared by a registered or licensed surveyor must be furnished. On existing church and school structures, a "mortgage inspection survey" is considered adequate. If there is new construction involved with the current loan request, it is advisable that a "boundary survey" be completed in order to establish the exact boundary lines thereby assuring compliance with zoning regulations and making certain that all improvements are within property lines and required setbacks. On new construction projects, Church Extension may waive the survey requirement if a "site plan" can be furnished which has been prepared by a licensed architect and/or surveyor.
What is a loan closing?
The final procedure in the process whereby loan documentation is executed and sent for recording. In most cases loan papers are prepared by our office and forwarded to the congregation to be signed by the persons authorized to execute loan papers on behalf of the congregation for a specific transaction. On some occasions our office may recommend an attorney to work with the congregation in preparation on the loan documents. It is important to specifically follow our instructions for the proper witnessing and notarizing of the documents. Occasionally, documents are prepared and forwarded to a title company to conduct the actual closing of the loan transaction. All fees are the responsibility of the borrowing congregation.
When will the loan closing be held?
It will be held on a date that is mutually agreeable to both CEF and the congregation. CEF must, however, be in receipt of all the requirements outlined in our Letter of Commitment and all title exceptions must be settled.
What is the construction/permanent Promissory Note?
A contractual legally binding agreement between the borrower and CEF. It defines the terms of the loan (amount, payments, interest rate, maturity date, along with other provisions such as late charges, default measures, collateral, etc.). CEF prepares the Note which is signed by the borrower at the loan closing.
What is a mortgage?
The document by which real estate property becomes security (collateral) for a loan. The borrower retains possession and full use of the property and gives CEF a security interest in the property. The mortgage document is prepared by CEF or a recommended attorney and signed by the borrowing corporation at the loan closing. The mortgage is then placed on record with the Register of Deeds in the county/parish in which the property is located.
Additional Requirement For A Construction Loan...
How is a construction loan structured?
Construction loans are usually structured for a maturity of 6 to 12 months depending on the anticipated completion time of the project. During the "construction phase", the Promissory Note calls for "interest only" payments on the money actually outstanding against the Promissory Note. On the first of each month, Church Extension will mail an invoice to the congregation indicating the amount of interest owed for the previous month. At the time the construction is completed and the full amount of the Promissory Note has been drawn, the loan will then be converted to regular monthly payments of principal and interest.
What are progress payments?
The borrower signs a Promissory Note for the full amount of the approved mortgage loan. As the construction progresses and proper documentation is supplied to the Church Extension office, money is drawn against the Note and disbursed as progress payments.
What about building fund money?
New Money collected by the borrower for the construction project must be deposited into the Church Extension Fund before the loan closing.
When are building fund dollars to be used?
Before any loan dollars are used, Church Extension will withdraw funds from the borrower's account (upon the borrower's authorization) to be disbursed in the same way as loan dollars are disbursed.
What is builder's risk insurance?
Provides coverage in the event of loss during construction or renovation/remodeling. The insurance must be written in at least the amount of the loan. Church Extension suggests that you consult your current property insurer regarding this coverage
Who is insured under the policy?
The borrower as the owner of the property and CEF being named as the mortgagee.
What is a building contract?
A legally binding agreement between the borrower and the general contractor or subcontractors. It details the labor and materials to be provided by the contractor or subcontractor for the construction project.
What type of contract is required by CEF?
A guaranteed maximum cost contract. It is preferable to use the standard ALA guaranteed maximum cost contract.
Why does CEF require that all signed contracts be submitted prior to loan closing?
To be certain that every aspect of the construction project is contracted for, the total cost represents the entire project, and the entire construction project can be funded by the building fund dollars and approved loan dollars.
What are Performance and Payment Bonds?
A Performance Bond insures that the contractor(s) will complete the project. A Payment Bond insures that payment will be made to subcontractors and material suppliers.
Who must furnish bonds and who is insured under the bonds?
A general contractor obtains Performance and Payment Bonds in the amount of the contract. If the borrower acts as its own general contractor, each subcontractor (with contracts totaling $20,000 or more) must obtain Performance and Payment Bonds. All bonds must name the borrower as owner and CEF as the co-obligee.
What do the bonds provide for the borrower and CEF?
Assures both the borrower and CEF that the new construction will be completed all subcontractors will be paid and all utilized materials will be paid in full. In the event that the contractor or a subcontractor fails to complete the project or pay for materials or labor as provided in the contract, the bonding company is responsible for providing monetary restitution so the project can be completed without placing additional financial responsibility on the borrower.
Under what circumstances may a Performance and Payment Bond be waived?
Bonds may be waived by the CEF Board of Directors, or at the discretion of CEF management, on projects up to $500,000 based upon one or more of the following:
The congregation (borrower) has engaged a licensed architect who provides for contracted administration throughout the term of the project.
- The borrower, under the direction of the architect, will pre-qualify all bidders and substantiate bid amounts.
- The project will utilize Laborers for Christ as the primary contractor. If such is the case, written price guarantees must be supplied from all other contractors, subcontractors and material suppliers.
- The borrower is able to supply CEF with appropriate lien waivers from all contractors, subcontractors and material suppliers.
- The major portion of the project will be renovation of existing facilities and not new construction.
- Previous experience with the contractor, construction management firm, architect and/or other coordinators of the project.
What is the project Budget Statement?
What is a construction lien?
This document details the cost of the entire construction project, providing a financial overview of the construction project and verifying that funds available (building fund dollars and loan dollars) are sufficient to complete the construction project. It is furnished to the borrower as an enclosure with the Commitment Letter and should be completed by the borrower after all contracts have been signed and submitted to CEF prior to loan closing.
A legal right to claim, hold or encumber property to satisfy a debt or obligation. Individuals or companies who supply either labor or material to a construction project may place a lien upon the borrower's property in claim that money is owed.
What is a "Notice of Commencement"?
A Notice of Commencement is a legal document publicly recorded (with the County Register of Deeds) which gives notice that construction is taking place on a certain property and fulfills one of the requirements. The Notice of Commencement may be prepared on behalf of the borrower by the general contractor. The Notice of Commencement must be recorded prior to any construction beginning.
What is a Sworn Statement?
A Sworn Statement is completed by the owner or the general contractor reflecting the names and addresses, kind of work and/or materials supplied and the total amounts of the contracts that have been entered into with subcontractors and suppliers for a particular construction project. This form is supplied with each construction draw request and substantiates the amount owed to the subcontractors and material providers with the stated request.
What is a Lien Waiver?
A document signed by the general contractor, subcontractor or materials provider which state that payment has either been partially or fully made for service, labor and/or materials furnished for the construction project. Lien Waivers are submitted with each subsequent sworn statement to "backup" the request for disbursement of funds and thereby guarantee that payment has been made for each loan draw as requested. The general contractor is required to collect the Lien Waivers from each subcontractor and supplier.
What is an Occupancy Permit?
A certificate issued by the local county/parish or city building official giving approval of the use of the facility. A copy is to be sent to CEF, ideally before the final disbursement from the construction loan is made.
What is retainage?
An amount (usually 10%) withheld from each payment due to contractors, subcontractors and suppliers until the project is complete.
Why is a 10% retainage recommended?
To insure completion of the project and to insure payment by the general contractor to all subcontractors and suppliers.
When is the 10% retainage released?
Other Items To Consider...
It is released upon completion of the construction project and CEF's receipt of an occupancy permit.
There are other items your congregation should consider when entering into a building program. Although the items listed below are not required by Church Extension, we suggest that you investigate the following for your own protection:
- What is dispute resolution?
Many architectural and building contracts call for mediation and/or arbitration as alternatives to the traditional method of dispute resolution, which is known as litigation in the State or Federal Judicial System. Make certain that you are "comfortable" with such language and, if not, consult an attorney for his/her opinion.
- What is contractor's comprehensive general liability insurance*
You should ask the contractor for proof of such coverage which provides for insurance against bodily injury, death or property damage as a result of his company's action, whether actual or alleged. You may also want to inquire and receive verification that the general contractor provides worker's disability insurance coverage.
- What are "change orders"?
Any changes to the original contract should be confirmed in writing with a "change order" signed by both the contractor and the owner (congregation). Change orders describe the "change" from the original contract and state the amount of dollars to effect the change, whether an increase or reduction.
- Who's in charge?
Establish a clear policy in writing between the church and the contractor as to who can bind the church on any matter. It is often best for the congregation to appoint a church representative who is to be the official contact between the church and the contractor, architect, engineers, etc. The representative should ideally be knowledgeable about the construction project and be current with all affairs. The church representative should make notes of all conversations held, keep minutes at meetings, take pictures, develop rapport with inspectors, gather information and follow through with the project to completion. The chairman of the building committee often will function in this capacity and should be able to commit the time to doing so.
- Who handles the money?
a) Much attention must be given to keeping track of building receipts and disbursements
b)Sometimes it is best that a person be appointed as the Building Committee Treasurer to deal with all of the financial matters concerning the project and not burden the Church Treasurer with this extra responsibility.
What are building committee responsibilities after construction starts?
Hold regular meetings (not less than every two weeks) to review work progress with not only the contractor, but with church personnel (pastor, principal, etc.). Such meetings are also necessary to review contractor and subcontractor bills, payments, changes, etc. Committee members should do regular" walk-throughs" to determine that what is being done is according to what was intended and that the quality of work is to your satisfaction. Said meeting will usually include the attendance of the architect. The Committee should carefully review all architectural drawings (both before construction begins and during construction) to inspect for, and decide upon, certain amenities such as electrical fixtures, doors, built-ins, floor and wall finishes, cabinets and counter tops, etc. Ask questions about what you are buying, as well as each item's quality and practicality. Durability and practicality of doors, windows, hardware, carpeting, etc. are important considerations today for the future maintenance of same.