Construction Mortgage Draws: A Broker-Lawyer Coordination Guide

The legal charge may be registered once, but the lender's money is commonly advanced in stages after specified construction milestones. Each draw can depend on inspection or appraisal evidence, cost-to-complete analysis, borrower equity having been injected, permits, insurance, lien/title status and lender-specific documentation. The brokerage should maintain a draw matrix that separates credit conditions from legal conditions.

Counsel should not be asked to infer the next advance from the original commitment. The brokerage should confirm the lender-authorized gross draw, deductions, interest reserve treatment if any, amount to be released, and the conditions the lender says must be satisfied for that specific draw.

Section 78 of Ontario's Construction Act contains specific priority rules affecting liens and mortgages, including building mortgages and advances made before or after liens arise. Those rules are not something a mortgage broker should summarize into a universal 'first mortgage stays first' assumption.

The broker's role is to tell counsel and the lender what work has begun, when, what the current draw is intended to fund, whether there are known unpaid contractors or lien concerns, and whether prior/subsequent charges exist. Counsel then advises on the legal consequences and the lender decides whether it will advance.

The brokerage draw package should identify the original committed amount, prior advances, current requested draw, remaining undisbursed commitment, current appraised or inspected stage, cost-to-complete evidence, borrower equity contributed to date, outstanding lender conditions and proposed legal release amount. If the lender uses a quantity surveyor, appraiser or inspector, their report should be clearly associated with the draw request rather than mixed into general file correspondence.

Where the lender requires counsel to make specific searches, obtain declarations, retain amounts, pay contractors directly or satisfy other legal conditions, those should come from the lender's legal instructions. The brokerage should not invent legal draw conditions to fill a gap in the commitment.

A construction budget that has increased materially, a project that is behind schedule, a change in contractor, unexpected site work, depleted contingency or an appraisal that no longer supports the projected completed value can alter the lender's risk. The brokerage should re-underwrite those issues before presenting the next draw as routine.

Similarly, if the borrower has not injected required equity or if the lender expected a particular amount of work to be complete before the next advance, counsel should not be asked to cure the deficiency through funds-flow mechanics. The lender must decide whether to waive, amend or enforce the credit condition.

The final construction draw can involve completion evidence, occupancy/municipal matters, final appraisal, insurance changes, outstanding deficiencies, lien-period considerations and conversion to permanent financing. If a take-out lender is replacing the construction lender, the payout and discharge sequence becomes a separate refinance transaction layered onto project completion.

The brokerage should therefore start the take-out file before the final draw where possible. Counsel can then plan the legal sequence with an accurate picture of the incoming lender, payout requirement and intended priority rather than discovering the refinance only when construction funds are exhausted.