Construction and Bridge Lending

What does construction and bridge lending encompass?

Construction and bridge lending are specialized forms of financing in the context of Florida real estate transactions. Construction loans are short-term loans used to finance the building or renovation of a property. These loans are typically interest-only during construction, with the principal balance due upon project completion. On the other hand, bridge loans are short-term loans that “bridge” the gap between the need for immediate funds and the closing of long-term financing. They are commonly used to purchase a new property before selling an existing one or to secure funds for a property under renovation.

For example, a developer in Florida might obtain a construction loan to build a new condominium complex. After completing the construction, the developer may secure a bridge loan to cover the costs of marketing and selling the units while waiting for the buyers to obtain their long-term mortgage financing.

Need help with creating, structuring, or enforcing real estate transactions? Schedule your consultation today with a top real estate transactional attorney.

Which Florida laws, rules, and regulations apply to construction and bridge lending?

Florida law regulates construction and bridge lending through various statutes, codes, and regulations. The Florida Consumer Finance Act governs the licensing and registration of lenders, including those offering construction and bridge loans. The Florida Deceptive and Unfair Trade Practices Act also protects borrowers from fraudulent or deceptive lending practices.

Construction and bridge lenders must also adhere to federal regulations, such as the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), which mandate transparency and disclosure requirements in the lending process. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act implemented further regulations to protect borrowers and ensure the financial system’s stability.

What common issues associated with construction and bridge lending lead to litigation?

The following issues tend to escalate transactional disputes to litigation:

Loan defaults: Borrowers may default on their loans due to financial difficulties, leading to disputes over the lender’s rights and remedies, such as foreclosure or repossession of collateral.
Misrepresentation or fraud: Lenders or borrowers may misrepresent information during the loan application process, leading to potential litigation when the truth is uncovered.
Construction disputes: Delays, cost overruns, or construction defects can lead to disagreements between the borrower, the lender, and other parties involved in the project, such as contractors and subcontractors.
Violation of lending regulations: Both state and federal lending regulations, such as the Florida Consumer Finance Act and the Truth in Lending Act (TILA), must be followed. Failure to do so may result in litigation.
Priority disputes: Disputes may arise over the property’s priority of liens or encumbrances, particularly when multiple lenders are involved in financing the project.

When a set of facts is appropriate for legal advocacy or intervention, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized advocacy, please contact our office to set up your initial consultation.

What measures should counsel take to resolve issues and avoid litigation over construction and bridge lending?

Thorough due diligence: Conduct comprehensive research on borrowers, property, and projects to minimize the risk of unforeseen issues and ensure compliance with relevant laws and regulations.
Clear and detailed loan agreements: Drafting precise and unambiguous loan documents can help prevent misunderstandings and disputes between parties.
Effective communication: Maintain open lines of communication between all parties involved in the project, including the borrower, lender, contractors, and other stakeholders, to address issues promptly and avoid escalation.
Dispute resolution clauses: Include dispute resolution provisions, such as mediation or arbitration clauses, in loan agreements to provide a streamlined process for resolving disagreements without litigation.
Monitor construction progress: Regularly review construction progress and financial reports to identify potential issues early and take appropriate corrective action to minimize the risk of disputes.
Compliance with regulations: Ensure that all parties, including lenders and borrowers, comply with applicable state and federal lending regulations to avoid potential litigation due to non-compliance.

Please contact our office to set up your initial consultation to see what forms of legal advocacy or intervention may be available for your unique situation.

Frequently Asked Questions

What is the difference between construction loans and bridge loans?

Construction loans are short-term loans used to finance the construction of a property, typically disbursed in increments as the project progresses. On the other hand, bridge loans are short-term loans designed to provide temporary financing until a more permanent financing solution, such as a mortgage, can be secured.

Can a construction loan be converted to a bridge loan or vice versa?

Yes, in some cases, construction loans may convert to bridge loans, or the reverse may also apply. However, this will depend on the lender’s policies, the terms of the loan agreement, and the specific circumstances of the borrower and the project.

What are the typical interest rates for construction and bridge loans?

Interest rates for both construction and bridge loans tend to be higher than traditional mortgages due to their short-term nature and higher risk. However, rates can vary widely depending on the lender, the borrower’s creditworthiness, and the project’s specific details. Therefore, shopping around and comparing offers from multiple lenders is essential to find the best terms.

Have more questions about real estate transactions and disputes?

Crucially, this overview of construction and bridge lending does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.