CONDITIONS REQUIRING OWNER TO PROVIDE CONTRACTOR WITH COPY OF RECORDED CONSTRUCTION LOAN INSTRUMENTS AND SECURITY FOR PAYMENT
Recent amendments to the law require (in those fact situations where a lending institution is extending credit in
the form of a construction loan) the owner must provide the original contractor with a copy certified by the
county recorder of the recorded construction mortgage or deed of trust. The recorded instrument is to disclose
the amount of the construction loan. The trigger for the foregoing is when the contract for the work of
improvement is more than $5,000,000 and the owner is the fee simple title holder of the property, or the
contract for the work of improvement is more than $1,000,000 and the owner holds less than a fee simple title
interest such as a leasehold interest.
In certain defined fact situations, the owner may be required to provide security for the payment obligations
under the construction contract. The security may be in the form of a payment bond, an irrevocable letter of
credit, or an escrow account with funds deposited therein subject to a security interest established in favor of
the original contractor being determined sufficient by written opinion of legal counsel. This body of law is
complex and should be reviewed by knowledgeable legal counsel. See Civil Code Section 3110.5.