X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Jeffrey B. Steiner and Dino Fazlibegu

Given the recent construction boom going on in New York City, commercial mortgage lenders need to be aware of the unique risks associated with making construction loans secured by property located in New York. Construction lenders understand the underwriting risks arising from the performance (or lack thereof) by the developer of its obligations under the construction loan documents, such as the occurrence of delays in completing the project, the failure to ultimately complete the project or the incurrence of costs in excess of the amounts budgeted for construction of the improvements. However, under New York law, construction lenders can also suffer losses vis-à-vis the developer’s construction contractors. In addition to the filing of a mechanic’s lien against the property, an aggrieved contractor that has not been paid by a developer may bring a claim for payment directly against the construction lender if the construction lender does not take certain precautionary steps to avoid such liability.

Limitations on Third-Party Rights

Contractors that have commenced litigation against developers for unpaid sums due to them under construction contracts with developers have at times also included such developers’ construction lenders as defendants. In such cases, the contractors generally argue that the construction lender breached a duty owed to the contractor. For example, the plaintiff in one recent New York case, MLB Constr. Servs., LLC v. Lake Ave. Plaza, NY Slip Op 32823(U) (Sup. Ct., Saratoga Co. 2016) brought an action against the defendant developer’s construction lender based on, among other things, breach of the building loan agreement and of the New York Lien Law. In particular, the building loan agreement between the defendant developer and the construction lender stated that the construction lender may, in its discretion, make loan advances directly to the general contractor or subcontractors as payment under the applicable construction contract instead of making loan advances to the developer. The contractor argued that such a provision is intended to benefit the contractor by imposing the obligation on the construction lender, generally, to ensure that loan proceeds are ultimately used to pay contractors and, specifically, that such proceeds should be paid directly to contractors.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at customercare@alm.com

 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2019 ALM Media Properties, LLC. All Rights Reserved.