Completion Guarantees in Construction Development Loans: Are They Enforceable?

Yes, but not the way you may think.

Lenders who provide mortgage financing want assurances that their financed projects will be completed in accordance with the approved plans and specifications. The last thing lenders want is to be left with an unfinished project which fails to produce cash flow, especially if repayment of the financing is contingent upon completion of the project. Construction loans are at maximum risk when the project is under construction. Cue a completion guarantee. But is it realistic for lenders to believe that a completion guarantee provides adequate assurances that the guarantor will complete the project if it stumbles?

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Luke E. Colomey, Law Clerk, was a third contributor to this publication.