Reference has been made to the building loan mortgages of certain institutions. Other lenders make building loans, some as a regular business. Three methods may be described. An owner of land may sell it to a builder for a building operation. The builder may need not only the land but also a large part of the money with which to erect the building. In fact he may be able to pay only a small part of the price of the land in cash and expects credit for the balance. The transaction can be carried through by contracting to sell the land and to take back part or all of the sales price on a purchase money mortgage. The contract will further provide that the seller shall lend to the borrower a certain sum of money to be represented by a building loan bond and mortgage, and to be advanced by the seller at various stages of construction of the building. In some cases the amount due on the land and the sum advanced or to be advanced on the building are combined in one mortgage. In other cases there are two separate mortgage instruments. The building loan mortgage is often made as a permanent first mortgage loan, to run for a definite period of years, with or without amortization. The land mortgage is often temporary, that is, it is paid off out of the building loan advances, or it is made subordinate to the building loan mortgage (becoming a second mortgage) and is payable in installments for a fixed period. The seller of the land can of course dispose of one or both of these mortgages if he wishes to do so and thus obtain funds for further operations.
Temporary building loans are made by some operators to finance new buildings. The loan is paid when the building is completed. A fee is charged for the loan in addition to the interest on the money advanced. The borrower pays all incidental expenses.
Mortgage loans are frequently made to builders under an agreement that when the building is completed the loan shall be made permanent - that is, it is extended for a period of say three or five years - such loans are combination building and permanent loans.
In the case of every building loan, under the laws of New York and many States, a building loan agreement must be filed in the office of the clerk of the county in which the land is situated. This is an important provision of the law and must be complied with in order to preserve the character of the mortgage lien. The building loan agreement must set forth all important details regarding the terms of the loan including a statement of how the money shall be advanced to the borrower, that is, at what times and in what amounts. (See appendix forms 54 and 55).