CONSTRUCTION ESCROW AGREEMENT (Minnesota)
Owner:
Lender:
Property:
General Contractor:
Escrow Agent:
Title Commitment No.
# of Draws incl. w/ initial Fees
Cost for each additional Draw
Construction Contract Amount: / $
Deposit paid to General Contractor: / - $
Escrowed Loan Funds: / = $
Owner Funds (if any): / + $
TOTAL AVAILABLE FUNDS: / = $
Failure to timely complete the above section will result in draw delays.

This Construction Escrow Agreement (“Agreement”) is entered into as of the ______day of ______, 20____, by and among the undersigned Lender, Owner and Escrow Agent for the disbursement of construction loan funds (“Loan Funds”) and the Owner Funds, if any, for the construction of improvements ("Project") on the property (“Property”) described in the above-referenced title insurance commitment ("Title Commitment"). The Lender will, from time to time, deposit portions of the Loan Funds with Escrow Agent. Owner or Lender may deliver to Escrow Agent additional available funds, which represent the Owner's equity contribution to the improvements (“Owner Funds”), including the cost of additions to the Project or cost overruns. The Loan Funds and the Owner Funds, if any, shall be disbursed in accordance with the terms and conditions of this Agreement.

  1. Prior to First Draw: Prior to the first disbursement of Owner and/or Loan Funds by Escrow Agent, the following requirements shall be satisfied:
  2. Owner shall furnish or cause to be furnished to Lender and Escrow Agent a Sworn General Contractor’s Statement (“Sworn General Contractor’s Statement”) which shall provide the names and addresses of such persons furnishing labor, services and materials for the Project, the kind of labor, services or material to be furnished, and the amounts to be paid pursuant to this Agreement.
  3. If applicable, except as to any contract between Owner and General Contractor, Owner shall furnish Lender and Escrow Agent a Sworn Owner’s Statement (“Sworn Owner’s Statement”) disclosing the various contracts entered into by Owner relating to the Project. Owner will also provide names of the contractors, their addresses, kind of labor, services or material to be furnished, and the amounts to be paid pursuant to this Agreement.[1]
  4. Owner shall furnish or cause to be furnished to Escrow Agent W-9 forms from all persons or entities to be paid by Escrow Agent under this Agreement (including general contractor, subcontractors and suppliers). ALL W-9’S MUST BE SUBMITTED PRIOR TO DISBURSEMENT OF FUNDS.
  5. Draw Documents. Prior to each disbursement of the Owner and/or Loan Funds (“Disbursement” or “Draw”), Owner shall furnish or cause to be furnished to Escrow Agent the following:
  6. An updated Sworn General Contractor’s Statement and a General Contractor’s Draw Request.
  7. If applicable, an updated Sworn Owner’s Statement and an Owner’s Draw Request. The Owner’s Draw Request and General Contractor’s Draw Request are collectively defined as “Draw Request”.
  8. Sufficient Owner and Loan Funds to cover the current disbursement.
  9. Written approval by Owner of the payment by Escrow Agent for the current Draw (“Owner’s Authorization”) (if Owner is an entity, written approval by its authorized agent (Escrow Agent may rely upon the signature on the approval as having been made by an authorized agent)). In the event that there is more than one Owner, the written approval by one Owner shall bind all Owners.
  10. If required by Lender, an inspection as follows (Check one - if none of the below are checked, then inspections of the Propertyare NOT required under this Agreement):
  1. (___)No Inspections arerequired under this Agreement.

NO ADDITIONAL FEE.

  1. (___)Basic Inspections of the Property by Escrow Agent or a party retained by Escrow Agent.

ADDITIONAL FEE AS SET FORTH IN SECTION 9 BELOW. Such inspection is for the purpose of taking digital photographs of each of the improvements on the Property which are listed on the current draw and forwarding a checklist of those items, together with the digital photographs and, if requested, an estimate of percentage of completion, to the Lender for the Lender’s verification of the status of the Project.

  1. (___)Professional inspections of the Property bya certified or professional inspector.

ADDITIONAL FEE TO BE INVOICED AT A LATER TIME. Escrow Agent will advise Lender and Owner of the

inspection fee prior to processing the first draw and after the scope of the Project is understood by the

inspector.

Owner and Lender acknowledge and agree that: (i) any and all inspections called for under this Agreement shall be solely for the Lender’s benefit, and (ii) Owner shall be responsible for making its own inspections of the Project during the course of construction, and shall determine to its own satisfaction that the work done or materials supplied by the General Contractor and all subcontractors and suppliers have been properly made or supplied in accordance with applicable contracts.

  1. Waivers of mechanics, laborers and material suppliers’ lien rights (“lien waiver(s)”), in a form acceptable to Escrow Agent, as follows (check one - if neither of the below is checked, then lien waivers should be provided on a Current basis):

(___)Current. Executed by all parties listed on the Draw Request for the current Draw, which waivers are partial as to all parties not yet paid in full and full as to all parties to be paid in full with the current Draw.

(___)Draw Delay. Executed by all parties listed on the Draw Request for the prior Draw, which waivers are partial as to all parties not yet paid in full as of the prior Draw and full as to all parties having been paid in full as of the prior Draw.

Owner and Lender understand and agree that the parties listed on Draw Requests, Sworn Owner’s Statement or Sworn General Contractor’s Statement may not include all parties supplying labor, services and/or materials to the Project. Escrow Agent is not responsible to review any lien waiver from any party not listed on a Draw Request, Sworn Owner’s Statement or Sworn General Contractor’s Statement. Furthermore, notwithstanding the foregoing, Escrow Agent is only required to collect such lien waivers as needed to provide the title insurance coverage to the Lender specified by this Agreement. Owner and Lender acknowledge that any party supplying labor, services and/or materials to the Project who is not paid in full may have lien rights against the Property.

  1. If required by Lender, prior to the disbursement of the Owner and/or Loan Funds to pay for the foundation of the improvements on the Property, verification that the foundation was poured on the Property and within the municipal set back lines, as follows (Check one - if none of the below are checked, then foundation verification is NOT required under this Agreement):
  1. (___)No foundation verification is required under this Agreement. By choosing this option, the Lender understands and agrees that the Loan Policy may include the following exceptions: (6) Any encroachments, encumbrance, violation, variation, or adverse circumstance affecting Title that would be disclosed by an accurate and complete land survey of the Land. (7) Easements or claims of easements not shown by the Public Records. (8) Any claim of adverse possession or prescriptive easement.
  1. (___)Diagram (also known as a Plat Drawing) –The Diagram/Plat Drawing will include the following provision or similar language: “This diagram is based on a visual and taped inspection and is charted to approximate locations and therefore is not a survey. The property dimensions shown are platted or described dimensions and were not field verified. Do not use for the establishment of any fence, building, or other improvement lines.” ADDITIONAL FEE AS SET FORTH IN SECTION 9 BELOW.By choosing this option, the Lender understands and agrees that the Escrow Agent may make changes to the Loan Policy based on receipt and review of the Diagram.
  1. (___)Foundation or Property Survey –To be drawn by a Professional Land Surveyor who has been licensed by the Minnesota Board of Architecture, Engineering, Land Surveying, Landscape Architecture, Geoscience and Interior Design. ADDITIONAL FEE TO BE INVOICED AT A LATER TIME.Escrow Agent will advise Lender and Owner of the survey fee prior to engaging the surveyor.By choosing this option, the Lender understands and agrees that the Escrow Agent may make changes to the Loan Policy based on receipt and review of the Survey.
  1. An approval by the Lender of the current Draw, which approval shall be deemed to have been given by the delivery to Escrow Agent of funds in the amount of the Draw, and for payment of any unpaid title premiums, Disbursing Fee, Inspection Fee, or Plat Draw Fee.
  1. Mechanics, Laborer and Material Supplier Lien (collectively “mechanic’s lien(s)”) Search and Endorsement to Loan Policy. Prior to the disbursement of any Loan Funds, Escrow Agent shall determine if any mechanic’s liens have been filed against the Property in the Office of the County Recorder in the county where the Property is located since the last effective date of the Title Commitment that would take priority over the lien of the Lender's mortgage on the Property. If an intervening mechanic’s lien is discovered, Escrow Agent shall promptly notify Lender and shall, at Escrow Agent’s sole discretion, either: (a) hold the deposited Loan Funds until the mechanic’s lien has been disposed of or otherwise addressed to the satisfaction of Lender, or (b) return the Loan Funds to Lender. Except as to any mechanic’s lien which lender agrees to have shown as an exception on the loan policy, at the time of each disbursement by Escrow Agent, Escrow Agent (as the title insurance agent) shall endorse or be prepared to endorse the Loan Policy (“Loan Policy”) issued or to be issued in accordance with the Title Commitment for the limited purpose of insuring the Lender against loss or damage by reason of lack of priority of the lien of the insured mortgage over any lien, or right to a lien, imposed by law for the cost of services, labor or material furnished for improvements on the Property.
  2. Disbursement. Escrow Agent shall disburse the deposited Owner and Loan Funds to (check one – if neither of the below is checked, then Escrow Agent is instructed to disburse the deposited Owner and/or Loan Funds to the all parties listed on the Draw Request):

(___)General Contractor.

(___)All parties listed on the Draw Request for the current Draw, including General Contractor and all contractors, subcontractors and suppliers.

Notwithstanding the above, Escrow Agent may pay directly to a contractor, subcontractor or supplier in its sole discretion in order to obtain a waiver of lien or verify payment to a party. However, Escrow Agent shall not be obligated to make payments directly to contractors, subcontractors or suppliers unless so required above. The parties acknowledge that Escrow Agent has no duty to investigate any party in the Project to determine the party's financial condition, or the prudence of direct payment.

  1. Final Draw. Prior to the final disbursement of Owner and/or Loan Funds, Owner, Lender and General Contractor will furnish Escrow Agent the same items listed in Section 2, above, and in addition Owner shall furnish or cause to be furnished: (i) a General Contractor’s Affidavit of Completion and Release, and (ii) lien waivers executed on a Current basis as defined in Section 2(F) above. Notwithstanding the foregoing, Escrow Agent is only required to collect such lien waivers as are needed by Escrow Agent to provide the title insurance coverage to the Lender specified by this Agreement.
  1. Deficiencies in Documents. If Escrow Agent discovers a misstatement or deficiency in any of the documents provided under this Agreement, it may elect not to proceed until the misstatement or deficiency has been corrected or cured; however, Escrow Agent shall have no obligation to investigate or discover misstatements or forgeries in documents, fraud or misapplication of funds by any party.
  2. Project Cost Increases. Escrow Agent shall have no liability to determine whether the Project cost exceeds the undisbursed portion of the Loan Funds. However, if a Draw Request is delivered to Escrow Agent in an amount that Escrow Agent believes exceeds the remaining Loan Funds, Escrow Agent will notify Owner and Lender of the possible deficiency. Owner or Lender may then: (a) deliver the balance of the necessary funds, or (b) direct Escrow Agent to pay less than the entire draw request amount.
  3. Limits of Escrow Agent's Duties. The functions and duties assumed by Escrow Agent include only those described in this Agreement. Escrow Agent is not obligated to act except in accordance with the terms and conditions of this Agreement. Escrow Agent does not certify or insure that (a) the Project will be completed, (b) that the Project, when completed, will have been built in accordance with plans and specifications, or (c) the percentages of completion referenced in Section 2(E)(ii) are accurate or (d) that sufficient funds will be available for completion. Further, Escrow Agent shall not be liable for: (i) any act or omission done in good faith under this Agreement, nor (ii) any loss arising out of loss or impairment of the Loan Funds and/or Owner Funds in the course of collection or while on deposit with a bank due to bank failure, insolvency or suspension, nor (iii) loss of documents or funds while such documents or funds are not in its custody (documents or funds deposited in the United States mail shall not be construed as being in the custody of Escrow Agent).
  4. Fees. A disbursing fee (“Disbursing Fee”), inspection fee, if any (“Inspection Fee”), and plat drawing fee, if any (“Plat Drawing Fee”) (collectively “Fees”) shall be paid to Escrow Agent by the Owner in accordance with the amount shown on the Title Commitment invoice. In the event that all Fees are not paid at the closing for the subject loan, Escrow Agent may deduct the Feesfrom each Draw.
  5. Escrow Termination; Resignation of Escrow Agent. This Agreement shall terminate, and Escrow Agent shall have no further liability under this Agreement, in the event that either: (a) Lender fails or refuses to deliver further Loan Funds under this Agreement, or (b) Escrow Agent resigns upon written notice to Lender. If this Agreement terminates under this Section, Escrow Agent shall return to the parties any documents or funds in its possession relating to this Agreement.
  6. No Owner Lien Coverage Granted. The only responsibility of Escrow Agent to Owner created by this Agreement is the faithful performance of the obligations created by this Agreement. Owner acknowledges that this Agreement is not a promise by Escrow Agent to provide Owner with any protection against mechanic’s lien claims, either under this Agreement or in a title insurance policy.
  7. No Interest on Escrowed Funds. All parties acknowledge that no interest will be paid on any Loan Funds while held by Escrow Agent pursuant to this Agreement and that, in addition to the fees payable to Escrow Agent for its services, Escrow Agent may receive ancillary benefits from the use of the Loan Funds while held in escrow.
  8. No Third Party Beneficiaries: This Agreement is not intended by any of the undersigned to give any benefits, rights, privileges, actions or remedies to any person, partnership, firm or entity other than the Escrow Agent, Lender, and Owner as a third party beneficiary or otherwise under any theory of law.
  9. Action Against Escrow Agent: The parties agree that any action in relation to an alleged breach of this Agreement by Escrow Agent shall be commenced within two years of the date of the breach, without regard to the date the breach is discovered. Any action not brought against Escrow Agent within that two year time period shall be barred, without regard to any other limitations period set forth by law or statute, and Owner and Lender herebywaive any statute of limitations to the contrary.
  10. Notices: Any notice required under this Agreement shall be given in writing at the addresses set forth at the end of this Agreement and by: (a) certified or registered mail, postage prepaid, (b) overnight courier guaranteeing next day delivery, (c) personal delivery, (d) facsimile, or (e) email. All notices shall be deemed given three (3) business days following deposit in the United States mail with respect to certified or registered letters; one (1) business day following deposit if delivered to an overnight courier guaranteeing next day delivery; and on the same day if sent by personal delivery, facsimile (with proof of transmission) or email (with proof of transmission).
  1. No Plans and Specs: Owner and Lender acknowledge that: (i) Escrow Agent or the party retained by Escrow Agent for inspections has not been providedcopiesof the plans and specifications for the Project and does not certify that the work performed conforms to plans and specifications, (ii) Escrow Agent or the party retained by Escrow Agent for inspections makes no certification as to the workmanship of the Project, (iii) Escrow Agent or the party retained by Escrow Agent for inspections makes no certification as to whether the work on the Property will be completed and all materials will be in place for the Draw Requests, and (iv) Owner and Lender are not relying on Escrow Agent or the party retained by Escrow Agent for inspections for any assurance or opinion other than that stated in this Section. Notwithstanding the foregoing, nothing in this section limits the Owner and/or Lender from seeking these assurances directly from an inspector retained pursuant to Section 2(E)(iii).
  2. General Contractor: Although the General Contractor identified above is not a party to this Agreement, by execution of this Agreement the Lender and Owner authorize the Escrow Agent to provide a copy of this Agreement to the General Contractor as a courtesy.

OWNER
SIGNATURE:______
Name:______
Title (if applicable): ______
Address: ______
______
Phone No.: ______
Email: ______
OWNER
SIGNATURE:______
Name:______
Title (if applicable): ______
Address: ______
______
Phone No.: ______
Email: ______/ LENDER
SIGNATURE:______
Name:______
Title (if applicable): ______
Address: ______
______
Phone No.: ______
Email: ______/ ESCROW AGENT
SIGNATURE:______
Name:______
Title (if applicable): ______
Address: ______
______
Phone No.: ______
Email: ______
ALL CONSTRUCTION DRAW DOCUMENTS MUST BE SUBMITTED TO:
Diane Carlson, Construction Escrow Agent
Knight Barry Title, Inc.
433 W. 3rd Street
Red Wing, MN 55066
Office:(651) 388-8891
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