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The Impact of COVID-19 on Florida Construction Loans


Florida’s construction industry faces one of its biggest challenges ever in dealing with the ongoing COVID-19 pandemic. Although the state considers construction an “essential” industry that can remain open during this emergency, that does not necessarily mean all projects are able to continue and finish on schedule. This, in turn, could trigger a substantial number of construction loan defaults.

Indeed, according to an April 7 report published by Forbes, approximately $4 billion in outstanding construction loans “cover residential and commercial properties where building has halted.” This represents about one-quarter of all construction loans tracked by Built Technologies, which provided the data to Forbes. To put things in perspective, Built said the halted projects represent about 30,000 individual loans.

Will My Construction Loan Go Into Default?

As with construction contracts, loan documents often contain force majeure clauses. Such clauses absolve a party for non-performance when performance becomes physically or legally impossible due to certain outside events. The terms and conditions of force majeure clauses vary widely, so it is critical to review your own loan documents as soon as possible to determine if you may be entitled to relief due to the ongoing COVID-19 situation.

Keep in mind, even though Florida has allowed construction work to continue as an “essential” service, that does not necessarily mean that it is physically or legally possible to continue a given project. For example, if a contractor or subcontractor is unable to produce sufficient employees due to COVID-19, that may trigger a force majeure clause. Similarly, if disruptions to the international supply chain render it impossible to furnish necessary materials, a contractor or project owner may have some contractual cover.

On the other hand, lenders often incorporate language that enables them to declare a default even if work has not stopped completely on a project. Some loan documents specify that a default occurs if the lender “anticipates” a delay in a project’s completion due to an outside event. The lender may also insist that work continue so long as there is no state or local government order preventing a project’s completion.

Schedule a Remote Consultation with a Florida Construction Attorney Today

Even if a lender declares a default on a construction loan due to COVID-19 issues, there are legal mechanisms in place to help borrowers deal with the situation. Remember, a lender does not have much leverage when there only collateral is a half-finished building. Federal law also provides for what is known as “troubled debt restructuring” (TDR) in these situations. As noted by Forbes, TDR “provides defaulting borrowers with significant concessions such as repayment plans, interest-rate adjustments and forbearance periods. ” In effect, the lender is able to “downgrade” a defaulted loan to a “problem asset.”

But once again, it is critical to carefully review the terms of any loan agreement that is currently outstanding. An experienced Florida construction attorney can provide invaluable assistance in this area. Contact Linkhorst Law Firm, P.A., at 561-626-8880 today to schedule a meeting with a member of our team. During the COVID-19 crisis, we are offering consultations through remote means.




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