I've never done one so not familiar with how they work. Friend is in process of building a house. Down to the last phase and they thought they had one more draw to pull from to finish the home. Bank is telling them that last draw can't/won't be issued until the home is completed and contractor submits final invoices. So contractor needs $$ to finish the house and bank is saying no more $$ until you do finish.
So, question is, is that last draw normally held until house is completed?
So the Contractor is potentially screwing the friend. He's appears he could be paying off one job with the proceeds from another job. A BIG no no.
Bank is correct. They won't issue that final draw until at least Substantial Completion is met. Contractors in general, but especially in the Residential world, need to be able to maintain enough of a cash flow, or maintain enough of a line of credit, so they can purchase materials and pay employees while waiting on draws. If they can't, and have to use money from one job to pay for another job, it will only get them deeper in trouble job after job.
The friend needs to tell the Contractor he's going to have to establish a LOC to finish the house in order to receive that last draw, or pay the Contractor directly himself and take the final draw from the bank and keep it himself. Either way, do not let the Contractor get more than they are entitled to under the contract (assuming there are no outstanding change orders).
A little story about how these guys can dig an impossible hole. A house was being built across from my house while I was building mine. The Builder was about 85% complete on the job, but told the owners he need another $20k to finish the job within a month, or they would have to wait 3 to 4 months for it to be finished. Word was already out that he wasn't paying subs and vendors, and more than likely was using one job to pay for another. He was even taking material off this job and using it on other jobs, material the owners had bought and paid for themselves. They told him no, they would wait the 4 months if need be. A couple weeks later. The house got "hit with lightning" the night of a snow/sleet storm in January, and burned to the ground.
Fortunately the owners had a builders risk policy in their name, and were able to walk away without losing anything.
