Why don’t lenders require retainage on all construction loans?

Commercial impracticality-it creates an administrative burden and usually, the borrower and contractor desire to waive retainage. The owner not the lender, is required to follow the law, and there is no statutory penalty for not retaining. Is it common for lenders to require retainage on commercial construction loans? Yes, unless the project has a payment bond. Usually, 10% of each draw is held in a restricted account. Retainage is sometimes waived on smaller construction and renovation projects, or where the borrower has substantial liquidity to pay unpaid subs and suppliers. What about builder loans? No. If the builder is the borrower and the owner, each "sub" would have a separate contract and separate retainage would be required for each. Builder lending is too competitive to allow a lender to require retainage. What about residential interim (build on your lot) loans and one-times? It varies with lending institutions and how many times the lender has been "burned". Sometimes ...  more