Question:  Can the bank issue checks made payable jointly to the borrower and to the swimming pool contractor but retain the checks in a file at the bank while construction of the pool is being completed?  The loan documents are not structured for multiple advances.  In essence, the borrower will be charged interest on the full amount of the loan but will not have access or control of the proceeds.  Some of the lenders believe they remember a regulation which disallows a bank to charge interest on funds not given to the borrower.  

 

Answer:  In response to your question, there is no regulation, but it is a generally held interpretation of the Texas rate ceilings by courts and others such as the Credit Commissioner that to charge interest on funds of which the borrower does not have the use is usury per se.  Moreover, you have said that the loan documents do not provide for multiple advances.  So I don't know how you are going to enforce any of this pool loan.  If you are doing a pool loan on a secured basis, it should be done as a homestead improvement loan pursuant to Property Code Section 53.254.  It doesn't sound to me like the pool contractor has had much experience in doing this, or they would have the proper contract forms.  That is a red flag.

 

A couple of years ago, I met with one of the preeminent construction attorneys in Texas regarding home improvement issues.  He told me that there are a lot of bad contractors and subcontractors in the building industry, but it is epidemic in the swimming pool installation industry.  I am not saying all pool companies are bad or that this company is bad, but be wary when dealing with any of them.  Unfortunately for the good guys in the pool industry, they pretty much all have to be dealt with carefully.