Installing prefab in Sweden. Photo credit: Haninge
I was intrigued by a recent post from prefabber Blu Homes about construction financing. They wrote:
"The homeowner must procure construction financing - a short term, interest only loan that will give the homeowner the funds to pay Blu and the site contractor the costs of construction. "
Really? I didn't know you could get construction financing for prefab. In fact, this was one of the biggest problems in trying to promote the idea of modern green prefab.
Even for normal buildings, construction financing is tough to get; (See USA Today's The worst bet in real estate today: Construction loans)
For conventional mass-market prefab, the manufacturers take a big deposit from the customer and get the balance on delivery; they have big lines of credit to cover the construction cost in the factory, and know that they can sell their conventional house designs to someone else if the deal doesn't go through. This is probably not the case at a smaller modern prefab business with a more specialized and expensive product.
Once a home is attached to the ground, all the legal rules about title and lien rights come into play and a conventional mortgage can be used to finance the house. So when does the prefab builder get paid?
The owner of the prefab manufacturer I used to work for told me a story about one project that got caught in the middle. Company policy was to demand payment by certified cheque before the modules were removed from the trailers; as soon as they touched the land, an entirely different set of laws applied and they could not be removed.
The guy from the bank refused; he knew that until the modules touched the ground, his bank had no real mortgage. With a crew of installers and a $5,000 per day crane standing idle, there was a standoff, until a compromise was reached where a lawyer sent someone to hold the cheque for the length of time it took to remove the modules from the trailers and put them onto the foundations.
I have noted before that the banking crisis was not going to be good for those trying to build anything different, innovative or even green. But if purchasers have to find construction financing as well, it must be just about impossible. Until this one is beat, modern green prefab is going to remain a very small niche and the preserve of the very rich.