Q: Escrow Loan Exceptions 4 – Do construction-permanent loans qualify for the 12-month exception if one phase of the loan is for 12 months or less?
A: Generally, no. Construction-permanent loans (or C-P loans) are loans that have a construction phase of approximately one year before the loan converts into permanent financing. During the construction phase, the loan is typically interest-only, so the borrower does not start paying principal until the permanent phase. After the construction phase, the borrower generally comes in to sign papers to start the permanent phase, but this is not a true closing. Given that C-P loans are generally 20- to 30-year term loans, a C-P loan would not qualify for the 12 month exception from escrow, even if one phase of the loan is for 12 months or less.