Safeguarding Your Dream Home or Development –
The High-Stakes World of LA Construction Financing
Los Angeles is experiencing a construction frenzy—from $20M spec homes in Bel Air to 200-unit apartment complexes in Boyle Heights. But with 42% of major projects facing delays or disputes, new construction escrow has become the essential tool protecting buyers, developers, and contractors. At Secured Trust Escrow, we manage over $300M in construction escrow annually. Here’s your blueprint for navigating this complex process.
Why New Construction Escrow is Different
5 Unique Risks in LA Construction:
1. Builder Bankruptcy (12 major LA contractors folded in 2023)
2. Permit Delays (Average 14-month wait for LA City approvals)
3. Material Cost Escalation (Lumber prices still volatile)
4. Labor Shortages (30% unfilled construction jobs in LA County)
5. Defect Litigation (CA’s strict 10-year liability rule)
The Escrow Safety Net:
✔ Holds deposits until permits secured
✔ Stages payments to contractors
✔ Reserves defect repair funds
The 3-Phase Construction Escrow Process
Phase 1: Pre-Construction (Months 1-6)
– Deposit Requirements:
– Custom homes: 10-30% of project cost
– Condos: 5-10% unit price
– Critical Escrow Functions:
✔ Verify permits are pull-ready
✔ Confirm builder’s license/bond
✔ Release initial funds for plans/engineering
Phase 2: Active Construction (Months 6-24)
Draw Schedule Example:
| Milestone | % Released | Inspection Required
| Foundation | 15% | City inspector + architect
| Framing | 20% | Energy compliance check
| Dry-In | 25% | Roof/waterproofing review
| Final | 30% | Punch list completion
LA-Specific Note: Many cities now require green building verifications before final draws.
Phase 3: Post-Completion (Months 24-36)
– Defect Holdbacks: Typically 5% for 12 months
– Final Lien Releases: From all subcontractors
– CO (Certificate of Occupancy) Verification
Special LA Construction Escrow Situations
1. ADU (Accessory Dwelling Unit) Escrows
– Exploding demand from LA’s housing crisis
– Unique needs:
✔ Faster timelines (many built in 6 months)
✔ Simplified draw schedules (often just 3 stages)
2. Luxury Custom Home Escrows
– Beverly Hills Flats Example:
– $15M budget
– 18-month timeline
– 12-stage draw schedule
– 5% defect holdback for 2 years
3. Condo Development Escrows
– Pre-Sale Requirements:
✔ 50% sold before construction loan funding
✔ Buyer deposits held in segregated accounts
– Recent Change: More lenders requiring 100% presales in softening market
The Hidden Costs of Construction Escrow
| Fee Type | Typical Cost
| Setup Fee | $1,500-$5,000
| Draw Processing | $250-$500 per inspection
| Lien Tracking | $75/month per subcontractor
| Dispute Resolution | $400/hour
Pro Tip: Cheaper than the average $150K construction defect lawsuit.
5 Red Flags in Construction Escrow
1. Builder Resists Escrow (“We don’t usually need this”)
2. Vague Draw Schedules (No clear milestones)
3. Missing Subcontractor List (Who’s actually working?)
4. No Defect Holdback (Especially risky with tract homes)
5. Unlicensed “Escrow” Services (Check CA DFPI license)
Case Study: The Brentwood Spec Home Disaster
A $12M project went off rails when:
– Builder diverted funds to other projects
– Key subs went unpaid
– Construction halted at framing stage
Our Escrow Saved the Project:
1. Frozen remaining funds ($4.2M)
2. Brought in completion contractor
3. Structured lienholder payouts
4. Home ultimately sold for $14.5M
Why Choose a Construction-Specialized Escrow
Generic escrow agents miss:
✔ LA’s Byzantine permit process (each city has different rules)
✔ Construction loan draw requirements (banks have strict protocols)
✔ Subcontractor lien laws (very claimant-friendly in CA)
Our team includes:
– Former building inspectors
– Construction lenders
– Defect litigation experts
The Future of Construction Escrow
Emerging trends:
– Drone-based progress verifications
– Smart contract auto-payments for subs
– Modular construction escrows (factory vs. site payments)
Building in LA? Protect Your Investment
🏗️ Contact our construction escrow specialists today.
