Obligatory advances refer to the disbursed funds a lender makes over the construction loan period. During construction, a manager will verify that construction is on schedule and in accordance with the terms of the agreement with the lender. If construction falls behind the agreed-upon draw schedule at any stage, the next obligatory advance will be delayed or prevented.
Obligatory advances have seniority over all other liens, except for tax liens.
A borrower typically does not begin making payments to the lender until after the project is complete.
The standard order of lien holders in a subordination agreement are as follows:
Obligatory advances in construction loans
Senior lien holder
Junior lien holders