Who Owns the Property While You Build? Title, Liens and Construction Loans

You own the property during a construction loan. Title stays with you or, more often, with the LLC or other entity you borrow through, and the lender records a lien that secures the loan. The lender's lien is released when the loan is paid off, and title never moves to the lender unless the loan goes into default and the lender forecloses.

Your ownership, the lender's security

At closing, a deed puts title in your name or your entity's name. The lender records a mortgage or deed of trust, depending on the state, giving it a claim against the property if you fail to pay. You control the property, pick the builder and make the decisions. The lender's rights are spelled out in the loan documents, including draw rules, insurance requirements and what counts as default.

Building through an LLC

Most investors take title in an LLC. The LLC is the owner and the borrower. The individuals behind it usually sign a personal guarantee, which means they are personally responsible if the LLC does not repay. RSC Private Lending lends to LLC, LP and corporate borrowers with a personal guarantee. The title policy and the loan documents should name the exact same entity. A name mismatch is a common reason closings get delayed.

The other liens to watch: contractors

Builders, subcontractors and suppliers who are not paid may be able to file a mechanics lien against the property. That clouds your title and can block a sale or refinance. That is why lenders track the order of liens and many ask for lien waivers, which are signed statements from your builder and subcontractors confirming they have been paid for completed work. Some lenders also have the title company check for new liens before releasing certain draws.

What changes at the end

When you sell, the buyer's funds pay off the loan, the lender releases its lien and title passes to the buyer. When you refinance into a rental loan, the new lender pays off the construction loan and records its own lien. You keep title. If a construction loan converts directly into a permanent loan, ownership does not change at all. Only the loan terms do.

Example (illustrative numbers only): Maple Lot Holdings LLC buys a $95,000 lot and closes a construction loan. The LLC is on title, the lender records its lien, and the two LLC members sign personal guarantees. Ten months later, the LLC refinances into a DSCR rental loan. The construction lender's lien is released, the new lender records its lien, and the LLC still owns the home.

What this means for you

Set up your entity before you go under contract, take title in that entity, and make sure every document uses the same exact name. Collect lien waivers as you pay your builder. Clean title is what lets you sell or refinance on schedule.

Setting up the entity for your next build? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.