Proof of equity to prefab house company: questions experiences?

Hello everyone,

we have received forms from our prefabricated house provider to prove the equity capital we want to use.

There are the options

"account lock" - the bank freezes the amount X in an account and it is used only for this purpose

Question: How can I even access and dispose of the money? Who has to approve?

"assignment" - we assign equity capital in the amount of the outstanding claim directly to the house manufacturer

Question: Isn't that similar to prepayment? What securities do we have in case of defects, insolvency, etc.?

What should generally be considered in such matters? Or who is the right contact person to have this legally assessed? Thank you very much for your input.
By the way, the bank didn't care back then for the loan; they only wanted to see account statements.

I have not heard that before. For us, a credit confirmation and a screenshot of the account balance were sufficient. You are signing a contract, so I don't see why the money in the account should be frozen as well.

That's quite a clever general contractor. First collecting all the money, then declaring insolvency before construction begins and living the good life. Under no circumstances transfer anything until the service has been provided. In other words: when the shell is standing, then pay the installment for the shell, etc. This way you part with your money and if you're unlucky (which is quite possible due to cost increases) you end up with an insolvent general contractor who has all your money, but you don't have your house. Never get involved in something like that!

That’s quite a clever general contractor. First collect all the money, then declare insolvency before construction starts and live the good life. Under no circumstances transfer any money until the service has actually been rendered. In other words: When the shell is standing, then pay the installment for the shell, etc. That way you don’t hand over your money and risk (which is quite possible due to rising costs) having an insolvent general contractor who has all your money but you don’t have your house. Never get involved in something like that!

Right, normally there should be a payment plan included in the contract (which you can also negotiate again if you want). This way it is clear for both parties when and how much percent of the total amount must be paid. In general, you should be careful with what else is included in the contract to the advantage of the prefab house manufacturer. Things like for example a completion bond, start and duration of construction, possible price guarantee/adjustments, contractual penalty if the completion date is not met, etc. should be found in the contract.

We received forms from our prefabricated house provider to prove the equity capital we want to use.

There are the following options

"blocked account" - the bank blocks amount X in an account and it is only used for this purpose

Question: How can I even dispose of and instruct regarding the money? Who has to approve?

"cession" - we assign equity capital equivalent to the outstanding claim directly to the house manufacturer

Question: Isn't that similar to prepayment? What security do we have in case of defects, insolvency, etc.?

This is a quite common procedure with prefabricated house providers. However, we banks view it very critically.

You are still far from prepayment. It is "only" a security for work already performed. Many also have the claims for disbursement from the loan assigned. But it is still your money and your credit. The provider cannot access it – these are the usual conditions. And it is also like this with you, for example with the blocked account (if a bank even does that). The money can ONLY be disposed of by you. But it is earmarked for the house construction and cannot be used for the invoice of the new Porsche. And with the cession, only the equity capital corresponding to the respective outstanding claim is assigned – but therein lies the big problem. Who determines the amount of the outstanding claim? This must under no circumstances be exclusively in the provider’s hands. You and your expert must be involved here.

Other than that – as said – a quite common procedure.

That’s a clever general contractor. First collect all the money, then file for insolvency before construction starts and enjoy a wonderful life.

Nothing of the sort is written here at all. A perfectly normal provider who wants to be sure that the buyer actually has the funds to pay for the house. Otherwise, I say: "That’s a clever customer. First order the expensive house and then be unable to pay for it but want to live in it and enjoy a wonderful life" ;)

I would never agree to something like that. As far as I know, you pay for your house according to fixed percentages in a payment schedule based on the construction progress without the general contractor having anything to do with my bank account. It would never occur to me to have my account blocked for a certain amount in advance. The risk is definitely there!