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Old 11-08-2019, 11:55 AM   #6
MYTraveler
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City: West Coast
Country: USA
Join Date: Apr 2014
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Quote:
Originally Posted by BandB View Post
I suggest a Commercial Letter of Credit with a well written contract and releases only as they present evidence to the bank that they've met the milestones.
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I don't see how that is different than wiring money as you go. Either way, the builder has your money. The letter of credit does give the builder the assurance that the buyer can pay but that doesn't really help the buyer. Further, the issuing bank will not allow draw terms that require it to make a factual determination beyond paying upon receipt of instruction to do so. Someone must make the determination that the payment milestone has been met. Unless the buyer owns the boat and has protected against lien claims, the buyer is at risk to losing the boat to the builder's other creditors, with only the right to pursue a breach of contract claim. And taking title to the boat while it is under construction presents its own set of liability and risk concerns.
A letter of credit (or other security enhancement) in favor of the buyer, with the right to draw to satisfy any judgment that the buyer might recover against the builder is, I believe, the safest way to go. And if the builder is creditworthy, that LC shouldn't cost more than 50 bps/year.
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