Consumer complaint received 2023-04-24
Product: Mortgage — Other type of mortgage
Issue: Trouble during payment process — 
Company: CITIZENS FINANCIAL GROUP, INC. (MD)

On XX/XX/XXXX, we closed on a construction-to-permanent loan from Citizens Bank to finance the construction of a custom home in XXXX, Maryland. This is loan number XXXX. Under the terms of the loan we had an 18-month term to construct the house ( construction needed to be completed by XX/XX/XXXX ), during which time we would be paying interest only on the drawn principal while we completed construction on the house. After construction was completed, the loan agreement contemplated that the loan would convert to a permanent loan, amortized over 29 years at the initial rate. 

Our initial builder failed to complete construction of the house by XX/XX/XXXX. The terms of the construction loan agreement require us ( the borrowers ) to " take such action and institute such proceedings as shall be necessary to cause and require the Contractor ( and the Contractor 's sureties, if any ), all subcontractors... and all material suppliers to complete their contracts diligently in accordance with the terms of such contracts, including, but not limited to, the correction of any defective Work or Equipment. '' Accordingly, when our builder failed to complete construction of the home within 18 months, we took action against the builder to hold them accountable and instructed Citizens Bank to make no further payments to the builder without our express authorization. 

In exchange for an extension fee of {$6500.00}, Citizens Bank agreed to extend our loan by 4 months ( completion by XX/XX/XXXX ) to allow the initial builder to finish work. We required the initial builder to make the payment to Citizens Bank on our behalf as penalty for its breach of its contract with us and the builder agreed. 

Four months later, the initial builder again failed to complete the house by the XX/XX/XXXX deadline. As required by our loan agreement with Citizens, we took further legal action against our builder, held them in breach of contract, and terminated the construction contract, and moved towards proceedings against them to recover for damages. 

Simultaneously and in full communication with Citizens Bank, we entered into new contracts with other contractors to complete the subject property. Our construction loan had {$180000.00} remaining to be drawn down and we intended to use that money to pay other contractors to complete the property while seeking recovery from the initial builder for funds we paid them for work they never completed. 

The initial builder, however, once terminated, spuriously claimed that we owed them money. The builder filed an action against us in Maryland XXXX XXXX, but the Maryland XXXX XXXX refused to hear the builder 's claim against us because the construction contract contains a binding arbitration clause. The XXXX XXXX did not outright dismiss the builder 's claim, however, and instead opted to put the case on indefinite stay pending arbitration. 

Citizens Bank unilaterally decided that our contractor 's claims, unproven and unheard, were sufficient reason to freeze any further advances on our construction loan and to refuse to convert our loan to permanent status. Citizens Bank 's own loan documents required us to pursue legal action against our builder for breaching the construction contract and so that is what we did. Citizens Bank 's response was to disallow us access to the remainder of the funds they agreed to lend us to complete the house. This approach makes zero sense as, without access to the funds to finance the project, how were we expected to complete the home in a reasonable amount of time? At the same time, Citizens Bank also informed us that we would continue to be responsible for any extension fees ( roughly {$1600.00} a month ) for each month that the property remained unfinished. 

When we asked Citizens Bank what they expected us to do in this impossible situation, they told us that we needed to " release the lien '' placed on our property by our initial builder. We explained to Citizens Bank that there was no lien and that the court had refused to hear the initial builder 's claims because of the existence of the arbitration clause, but Citizens Bank refused to listen to us and continued to insist that we must " release the lien '' even though no lien exists. 

Frustrated with the impossible position that Citizens Bank put us in, we decided to finance the completion of the home ourselves by liquidating significant investments and drawing down our retirement savings. We told Citizens Bank what we planned to do, and that we would " repay ourselves '' with the remainder of the loan proceedings that Citizens owed us once the house was complete and they did not raise any objection. 

Three months later, in XXXX of XXXX, we completed the construction of the house. We provided all of the documentation and necessary completed permits and approvals to Citizens Bank and asked them to provide us the final advance and convert our loan to permanent status. Citizens Bank still refused to pay us the final advance and again told us that our loan would be frozen until we could " release the lien. '' At this point we engaged two separate Maryland law firms at our own expense to analyze our situation and confirm whether there was any lien attached to our property that could be released. Each firm independently concluded and confirmed to us and to Citizens Bank that there was no lien attached to our property. Under Maryland law, merely filing a petition to obtain a mechanics lien has no effect of encumbering the subject property unless and until the court hears a show cause hearing and determines there is probable cause to establish a lien. As that did not and will not happen because of the existence of the arbitration clause, there is no lien attached to our property. Moreover, even if there were a lien created by the action, Citizens Bank is in no danger whatsoever of losing first priority position of its lien, because under Maryland law any disbursements under a single deed of trust all have the same priority. 

Notwithstanding these clear explanations from multiple Maryland law firms, Citizens Bank still refused to advance us the remaining funds, still refused to convert our loan to permanent status, and still told us that we were accruing " extension fees '' for each month that our loan remained in construction status. 

In XXXX of XXXX, notwithstanding that Citizens Bank still refusing to move our loan out of " construction status '' we moved into the completed property. Since XXXX of XXXX ( eight months ago at this writing ) we have been going back and forth with Citizens Bank to try and get them to advance us the remaining funds under our loan and convert our loan to permanent status. The house is fully completed. The terms of the contract are met. 

Citizens Bank still refuses to make the final advance or convert our loan, or offer any way to move forward with our situation, other than continuing to repeat to us that we need to " release the lien, '' which again is a legal impossibility because there is no lien. While stonewalling us on this front, Citizens Bank continues to charge us interest-only payments on the already advanced principal ( ~ {$3300.00} a month ) while also telling us that we are accruing extension fees ( {$1600.00} ) each month as well. They will accept no payments towards the principal of the loan. The extension fees are accruing but have not been billed to us because the total number of months we will need to " extend '' our loan has yet to be determined because the loan can not convert until we " release the lien. '' So in short, Citizens Bank is charging us {$5000.00} a month in excessive interest and extension fees while refusing to allow us to start making principal payments on our completed home and refusing to advance us the remaining funds that it legally agreed to loan us. Citizens Bank is justifying its incredibly self-serving position by claiming that it does not have to comply with its obligations under the loan agreement until we do something that is literally impossible to do ( release a non-existent lien ) ostensibly in order to protect Citizens Bank from a non-existent risk ( that a mechanics lien could displace it from first lien position XXXX. This has been ongoing for the last 9 months, given that the property was completed in XXXX of XXXX. Moreover and perhaps worse, there is no end in sight because there is literally no way for us to " release '' this non-existent lien, and so Citizens Bank 's position is that they may continue to charge us {$5000.00} a month in perpetuity without reducing the principal on the loan by a single cent until we somehow manage to do the impossible and release this non-existent lien.