The most expensive construction mistake I see churches make is not a bad bid. It is starting the building with their own cash.
The board has money in the bank. The architect's drawings are done. A general contractor is ready. Interest rates feel high, so someone says, "Let's at least get the foundation in with what we have, then we'll go get the loan for the rest." It sounds like stewardship. It is how a loan dies.
What happens next has a name. Subcontractors and suppliers file preliminary notices, often called pre-liens. Those notices preserve the right to a mechanic's lien on the church's land and building. Once title is clouded, a construction lender will not fund, or will freeze every future draw until the cloud is gone. Churches in that spot have a half-finished building, a shrinking cash account, and no loan.
This is not rare, and it is not a paperwork footnote. Most volunteer boards have never heard of a preliminary notice. This piece is the warning I give on construction calls, written down.
This is education, not legal advice. Mechanic's lien and preliminary-notice rules are state-specific and unforgiving. Have counsel and a title company confirm the rules where the property sits before anyone mobilizes.
What a pre-lien actually is
A pre-lien is usually not the lien. It is the notice a subcontractor, supplier, or sometimes the general contractor files so they can later record a mechanic's lien if they are not paid.
States name it differently: preliminary notice, notice to owner, notice of furnishing. The idea is the same. Construction law gives people who put labor or materials into real estate a claim against that real estate if the bill is unpaid. The notice is how they keep that claim alive.
On a church job the general contractor is rarely the only party with lien rights. The electrician, the steel fabricator, the HVAC shop, the pew vendor, and the concrete supplier can each file. The board often never met them. The GC hired them. The notices still land against the church.
A recorded mechanic's lien is the next step: an encumbrance on title. Title companies treat it like a problem because it is one. A lender treating the property as collateral will not close, or will not release the next draw, until the lien is released, bonded around, or paid.
Why churches walk into it
Three instincts, all reasonable, all dangerous on a construction loan.
"We have cash, let's start." Capital campaign money is sitting there. Using it feels cheaper than paying construction-period interest. It also starts every trade's lien clock before a lender's waiver process exists.
"We'll save the loan for later, when we know the final cost." Construction never knows the final cost on day one. Change orders happen. What the board is really doing is building an asset that is already spoken for by unpaid or partially paid trades, then asking a lender to take a second position behind them.
"It's only site work." Site work, deposits, demolition, and "just the slab" are labor and materials on the property. In plenty of states that is enough.
The church construction timeline is already 18 to 24 months for a real project. Adding a title fight in month four does not make that shorter.
How the loan actually dies
Walk through the sequence I have watched more than once.
- The church pays the GC from reserves or campaign cash. Work starts.
- The GC pays some subs and is slow with others, or a supplier is one step down and never saw the church's check.
- Those parties file preliminary notices. Sometimes the church sees them. Sometimes they sit with the GC or in a county record the treasurer does not search.
- Months later the campaign is behind, costs are up, and the board applies for a church construction loan.
- The lender orders a title commitment. The exceptions list shows notices or liens.
- Underwriting stops. Draws cannot start. The title company will not insure over an unpaid mechanics claim. The church is now funding a live job with no lender and a shrinking checking account.
At that point the options are ugly: pay everyone in full to buy releases, post a lien-release bond (often 150 percent of the claim), or fight it in court while interest and delay stack up. None of those is cheaper than having waited for the loan.
The draw schedule exists for this reason. Each draw is tied to an inspection and to lien waivers. The lender is not being difficult. The lender is keeping the collateral and the title in the same place.
"Start with the bank" is the whole strategy
The construction-first rule is simple: the loan should be committed before anyone puts a shovel in the ground.
That does not mean you cannot run a capital campaign. Campaigns and construction loans are supposed to work together. It means the campaign is not a substitute for a lender, and campaign cash is not a reason to skip the commitment.
What "committed" looks like:
- A written construction or construction-to-permanent commitment that names the property
- A draw schedule, inspection process, and waiver requirement the GC has seen
- Title work started, so you learn about existing exceptions before you have a half-poured foundation
- A readiness check on the church's numbers, because a beautiful set of drawings does not fix a weak debt-service coverage ratio
If the numbers are not there yet, that is useful. It is cheaper to wait, build reserves, or resize the project than to start a job you cannot finance. The free readiness assessment is five minutes and does not pull credit. Use it before the groundbreaking Sunday, not after.
If work has already started, stop adding unpaid trades. Call the title company and your construction counsel, get a current title report, and inventory every notice. Do not apply to five lenders hoping one of them will ignore the exceptions. They will not.
Renovation is not a loophole
Boards sometimes hear "construction loan" and think only of a new sanctuary. Lien statutes care about labor and materials on the land. A roof, an HVAC swap, an elevator for accessibility, a parking lot, or a classroom wing can generate the same notices.
The loan amount is smaller. The title problem is identical. If you plan to finance a renovation, treat it like construction: commitment first, then work, then draws.
What the board should require in the GC contract
You do not need to become a construction lawyer. You do need three things in writing with the general contractor before mobilization:
- No work, no deposits that start lien rights, until the church says the loan is in place. If the GC needs a slot on the calendar, that is a scheduling conversation, not a reason to pour concrete.
- Conditional lien waivers with every invoice, unconditional waivers when paid. The lender will demand this. Put it in the GC agreement so it is not a surprise in draw one.
- A list of every sub and supplier the GC will use, updated as the job proceeds. You cannot watch notices you do not know exist.
Then let the lender's draw process run. Fighting it to "move faster" is how waivers get skipped and notices appear.
The five-minute version
If you remember one line, remember this: do not start building with cash and hope the loan shows up later.
Start with the numbers. Start with a lender. Start the work only when title, the commitment, and the waiver process are in place. That order is how churches finish buildings. The other order is how they collect pre-liens and lose the loan.
Jon has spent more than twenty years on the lending side of church finance, structuring real estate, construction, and refinance deals for congregations across the country. He helps church leaders understand how lenders actually evaluate a loan before they apply.
