A Disbursement Authorization Agreement (DAA) is a legal document that enables a borrower to authorize the lender to make disbursements on their behalf. This agreement is commonly used in real estate transactions, especially when dealing with construction loans and other types of large, complex financing arrangements.
The purpose of a DAA is to streamline the disbursement process and ensure that both the borrower and the lender are in agreement about how funds will be allocated. By signing this document, the borrower gives the lender permission to release funds to contractors, suppliers, and other entities involved in the project.
The DAA typically includes details such as the maximum amount that can be disbursed, the timeline for disbursements, and the terms and conditions of the loan. It may also outline the specific items that the funds will be used for, such as materials and labor costs, as well as any contingencies that may arise during the construction process.
One of the most important aspects of a DAA is that it allows the lender to monitor progress and ensure that the funds are being used appropriately. This is essential for ensuring that the borrower is not using the funds for other purposes or failing to complete the project on time.
In addition to benefiting lenders, a DAA can also be beneficial for borrowers. By establishing clear guidelines for disbursements, the borrower can avoid disputes with contractors and suppliers over payments. This can help to ensure that the project runs smoothly and that all parties involved are satisfied with the outcome.
Overall, a Disbursement Authorization Agreement is an important legal document that can help streamline the disbursement process and ensure that both borrowers and lenders are in agreement about how funds will be allocated. If you are involved in a real estate transaction that involves construction financing, it is essential to understand this document and to work with a qualified attorney to ensure that your interests are protected.