Rehabilitation or construction mortgages require a special account from which restoration and remodeling funds included in the loan are disbursed to the appropriate contractors as work is completed, known as the Special Deposit Account.

Bankapedia's Take

Special Deposit Accounts prevent the borrower from spending the money alloted for the rehabilitation of a property, on a new BMW. Understand the bank is lending the money on the basis that by rehabbing a property they are increasing the value of the home and in turn increasing the value of the banks collateral. If the money borrowed is not spend on the intended purpose, the bank stands to receive less in the event of a foreclosure.