Things a Lender's Counsel Thinks about in a Real Estate Transaction - Part 2

Last Friday, we covered the first six of the top things a Lender’s counsel thinks about regarding a commercial loan transaction. This weeks conclusion of that article provides the final items. This list is courtesy of Michael Fogel of the Florida law firm of Fogel and Pekale LLP.

7. Show me where the dead bodies are buried

Except for a condominium, it is almost the rule that some form of environmental questionnaire, analysis, study, or report will be required by the lender. If you think buyers don’t like surprises, then you’ll not be surprised to learn that lenders dislike them even more. You should know that there are very few exceptions to the lender’s requirement that this pre-closing condition meet the lender counsel’s satisfaction. Quite simply, the lender will not fund the loan without it. While an environmental questionnaire is relatively quick to prepare, an environmental study (i.e., a Phase 1 Report) frequently is not. If any further analysis is required, that WILL take time. Therefore the best advice is, when the contract is fully executed and if the lender requires an environmental analysis, don’t delay. Order it today!

8. How’d they do that?

Ah...the appraisal. One of life’s great mysteries. Some how, some way, the property is given a value by those all-knowing, all-powerful prognosticators of worth: the appraisers. This may be one of the toughest jobs in the real estate industry. It takes experience and study and is critical to the loan process. Which means that the appraiser (like the surveyor) must meet the lender’s qualifications and the bank will (or will not) make its loan based upon the value the approved appraiser gives the subject property. The lender’s counsel will have this item as a high priority item on its Closing Checklist as the loan itself will not be done without the appraisal meeting the lender’s criteria.

9. The Kitchen Sink

Each commercial real estate transaction is unique and there are times when there are other important facts, terms, or conditions that are critical to disclose to the lender and its counsel very early in the process. The list is endless - virtually a kitchen sink of scenarios. For example, franchises and gas stations have very specific agreements that affect the use of the subject property and, therefore, are subject to the Lender’s review and approval. Other commercial properties may have tenants of all different sizes and leases of varied terms. There may be cross-access easements, deed or other use restrictions, property owner associations, zoning or code violation matters, like kind exchange documents. All of these are important to lender’s counsel and must be addressed in the initial pre-closing phases of the transaction. A delay in getting lender’s counsel information on any of these items may result in a delay of the closing, or perhaps closing will not happen at all, frustrating the buyer’s and the broker’s objectives and creating unwanted consequences.

10. I’ve got you covered

If you have lived in Florida for 5 minutes you know that property insurance is a very hot topic now and likely will be for some time to come. It one of the essential ingredients in “baking the closing cake”. It is extremely unlikely that buyer’s lender will close without the buyer obtaining insurance coverage acceptable to the lender. It is, therefore, important to have the buyer determine what the lender’s insurance requirements are as soon as possible then diligently pursue satisfying them. Insurance will most certainly be a pre-closing item on the lender counsel’s closing checklist. Get evidence of insurance coverage - paid in advance by the buyer - to the lender’s counsel. As we have all seen, the insurance market changes like the weather. Do not wait until the last minute on this matter.

10 (again). Show me the Money (Again)

While all of the pre-closing conditions are getting satisfied, keep your eye on
one of the last requirements - the buyer’s closing funds. Generally, the buyer shall be required to come to the closing with funds sufficient to close the transaction. Funds are usually in the form of a bank or cashier’s check, an attorney’s trust account check or are sent by wire transfer. It is not uncommon for buyers/borrowers to lose track of this requirement. They then have to scramble to come up with sufficient closing funds, thereby causing a myriad of issues on the eve or day of the closing!

While this article is written from the perspective of a lender’s counsel, you may notice that several of the top items are very important, even critical, to the buyer and its counsel. Accordingly, make sure that these items are delivered to such parties concurrently with the delivery thereof to lender and its counsel. If the broker can provide this information thoroughly and quickly, it can and most often does make the pre-closing part of the transaction proceed more quickly and efficiently. And getting the closing to occur, as we all know, is the main objective.

We'd like to thank Mr Fogel for granting us permission to use his insights. Please contact Mitchell at (561) 393-9707 with any questions or comments.