What a Lender’s Counsel Thinks About in a Real Estate Transaction – Part I

In today’s competitive environment, having information and knowledge may often mean having a tremendous advantage over the competition, the difference in closing a transaction quickly, or even closing it at all. If the idea is to be as prepared as one can, thus making the closing as good an experience as possible for the broker and the buyer (a.k.a. borrower), then one sure way is to know what to expect from the Lender and its counsel. With that in mind, Mitchell C. Fogel , of the Boca Raton, Florida law firm of Fogel & Pekale, LLP, offers these nuggets of information to help you close your deal and/or earn your fees.

1. Whose on first, What’s on Second, and I Dunno’s on Third

It may seem obvious, but the loan will NOT fund - and the deal will NOT close - without establishing in detail and delivering to the lender and its counsel critical, current and complete information about the borrower, the seller and, when applicable, the guarantor(s). That means the names of all the parties and, where entities are involved, the formation and governing documents of the applicable entities. As simple as this seems, it is often one of the biggest areas of breakdown in getting the loan ready to close. One of the parties (usually the buyer, but often the guarantors) may form a new entity; may assign the contract to a previously unknown entity (such as a Exchange Accommodation Titleholder in a reverse 1031 exchange); may change the owners, principals or managers of a critical entity; or may modify the governing documents of a vital entity. To avoid delays in closing, always make sure that the most current information and documents - and all amendments or modifications - are timely delivered to the lender and its counsel.

2. Life begins at Contract-ception.

In every deal I have been a part of as counsel for buyer, seller or lender, there has been a written contract executed by the necessary parties to the deal. Lender’s counsel must have a complete and legible copy of the contract (including any and all exhibits thereto, amendments thereof, and other related documentation), and will use the contract in preparing the lender’s closing checklist, a document that provides what materials, conditions, and data that must be delivered, satisfied and/or prepared prior to closing. Also, any changes to the contract - a 1031 exchange addendum, for example - must also be received by such counsel or the closing may be delayed.

3. Show me the Money

If the contract calls for a deposit, or a number of deposits, make sure each has been delivered to the applicable escrow agent and ensure evidence of each deposit is given to the lender and its counsel.

4. Now, show me the Survey

In most real estate transactions, unless the subject property is a condominium unit, it is in the best interests of the buyer to have a current survey of the subject property prepared, and it should show and label all applicable title matters. With the survey, the buyer and lender can make an informed decision about the property, its condition and matters that affect title to it. Lender’s counsel will need to have sufficient time to review the survey and related matters that affect the subject property, PLUS the survey must be certified correctly (usually to the lender, the title insurance company, the buyer, and the closing agent).

5. He said, She said

Effective communication among the essential parties is critical to having a smooth closing. Therefore, the lender’s counsel must receive, early in the process, the names and contact information of all parties and their representatives (i.e., lawyers) in the transaction. Often the broker can be a tremendous asset in this area.

6. What’s mine is mine and what’s your is mine

In a real estate deal - and the loan that funds it, the Buyer’s “status of title” is what is most important to the Lender and its counsel. The Lender decides to make its loan, and determines what the loan terms will be, based upon a number of factors. One of the most significant factors is the priority of its lien on the Lender’s primary collateral. Reviewing title matters can be quite complex, requiring Lender’s counsel to read and analyze many documents, some of which may be very old and hard to read. It is not uncommon to include the services of a surveyor or other professional in determining the applicability of some title documents. Title review can be challenging and can take quite a bit of time. So, do not delay having a title search performed (and where applicable, a title insurance commitment issued) and having it delivered to Lender’s counsel as soon as possible. Lender’s counsel will not advise its client to close a loan unless it is certain that Lender’s lien will be in the position Lender requires as to the Loan.

We will post the second half of "What a Lender's Counsel Thinks About in a Real Estate Transaction" next week. In the mean time, if you have any questions or comments about the contents of this article, please contact Mr Fogel, toll free, at866-829-7472 or in the Palm Beach area at 561-393-9111. If you have questions regarding an upcoming real estate closing and the possibilities of deferring capital gains tax on the sale, please contact us at 888-367-1031.