Legal Briefs

Closing Counsel

Developers may benefit from hiring a real estate lawyer to manage details.

T oday’s demand for new product in most real estate sectors has convinced a number of commercial real estate professionals to try developing properties either out of the ground or through the renovation of existing buildings. While development and redevelopment present a host of challenges, an early obstacle often is obtaining financing. To ensure a smooth closing, novice developers should engage and rely on real estate attorneys to guide them through the process. However, depending on their professional background, inexperienced developers may be unsure of what role a real estate attorney plays in the closing.

Every real estate developer can be sure that the lender’s counsel strives to cover every angle for the bank or financial institution, but not all may be aware that there are corresponding safeguards for developers borrowing money.

Twofold Protection
The role of the borrower’s counsel in a closing is, quite simply, to protect the borrower through two main directives. First, the attorney represents the developer in all phases of property acquisition. This includes everything from contract negotiation and preparation to due diligence investigation to title insurance and surveying matters. The borrower’s counsel can be critical in this facet of the closing as more closings are delayed due to borrowers’ inability to handle their due diligence matters than are delayed by document preparation.

The more sophisticated the financing, the more complicated and detailed the lender’s requirements for closing will be. For example, if the loan is a permanent long-term securitized or conduit loan, often favored by investors because of long-term fixed rates, then the borrower’s counsel should be familiar with the single-purpose entity regulations, the inflexibility of the loan documents, and other oddities of this closing type. Improper preparation of even the borrower’s organizational documents will delay the closing.

Another loan requirement that often is not satisfied by inexperienced borrowers is the survey. As simple as it sounds to order a survey, national lending institutions require American Land Title Association surveys. ALTA surveys make specific reference to title and zoning matters, locate each feature of the building and the parking, and certify precise statements dictated by the lender.

The second role of the borrower’s counsel is to help bring the money to the closing table. This includes reviewing and negotiating the loan commitment letter and loan documents and satisfying the requirements of the lender and the lender’s counsel to close the transaction. These steps require patience and even finesse to balance the lender’s needs and the developer’s requirements.

The commitment letter is the contract between the borrower and the lender that dictates how the loan will be structured and closed. Many times, developers neglect to have their counsel review the commitment letter, which can hamper negotiation of the loan documents or the closing process.

Key points to consider include release price provisions for multiple parcel loans; prepayment restrictions and exceptions to those restrictions; who writes the title insurance for the loan, which can be a huge cost factor; whether or not the commitment is enforceable, specifically if fees are refundable if the developer finds a more favorable loan; and closing costs, time frames, guarantors, and other loan details. All of these issues can affect the developer’s costs and should be carefully considered at the time the commitment letter is negotiated and executed.

The Closing Checklist
Once the loan is approved and closing approaches, the lender’s counsel will issue a closing checklist. It sets out each requirement necessary to close the loan and provides a list of documents that have to be executed or provided by third parties to satisfy the lender’s requirements and fund the transaction.

Typically, developers are interested in the details of closing the project and assembling the funds to get to the closing table. Developers do not want to be bothered with details and paperwork and rely on counsel to satisfy the checklist requirements. These items can range from simple documents such as the title commitment, a municipality zoning letter, or a survey to difficult-to-obtain documents such as agreements executed by architects, contractors, and engineers with respect to services to be rendered in the construction phase of the loan. Sometimes third parties are unwilling to execute the documents simply because they do not understand the need for them. Most documents requested by third parties provide that in the event the project fails and the bank takes over the property, the professionals will continue to render the agreed-upon services to allow the bank to finish the project, making the project more saleable and allowing the bank to recover its money.

The borrower’s counsel must recognize which of the items on the checklist are vital to the closing transaction regardless of how difficult they are to provide, which items they can request the lender or lender’s counsel to accept post-closing, and which items are nice to have but are not required and should be waived or eliminated.

Since lenders’ attorneys often are highly skilled lawyers with years of experience in representing their financial institutions, developers should consider engaging their own counsel with the specific experience and skills necessary to represent their interests as borrowers. This helps to level the playing field, avoid last-minute anxiety, and close the deal with minimal aggravation.

David Weisman, JD

David Weisman, JD, is a partner with Greenspoon Marder P.A. in Fort Lauderdale, Fla. Contact him at (954) 491-1120 or


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