CLOSING CHECKLIST

$1,000,000.00 LOAN

FROM

XYZ BANK (“LENDER”)

TO

PROPERTY OWNER, LLC (“BORROWER”)

WCSR 7689216v1

L = lender B = borrower LC = lender’s counsel BC = borrower’s counsel Document

Notes/Status

Responsible Party

Loan Documents

Commitment Letter L/LC

Loan Agreement LC

Promissory Note LC

Mortgage, Security Agreement, and Fixture Filing

LC

Assignment of Leases and Rent LC

UCC Financing Statement (Personal Property)

LC

UCC Financing Statement (Fixture Filing)

LC

Guaranty Agreement LC

Environmental Indemnification Agreement

LC

Subordination of Management Agreement, if applicable

LC

Pledge of Deposit Account, if applicable

LC

Holdback/Letter of Credit Agreement, if applicable

LC

OFAC and Patriot Act Agreement LC

Participation Agreement, if applicable

L

Organizational Documentation of Borrower and Related Parties

A. Officer’s Certificate LC

Articles/Certificate of Formation

B

2 WCSR 7689216v1

Document

Notes/Status

Responsible Party

Certification of Good Standing B

Qualification in State where property is located

B

LLC Operating Agreement/Bylaws

B

Resolutions BC

B. Officer’s Certificate of Member/Shareholder

LC

Articles/Certificate of Formation

B

Certification of Good Standing B

LLC Operating Agreement/Bylaws

B

Resolutions BC

C. Officer’s Certificate of Guarantor

LC

Articles/Certificate of Formation

B

Certification of Good Standing B

LLC Operating Agreement/Bylaws

B

Resolutions BC

Title and Property Condition

3 WCSR 7689216v1

Document

Notes/Status

Responsible Party

Loan Title Insurance Commitment

Endorsements a. Usury b. Separate tax parcel c. Same as survey d. Comprehensive e. Variable Rate f. Access g. Environmental h. Contiguity i. Zoning j. Utility Facility k. Subdivision

BC

Copies of Recorded Title Exceptions and Plats

BC

Insured Closing Letter BC

Legal Description BC

UCC, Tax Lien, Judgment Searches

BC

Survey and Surveyor’s Certificate B

Phase I Environmental Site Assessment

B

Engineer’s Report B

ADA Compliance B

Seismic Report B

Insurance B

Zoning Letter / Report B

Appraisal B/L

Permits and Licenses B

Property Management Agreement and Leases

Management Agreement, if applicable

B

4 WCSR 7689216v1

Document

Notes/Status

Responsible Party

Leases (and summaries) B

Certified Rent Roll B

Tenant Estoppels and Subordination, Non-Disturbance and Attornment Agreements

LC & B

Copies of Service Contracts B

Closing Items

Settlement Statement (and wiring instructions)

BC (or title co.)

Closing Instruction Letter LC

Opinion of Borrower’s Counsel BC & LC

Marked Up Title Insurance Commitment

BC (or title co.)

Post-Closing Items

Final title insurance policy BC (or title co.)

Original recorded documents BC (or title co.)

Closing Agreement items, if applicable

B or BC

Construction Loan Items

Construction Contract and GC Consent to Assignment

Surety Bond

Architect’s Contract and Architect’s Certification and Consent to Assignment

Copies of Plans

Budget

Geo-tech / Soil Boring reports

Utility Letters

5 WCSR 7689216v1

Document

Notes/Status

Responsible Party

Governmental Approvals and Building Permit

6 WCSR 7689216v1

COMMERCIAL REAL ESTATE FINANCING 2014 Fundamentals of Commercial Real Estate

ABA Section of Real Property, Trust & Estate Law Spring Symposium – May 1-2, 2014, Chicago

John P. McNearney and Dianne S. Coscarelli

INTRODUCTION

This program is an overview of the primary documents and issues counsel handles in connection with commercial real estate financing. The commercial real estate industry has developed myriad real estate financing techniques and methods to facilitate the construction and development of real estate. This program is intended as an overview of many, but not all, of the documents and issues. As such, the reader can almost view this paper as a checklist to facilitate, but not necessarily answer, the hundreds of issues involved.

Debt versus Equity. Real estate financing typically involves a combination of debt and equity. It may involve more than one source of equity and more than one source of debt. The equity structure, as well as the debt, may take different forms through different entities. In its simplest form, if a person were to acquire real estate for cash, without debt or borrowing of any kind, the value of the real estate would all be considered equity. At the other extreme, if a person acquired real estate by borrowing the entire purchase price of the property and pledging the real estate as collateral for the loan, the person would not have any equity in the property.

Frequently, investors borrow from banks, life insurance companies, or other institutional lenders a substantial portion of the cost of real estate, and the debt will be secured by a mortgage creating a lien against the property. In some cases, the real estate may be acquired subject to existing debt, existing debt may be assumed in connection with the acquisition, or the seller may be willing to take back a lien position to secure a portion of the purchase price and perhaps repayment of existing financing.

Portfolio Loans versus Securitized Loans. For the real estate investor and lender to evaluate which type of financing would best suit their needs, it is useful to consider a number of the differences between securitized loans and portfolio loans. Historically, life insurance companies and commercial banks provided the bulk of the capital required for financing real estate investments. These portfolio lenders were long-term investors for their own accounts. Portfolio lenders generally held loans until maturity. They would service their loans either themselves or through their regional mortgage loan correspondents. Portfolio lenders rarely purchased or sold loans in the secondary markets.

Conduit lenders originated commercial mortgage loans with the goal and intention of securitizing them into the Wall Street capital markets as CMBSs. The conduit lenders then combined the commercial mortgage loans into large diversified pools, which they sold to REMICs (real estate mortgage investment conduits) or to FASITs (financial asset securitization investment trusts)

SLC-7186439-1 -1-

(jointly referred to below as “conduit trusts”). The conduit trusts issued CMBS trust certificates for sale in the public securities markets. After securitization, CMBS certificates were traded in the secondary markets.

The securitization of commercial mortgage loans has been driven primarily by the lenders’ need to create liquidity. One effect of securitization is to shift mortgage lending from an illiquid industry dominated by proactive institutions to a capital market environment dominated by securities investors. Securitization involves the pooling together of commercial mortgage loans and issuance of pass-through securities to investors that represent interests in the cash flow due under the mortgages. In a mortgage loan securitization, a business with a pool of mortgages transfers these mortgages to an unrelated entity—either a corporation or a trust. The entity issues securities, and the proceeds of the mortgages are used to pay the return to the securities investors. The mortgage-backed securities, which are known as CMBSs (commercial mortgage-backed securities), are used in refinancing and in new loans.

Securitization was designed to give real estate developers access to the public capital markets at a rate significantly lower than the traditional commercial lender’s rate and to allow lenders to lower their exposure to real estate loans. Securitization spurred the use of standardized loan documents and standardized underwriting on a nationwide basis. It affected underwriting, documentation, distribution, and servicing of commercial mortgage loans.

Funds for the payment of principal and interest owed on the CMBS certificates are provided by the payments received on the pooled mortgage loans. The pool of mortgages secures payments due on the CMBS certificates. The certificates are issued in tranches, i.e., separately rated classes of CMBSs. The investment grade tranches (the A tranches) are credit rated (BBB or higher) by the national ratings agencies, such as Moody’s, Fitch, or Standard and Poor’s. Institutional investors normally purchase the A tranches. Tranches rated BB or lower (the B tranches) do not qualify for investment grade ratings. B tranches bear higher interest rates. They are sold to investors who are willing and able to purchase subordinated CMBSs in return for a higher yield.

Commercial mortgage loan terms offered by portfolio lenders tend to be flexible because they are more relationship based, and the lender intends to hold the loan in its portfolio. In contrast, conduit loan structures are more rigid and standardized because conduit lenders must comply with capital market pricing requirements and strict rating agency guidelines.

Construction Lending. When a real estate project involves new construction or the rehabilitation of an existing building, the debt or the part of the debt to be used for construction takes one of three forms. There may be an institutional construction lender and a separate permanent lender, in which case the construction loan may be evidenced by a short-term promissory note secured by a security instrument covering only the construction period with the contemplation that, upon completion, the permanent lender will receive from the borrower a new promissory note secured by a new security instrument.

In the alternative, the construction lender may receive a promissory note providing for interest payments only during the course of construction with amortization payments of principal and interest beginning at some future date, which is contemplated to be after completion of

SLC-7186439-1 -2-

construction. This arrangement is with the contemplation that, upon completion of construction, the construction lender will assign the note and security instrument to the permanent lender.

In either of these alternatives, there is frequently an agreement between the construction or temporary lender, the permanent lender, and the borrower setting forth relationships among the three and the terms and conditions under which the permanent lender will accept the project, the new note, and the security instrument or the assignment of the existing note and security instrument.

The third possibility is that the construction lender and the permanent lender will be the same entity. In any event, the construction loan, and perhaps the permanent loan, will be evidenced by a promissory note and a security instrument usually taking the form of a deed of trust and security agreement, and it will normally be a loan agreement between the construction lender and the borrower.

Historically, commercial mortgage loans were payable in periodic principal and interest payments at a given fixed interest rate amortized over a given number of years. Today, the commercial mortgage loan is just one of myriad financing products available to the commercial real estate investor. We will start this journey with a tour of the commercial loan documents, move on to the need for and characteristics of title insurance, highlight the types of property due diligence and then entity due diligence applicable and conclude with what happens at the closing and post-closing of a commercial mortgage loan.

THE LOAN DOCUMENTS

1. Loan Application / Commitment

A. Can be either bi-lateral or unilateral. A bilateral commitment obligates the borrower to borrow and the lender to lend. A unilateral commitment only obligates the borrower to borrow.

B. Nearly always include “Material Adverse Change” (“MAC”) clauses – provide that the lender does not need to lend if there is a material adverse change in the financial ability of the borrower or the condition of the property prior to closing. MAC clauses were used and tested in connection with the 2008 financial crisis and many lenders used them to refuse to close due to a material adverse change in the credit markets.

C. Frequently include application fees and commitment fees. Pay attention to the terms and conditions under which these fees are deemed earned and become non-refundable.

2. Promissory Note

A. The borrower promises to pay to the order of lender – negotiable instrument

B. Contain the essential payment terms of the loan: Principal Amount, Interest Rate, Payment Amounts, Maturity Date, Late Fees, Default Interest Rate

SLC-7186439-1 -3-

C. Provides whether there is any Prepayment Premium due – amount and circumstances owing

D. Recourse vs. Non-Recourse with Exceptions

3. Mortgage / Deed of Trust, Security Agreement and Fixture Filing

A. Grants Security Interest – operates as both a real estate and a personal property pledge and fixture filing

B. Collateral Description – metes and bounds, fixtures, personal property

C. Includes the remedies available – acceleration; right to foreclosure, appointment of a receiver

D. Includes borrower obligations to maintain the property

E. Insurance required and disposition of insurance proceeds

F. Condemnation

G. Real estate taxes

H. Recordable Form

4. Assignment of Leases and Rents

A. Absolute Assignment with Revocable License to Borrower to collect prior to Default

B. Lender’s rights to use and apply the rents

5. Guaranty

A. Full vs. Non-Recourse Carveouts

B. Waivers, Financial Information

C. Death of a guarantor and substitution of replacement guarantor

D. Burn off upon reaching financial thresholds

E. Payment vs. Completion Guaranty

6. Environmental Indemnity

A. Federal and state environmental laws

SLC-7186439-1 -4-

B. Continuing liability for contamination that occurs while borrower owns the property that is not discovered until after the lender forecloses

C. Need to have someone on the hook other than the mortgagor

7. Assignment of Construction and Architectural Contracts

A. Consent of the contractor and architect to the assignment

B. Lender’s liability for unpaid contractor and architectural fees upon exercise of assignment

8. Loan Agreement

A. Representations and Warranties

B. Affirmative and Negative Covenants

C. Events of Default and Remedies

D. Single Purpose Entity and Separateness Covenants

E. Conditions to Construction Disbursement

F. Equity Contribution Requirement

G. Loan in Balance

H. Architect Certification of Completion

I. Security Agreement

J. UCC-1 Financing Statement – What is the name of the “Debtor”?

i. Entities formed by a Filing with the State. The 2010 amendments to Article 9 define a new term “public organic record” being the record initially filed with a state or the U.S. to form an entity (typically the Articles of Organization or Incorporation). UCC §9-503(a)(1) provides that if the Debtor is a registered organization, the financing statement is sufficient only if it provides the name:

(1) listed as the registered organization’s name on the public organic record;

(2) most recently filed with or issued or enacted by the registered organization’s jurisdiction; or

(3) from the public organic record that purports to state, amend or restate the registered organization’s name.

SLC-7186439-1 -5-

ii. Individual Debtors. For individual Debtors the best source of the name of the Debtor is his or her current, valid driver’s license issued by the state in which the Debtor resides. The UCC includes two alternatives for states to consider in defining a sufficient source of the name of an individual Debtor.

(1) Alternative A – the “only if” approach – In some states, UCC §9-503 provides that:

(A) If the Debtor is an individual to whom this State has issued a driver's license that has not expired, the name is sufficient only if the financing statement provides the name of the individual which is indicated on the driver's license;

(B) If the Debtor is an individual without a current driver’s license, the name is sufficient, only if the financing statement provides the individual name of the Debtor or the surname and first personal name of the Debtor;

(2) Alternative B – the “safe harbor” approach – In other states, UCC §9-503 provides:

(A) A financing Statement is sufficient only if it provides the name of the Debtor; or the surname and first personal name of the Debtor; or the name indicated on the driver’s license.

Whether you are in an “only if” or “safe harbor” state, the same driver’s license rules apply. Use of the name on the driver’s license is either mandatory or a safe harbor.

iii. Trust Debtors. If the Debtor is a trust, or a trustee acting with respect to property held in trust, the financing statement must provide the name specified for the trust in its trust agreement. If no name is specified in the trust agreement, provide the name of the settlor or grantor and additional information sufficient to distinguish the Debtor from other trusts having one or more of the same settlors, and indicate that the Debtor is a trust or is a trustee acting with respect to property held in a trust, §9-503(a)(3). Certain trusts (e.g. business trusts) are registered organizations under applicable state law and, therefore, subject to the same rules for corporations, limited partnerships and limited liability companies as to entities that exist by a filing with a state.

iv. Name on Title Records Differs. Sometimes title to real estate is held by the Debtor in a name that does not exactly match the public organic record or the name on the driver’s license. In those situations, the best course of action is likely to use an “also known as” or “a/k/a” when defining the mortgagor in the mortgage. In other words, if the title to the real estate is held by Smith Farms, Inc., but the actual name on the public organic

SLC-7186439-1 -6-

record is “Smith Farms Incorporated,” then show the mortgagor as “Smith Farms Incorporated a/k/a Smith Farms, Inc.” on the mortgage. If title is vested in “Bob Smith” but the name on the driver’s license is “Robert Smith,” then show the mortgagor as “Bob Smith a/k/a Robert Smith.” In addition, include each name as a Debtor on the UCC-1 by setting forth the name on the public organic record or the driver’s license in the “Debtor” field and the record title name in the “Additional Debtor” field.

(1) CAVEAT: UCC § 502(c)(3)(B) calls for the use of the “individual name of the Debtor or the surname and first personal name of the Debtor” when the mortgage functions as a financing statement. In rare occasions, such name may differ than either the record title name or the driver’s license name. In such event, the individual or surname and first personal name of the Debtor, along with the name on the deed and the driver’s license, should be used in defining the mortgagor in the mortgage using “a/k/a”. If a UCC is used in conjunction with such Mortgage, then include each name as a Debtor on the UCC-1 by setting forth the name on the driver’s license in the “Debtor” field and the record title name and individual’s name or his/her first personal name and surname in the “Additional Debtor” field.

K. Pledge of Membership Interests and of Corporate Stock

i. Perfection by filing versus by possession

L. Deposit Account Control Agreements

M. Subordination of Property Management Agreements

N. Governing Law

i. Split between state where property is located and state where lender is located – usury, creation, perfection and enforcement of liens

O. Opinion of Borrower’s Counsel

i. Organization, Power, Authority, Execution and Delivery, Enforceability, Etc.

ii. Non-Consolidation Opinion

P. Closing Checklist

i. Is an absolute must to guide everyone to a successful closing

SLC-7186439-1 -7-

TITLE INSURANCE

Title matters are critical to every commercial mortgage financing transaction. The lender needs to know that when it advances its funds, it will be protected by a lien of the priority the lender expects. In most of the United States, this assurance takes the form of a loan policy of title insurance issued on forms promulgated by the American Land Title Association (“ALTA”) and approved (with some modifications) by the department of insurance of the applicable state. In the State of Texas, this role is exclusively fulfilled by the Texas Land Title Association (“TLTA”). In California, the California Land Title Association (“CLTA”) is significant and ALTA forms may not be available. In a few states (Iowa, Minnesota, South Dakota), this assurance may take the form of an attorney opinion of title. This paper will explore the issues presented by ALTA loan policies of title insurance.

1. Commitment vs. Policy

2. Named Insured

A. Difference between loan and owner’s title policy and coverage for successors

3. Legal Description of the Property

A. Fee Title

B. Easement Parcels – get insurance as to egress and ingress, parking rights

C. Leasehold Parcels – landlord recognition and estoppel agreements

4. Requirements – need to be satisfied as a condition to the issuance of the policy

5. Exceptions – take away from the coverage of the title poliy

6. Survey

A. ALTA Standards

B. Encroachments, Access, Easements

C. Foundation vs. As-Built Surveys

7. Endorsements

A. Same as Survey, Comprehensive, Access, Continuity, Zoning, Pending Disbursement, Future Advances, First Loss, Aggregation

8. Marked Up Commitment / Pro Forma Policy

SLC-7186439-1 -8-

PROPERTY DUE DILIGENCE

Commercial mortgage loans almost always involve some degree of property due diligence. After all, the lender is ultimately looking to the value of the mortgaged property to provide assurance that it will ultimately be able to recover its investment. As such, the lender is motivated to take a good look at the physical condition and legal standing of the property to provide that assurance. There is a significantly wide tolerance level among and between lenders in terms of the breadth, depth and scope of due diligence undertaken. After all, these investigations cost money and take time. In addition, different types of lenders face differing levels of regulatory oversight and compliance issues in this area. The following is a fairly typical laundry list of the types of property due diligence frequently involved:

1. Zoning Letter or Report

2. Phase 1 Environmental Site Assessment

3. Property Management Agreements

4. Review of Leases

5. Tenant Estoppels

6. Subordination, Non-Disturbance and Attornment Agreements

7. Engineer’s Report

8. ADA Compliance

9. Flood

10. Property Insurance

11. Appraisal

12. Building Permits

13. Certificates of Occupancy

14. Business Licenses – e.g. – Liquor

SLC-7186439-1 -9-

ORGANIZATIONAL DOCUMENTS

No lender’s documents will be of any value if the party signing them does not have the standing and authority to do so. Thus, lenders are fairly consistent and uniform in requiring the basic organizational formation, good standing and authorization documents. One of the first issues a real estate investor needs to determine is the form of entity in which to take title to real estate. Real estate may be acquired, owned, and financed:

• by an individual as a sole proprietor;

• with others as joint tenants, tenants in common, or, in the case of a spouse, tenants by the entireties; or

• by corporations, general partnerships, limited partnerships, LLCs (limited liability companies), and LLPs (limited liability partnerships).

The choice involves a series of liability, tax, and nontax considerations.

Individual—Sole Proprietorship. In the case of acquisition and financing by an individual, no other entity is involved, and all tax losses, gains, and income are declared on the individual’s return. The individual has full authority to act; no consent of others is required. The individual has full and unlimited liability with regard to all issues in relation to the ownership and operation of the property, except to the extent that the individual can negotiate a nonrecourse arrangement with its mortgage lender, in which the lender agrees not to pursue any assets of the borrower other than the subject property in the event of the borrower’s default. Estate tax consequences as well as the individual’s plans for descent and distribution in the event of death also have to be considered. In the case of business property owned by an individual in a sole proprietorship, the business profits and losses are also taken on the individual’s return and offset or are aggregated with the profits and losses from the real estate.

Corporations. A corporation is a separate legal entity and taxed as such. The general business corporation is formed under the applicable state’s law, and should be qualified to do business where its property is located. The corporation has continuity of life. It may even have perpetual existence. It generally shelters its shareholders from liability. It provides for centralized management, and its shares are freely transferable by the shareholders. Corporate income is taxed directly to the corporation and paid by the corporation at the corporate rates established by the Internal Revenue Code unless it is an S corporation.

An S corporation is another typical business corporation that is formed under state corporate law, but that meets certain requirements of the Internal Revenue Code and elects, under 26 U.S.C. § 1362, to be treated as an S corporation. It has, upon this election, the advantage of being taxed to some extent as a partnership because profits of the corporation are passed through directly to the shareholders, avoiding the double tax, and losses may be passed through to the extent of the shareholder’s basis in the corporation. Under some circumstances, however, a gain and income will be taxable to the S corporation rather than its shareholders, but these situations are unusual, such as when there are certain built-in gains (see 26 U.S.C. § 1374), as one example. The S corporation has some of the characteristics of a limited partnership from a tax standpoint, and

SLC-7186439-1 -10-

it does enjoy the advantage of limited liability to the shareholders. The shareholder’s basis in an S corporation does not include debt of the corporation except debt to the shareholder, as compared to a partner’s basis in a partnership, which may include debt. Generally speaking, the S corporation, though more acceptable than a corporation that has not made the S election, is less flexible than a partnership arrangement.

Overall, corporations offer the advantages of limited liability, centralized management, and transferability of ownership. Disadvantages include the possibility of double taxation and less flexibility, generally, than partnerships and LLCs. For these reasons, in most cases a corporation is not the best choice of entity for real estate transactions.

Partnerships. Real estate may be owned by a partnership, whether a general partnership or a limited partnership. Partners in a general partnership generally have unlimited personal liability and participate in the management of the partnership. In a limited partnership, the general partners have the same liability as they would in a general partnership with unlimited personal liability for the debts of the partnership, and they retain management responsibility. The limited partners have liability for partnership debts only to the extent of their agreed capital contribution and may not participate in the active management of the limited partnership. Limited democracy rights may be reserved to the limited partners without destruction of the partnership status; these rights may include approval for the admission of additional partners or sale or refinancing of the property.

Income, deductions, losses, and credits all pass through the partnership structure, whether it is limited or general, to the partners in proportion to their partnership interests. The partnership does not pay the federal income tax but files information returns based on which the partners declare and pay any taxes they may owe because of the partnership’s gains, income, deductions, losses, and credits. Losses taken by a partner are limited to the partner’s adjusted basis in the partnership. A partner’s share of liability is taken into account in determining basis. Limited partners, however, may not share in the liability and normally could not include this liability in basis. If none of the partners has liability, however, as in the case of a nonrecourse loan, all partners, including limited partners, are considered as sharing the liability.

Limited Liability Companies. An LLC is formed by filing Articles of Organization with the Secretary of State. Under the Uniform Limited Liability Company Act, the name must contain the words or abbreviations “limited liability company,” “limited company,” “LC,” “LLC,” “L.C.,” or “L.L.C.” The name may not contain the words “corporation,” “incorporated,” “limited partnership,” “limited liability partnership,” “limited liability limited partnership,” or “Ltd.” The LLC’s Articles of Organization must set forth:

• the name of the LLC;

• the “address [of the LLC], including street and number, if any, of the registered office and the name of the registered agent at such office”;

• the purpose or purposes for which the LLC is organized;

• how the LLC will be managed, whether by its members or by managers;

SLC-7186439-1 -11-

• the events by which the LLC is to dissolve or the number of years the LLC is to exist; and

• each organizer’s name and physical business or residence address.

The LLC has become the favored vehicle for ownership of real estate because of:

• its flexibility in management structure and ownership;

• the protection it affords to members from liability for acts of the LLC; and

• the ability to elect pass-through tax status to the members.

As part of the entity due diligence required in commercial mortgage financing, the lender and the title company will both want to receive and review the following entity documents as applicable to the type of entity involved:

1. Articles of Organization or Formation

2. Current Certificate of Good Standing

3. Current Certificate of Qualification to do Business in State where Property is located

4. Operating Agreement / Bylaws / Partnership Agreement

5. Authorizing Resolutions from Board of Directors, Members or Partners

6. Certification of Trust

SLC-7186439-1 -12-

CLOSING AND POST-CLOSING

If the parties have done a careful and detailed job of providing and handling all of the documents and issues listed above, the closing can and should be uneventful. Neither lender nor borrower’s counsel wants to find themselves at a closing table negotiating the terms of the loan documents and delivering the various due diligence items for the first time. In an ideal world, all of that is done well in advance of the actual day of closing. Most commercial mortgage closings are handled via electronic transmission of documents and remote execution. The parties frequently never see each other or meet in person, even when they are all in the same town.

1. Lender’s Closing Instruction Letter

A. Typically written to a title company closing the loan

B. Encloses the documents that need to be recorded of public record at closing (mortgage, assignment of rents)

C. Specifies who is to pay for what and requires the title company to prepare a detailed settlement statement setting forth all charges and credits

D. Requires the loan policy of title insurance, its form and endorsements

E. Contemplates that the lender will wire transfer the loan funds to the title company and conditions the title company’s authority to disburse funds on satisfaction of the conditions stated in the Closing Instructions

2. Where Documents are Actually Signed

A. Face-to-face closings are more and more infrequent

B. Increased desirability to require notarization

3. Insured Closing Protection Letter

A. Most closings do not occur at a direct title underwriting company office

B. The major national title underwriting companies have agency relationships with hundreds of local title company offices throughout the country

C. Some Closing Protection Letters include dollar limits on the coverage they provide

4. Settlement Statement

A. Include detailed accounting of charges and credits

B. Need to be signed by the borrower

5. Marked Up Title Commitment / Proforma Policy

SLC-7186439-1 -13-

A. A Proforma Policy is a document that looks and reads like a final title policy that is provided by the title company as a courtesy prior to closing but which not signed or actually issued as a Policy until after closing

B. A Proforma is desirable because it avoids any confusion as to the exact form of title insurance required and it speeds the issuance of the actual policy post-closing

C. A Marked Up Title Commitment is a Commitment that is marked with pen and ink to edit the Commitment in a way so as to reflect how the party wants the final title policy to read

D. Timing may not allow obtaining a proforma prior to closing

6. Wire Transfer of Loan Funds

7. Delivery of Executed Closing Documents

8. Final Title Insurance Policy

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3/24/2014

1

Fundamentals ofCommercial Real Estate Financing

ABA RPTE Spring SymposiumMay 2, 2014 Chicago

1

John P. McNearney John M. Trott Dianne S. CoscarelliHusch Blackwell LLP Cox Castle & Nicholson, LLP Thompson Hine LLPSt. Louis, Missouri Los Angeles, California Cleveland, Ohio

Basic Parts of Any Real Estate Loan

1. Loan Documents2. Title Insurance3. Property Due Diligence4. Organizational Documents5. Closing and Post-Closing

2

Loan Documents

3

Loan Application/Commitment Promissory Note◦ Principal Amount, Interest Rate, Payment Terms,

Maturity Date, Late Fees, Default Interest Rate, Prepayment Premium, Recourse vs. Non-Recourse with Exceptions

Mortgage/Deed of Trust, Security Agreement and Fixture Filing◦ Grants Security Interest, Collateral Description,

Right to Foreclosure, Recordable Form

3/24/2014

2

Loan Documents

4

Assignment of Leases and Rents◦ Absolute Assignment with Revocable License to

Borrower to collect prior to Default Guaranty◦ Full vs. Non-Recourse Carveouts◦ Waivers, Financial Information, Death◦ Burn off upon reaching financial thresholds◦ Payment versus Completion Guaranty

Environmental Indemnity Assignment of Construction and Architectural

Contracts

Loan Documents

Loan Agreement◦ Representations and Warranties◦ Affirmative and Negative Covenants◦ Events of Default and Remedies◦ Single Purpose Entity and Separateness Covenants◦ Conditions to Construction Disbursement◦ Equity Contribution Requirement◦ Loan In Balance◦ Architect Certification of Completion

5

Security Agreement UCC-1 Financing Statement◦ Debtor Name: Public Organic Record; Individual

Debtors; Trust Debtors Pledge of Membership Interests and of

Corporate Stock Deposit Account Control Agreements

6

Loan Documents

3/24/2014

3

Subordination of Property Management Agreements

Governing Law Opinion of Borrower’s Counsel◦ Organization, Power, Authority, Execution and

Delivery, Enforceability, Etc.◦ Non-Consolidation Opinion

Closing Checklist

7

Loan Documents

Title Insurance

Commitment vs. Policy Named Insured Legal Description of the Property◦ Fee Title◦ Easement Parcels◦ Leasehold Parcels

Requirements Exceptions

8

Survey◦ ALTA Standards◦ Encroachments, Access, Easements◦ Foundation versus As-Built Surveys

Endorsements◦ Same as Survey, Comprehensive, Access,

Contiguity, Zoning, Pending Disbursement, Future Advances, First Loss, Aggregation

Marked Up Commitment/Pro Forma Policy

9

Title Insurance

3/24/2014

4

Zoning Letter or Report Phase 1 Environmental Site Assessment Property Management Agreements Review of Leases Tenant Estoppels Subordination, Non-Disturbance and

Attornment Agreements

10

Property Due Diligence

Engineer’s Report ADA Compliance Flood Property Insurance Appraisal Building Permits Certificates of Occupancy Business Licenses – e.g. - Liquor

11

Property Due Diligence

Articles of Organization Current Certificate of Good Standing Qualification to do Business in State where

Property is Located Operating Agreement / Bylaws/Partnership

Agreement Authorizing Resolutions

12

Organizational Documents

3/24/2014

5

Closing Instruction Letter Where Documents are Actually Signed Insured Closing Protection Letter Settlement Statement Marked Up Title Commitment/Proforma Policy Wire Transfer of Loan Funds Delivery of Executed Closing Documents Final Title Insurance Policy

13

Closing and Post-Closing

14

Fundamentals ofCommercial Real Estate Financing

ABA RPTE Spring SymposiumMay 2, 2014 Chicago

John P. McNearney John M. Trott Dianne S. CoscarelliHusch Blackwell LLP Cox Castle & Nicholson, LLP Thompson Hine LLPSt. Louis, Missouri Los Angeles, California Cleveland, Ohio