loan documents and the closing process (lender's...
TRANSCRIPT
LOAN DOCUMENTATION AND THE CLOSING PROCESS
(Lender’s Counsel)
BY: MICHAEL A. ROSENBERG CASSIN & CASSIN LLP
General Outline
1. Loan Documents
A.Basic documents
B.Integration of Loan Documents (“How they work together”)
C.Other Ancillary Documents for Specific Transaction
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General Outline (Continued) 2. Loan Document Issues
A.Representations and warranties
B.Covenants
C.Defaults
3. Closing Process (“Getting the deal closed”)
A.Due diligence process
B.Closing/funding
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PART I—Loan Documentation:
Basic Documents: Promissory Note
Mortgage
Assignment of Leases and Rents
Loan Agreement
Guaranty
Environmental Indemnity
UCC-1 Financing Statements
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Loan Documents Defined: Promissory Note
A written promise to pay a stated sum to a stated person/entity by a stated date or on demand
Term note v. demand note
Long form v. short form
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Loan Documents Defined (Continued): Mortgage
A written agreement conveying to a party an interest (lien) as security for the repayment of a loan
Required to be recorded in public records
Mortgage v. Deed of Trust
NY issue—Mortgage recording tax; also in other states
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Loan Documents Defined (Continued): Assignment of Leases and Rents
A written agreement in favor of a lender entitling lender to any rents, profits or income from the property following a default by the borrower
Should be recorded in public records
Collateral assignment v. absolute assignment
NY issue—Assignment of Leases and Rents are deemed a “mortgage”; therefore, mortgage recording tax applies
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Loan Documents Defined (Continued): Loan Agreement
Comprehensive written agreement by both the borrower and the lender, and other parties if applicable, memorializing all terms and conditions of the loan
Often the loan agreement will contain payment terms, representations and warranties, covenants, default provisions, and other miscellaneous details of the loan
Not recorded in public records
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Loan Documents Defined (Continued): Guaranty
Written agreement executed by a guarantor promising to repay the loan to the lender if borrower defaults
Recourse guaranty v. non-recourse guaranty carveouts from non-recourse
Not recorded in public records
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Loan Documents Defined (Continued): Environmental Indemnity
Written agreement executed by a guarantor (usually warm-body) and often borrower promising indemnify the lender for any losses arising from any environmental issues at the property
Not recorded in public records
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Loan Documents Defined (Continued): UCC-1 Financing Statements
A form financing statement filed by the lender against the property and borrower
Recorded in public records against property-lien on fixtures
Recorded in state of organization against property-lien on personal property
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Integration: “How they work together” Example : Lender makes $10 loan to Borrower
Borrower executes a promissory note payable to Lender in the amount of $10 due in full on date certain
Borrower executes a mortgage in favor of Lender in the amount of $10, which encumbers real estate owned by Borrower as security for Borrower’s repayment under the note
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Integration: Continued
Borrower executes an assignment of leases and rents to Lender as additional security for Borrower’s repayment of $10 to Lender
A guarantor executes a guaranty to guaranty to Lender repayment of $10 if Borrower fails to perform
Borrower and guarantor execute an environmental indemnity to covenant to Lender indemnification for any costs or losses associated with environmental issues on the property
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Integration: Continued
Lender files UCC-1 financing statement against the real estate and in the state Borrower is organized to secure lien on fixtures and personal property, respectively
Borrower and Lender execute a loan agreement to memorialize all agreements, rights, obligations and liabilities under the $10 loan
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Other Ancillary Documents; Specific Transactions Ancillary Documents:
Manager’s Subordination Agreement
Borrower Certificate/Closing Certificate
Errors and Omissions Affidavit
No Material Adverse Change Certificate
Certificate of Lease Form
FIRPTA/W-9
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Other Ancillary Documents; Specific Transactions (Continued) Additional Documents for Floating Rate
Loans:
Interest rate cap
Swap transaction
Interest rate protection agreement/Assignment
Additional Documents for Hotel Loans
Comfort Letter
Assignment of Franchise Agreement
Assignment of Permits and Licenses
Additional Documents for Ground Lease Loans
Ground Lease Certificate
Ground Lessor Estoppel and Amendment Agreement
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PART II—Loan Document Terms and Issues: Representations
Borrower and guarantor representations Formation Authorization Ownership Financial Litigation
Documentation representations
Property representations Physical condition Compliance with law Taxes paid Lease representations
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Loan Document Terms and Issues: Representations: Covenants
Property covenants
Compliance with law
Pay taxes and insurance
Restoration upon casualty or condemnation
Mechanics’ lien
Leasing covenants
Transfer covenants
Alterations/waste
Financial reporting
Payment of lender costs and indemnification
Borrower and guarantor waivers
Environmental covenants
Reserves
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Loan Document Terms and Issues: Representations: Defaults
Failure to pay amounts due
Failure to pay taxes and insurance premiums
Failure to comply with covenants
False representations or warranties
Violations of transfer provisions
Voluntary bankruptcy filing (or involuntary action not dismissed)
Abandonment of property
Waste
Dissolution, death, incapacity of borrower or guarantor, as applicable
Material Adverse Change (“MAC” clause)
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PART III—Closing Process (“Getting the deal closed”): Due Diligence Process Property Diligence Title insurance
Survey
Zoning/certificate of occupancy
Leasing/income producing Lease review
Tenant estoppel/SNDA
Borrower diligence Organizational structure
analysis
Organizational documents
Opinion Letter
Cash Management
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Closing Process: Closing and Funding
Completion of due diligence
Negotiation of loan documents
Conference calls (“All Hands” calls)
Funding process—escrow closing (“by mail”) v. table funding (“NY Style”)
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