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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