local counsel opinions in real estate finance...

Local Counsel Opinions in Real Estate

Finance TransactionsStrategies for Maximizing Efficiency and Reducing Risks for Opinion Givers

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THURSDAY, MAY 2, 2019

Presenting a live 90-minute webinar with interactive Q&A

Gordon L. Gerson, Attorney, Gerson Law Firm, San Diego

Doug Prince, Shareholder, Buchalter, Seattle

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LOCAL COUNSEL OPINIONS IN REAL ESTATE FINANCE TRANSACTIONS

Strategies for Maximizing Efficiency and Reducing Risks for Opinion Givers

Doug [email protected]

Gordon L. [email protected]

PRESENTERS

• Gordon Gerson, Gerson Law Firm APC, San Diego CA (admitted in California)

• Doug Prince, Buchalter, a Professional Services Corporation, Seattle, WA (admitted in Oregon and Washington)

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INTRODUCTION

• This is a seminar on how to address significant issues with local counsel opinions in commercial real estate finance transactions—from the perspective of the local counsel opinion giver.

• In many cases, reasonable minds can differ on whether a local counsel opinion should be asked for at all (e.g. when the lender already has local counsel in the opinion giver’s state who prepared the documents).

• These materials assume the opinion requirement is not open to debate and is simply a fact of life. The merits of the lender requiring an opinion in the first place are deliberately not addressed. But we do discuss factors to consider in deciding whether your law firm wants to be the one giving the opinion.

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INTRODUCTION(Continued)

• The scenario discussed in these materials is where the lender is located in State A and the property is located in State B. The loan documents are governed in full or in part by the law of State B (the property jurisdiction). To the extent not governed by the law of State B, the documents are either governed by the law of State A (where the lender is located) or perhaps by the law of State C.

• The justification for using the law of State C is hopefully that it is the law of a recognized commercial center such as New York—and not that the lender’s counsel happens to be located in State C.

• Because the enforceability of the loan documents is dependent in part on the laws of State A, and if applicable State C, the lender may ask for local counsel opinions under the laws of State A and if applicable State C.

• As stated above, we will discuss how to handle these requests—not whether the request itself is appropriate or reasonable .

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DISCLAIMER

This presentation, including the writtenmaterials, are for educational purposes onlyand do not constitute legal advice. The viewsexpressed herein are those of the presentersonly, and not of any client represented byeither of the presenters or any industry orprofessional organization which either of thepresenters is affiliated with.

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Part I—Defining theScope of Engagement

I. ROLE OF LOCAL COUNSEL

A. Lead Counsel vs Local Counsel.

1. Local counsel will be needed when lead counsel may be:

a. Lead legal long-standing counsel to a borrower but the borrower has been organized and formed in another state.

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DEFINING THE SCOPE OF ENGAGEMENT (CONTINUED)

b. Lead legal counsel initially engaged because of expertise or for other reasons even though the loan documents are governed the laws of another state, and lead counsel is not licensed in the state whose laws govern the loan documents.

c. Lead legal counsel initially engaged because of expertise (e.g. securities lawyer who formed limited partnership for borrower) or for other reasons (e.g. general practitioner and /or relative) and licensed in the state whose loan documents govern the transaction but lacks expertise.

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B. Most Common Instances Requiring Local Counsel.

1. When the loan documents are governed by state law other than where the property is located. Example:

• Borrower is organized in California, and the Property securing the loan is in California, and Borrower’s counsel is only licensed in California.

• Loan Documents are governed by laws of the state of New York.

• New York counsel is needed to opine to enforceability of the loan documents.

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2. When Borrower has been formed in a state other than where its primary counsel is licensed. Example:

• Borrower is a Washington limited liability company.

• The Property securing the Loan is in California, and Borrower’s counsel is only licensed in California.

• Washington counsel is needed to opine as to the borrower being duly formed, organized and existing.

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3. When loan is secured by multiple properties in different states. Example:

• Loan is secured by Property in California, Washington and Oregon.

• Loan documents are governed by California law, however, as collateral is in three states, legal opinions of counsel in Washington and Oregon as to enforceability of real estate security documents [deed of trust, assignment of leases] is also required.

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C. Pitfalls and How to Avoid Them.1. Local counsel opinion requests typically have one or more

of the following common facts:

• The principal client relationship is with lead counsel, and not the local counsel opinion giver.

• The deal terms were negotiated by the client and/or lead counsel, with little or no local counsel involvement.

• The opinion request is made at the 11th hour.

• The client has an unrealistically low fee expectation.

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2. All of the above (in particular, the limited scope of local counsel’s involvement) is likely to be forgotten when the deal goes sideways and a search begins for deep pockets to share the losses. See Taylor v. Cairncross and Hemplemann, et.al. No. 70414-1-1 (Washington Court of Appeals, Division 1, 2014).

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3. To avoid becoming a deep pocket target, consider the following:

• A rebuttable presumption against one off representations of clients where the only service being provided is the rendering of a legal opinion.

• An engagement letter which limits the scope of services to the rendering of a legal opinion and declines any obligation to advise on the merits of the underlying deal [appropriate only if the client is sophisticated and another lawyer is in fact advising on the merits of the underlying deal].

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• Strict limitations on the substance of the opinions being rendered—nothing outside the scope of your limited engagement [Discussed further in Part III].

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Part II—Document ReviewAnd Due Diligence

• In most circumstances, the principal tasks of a local counsel opinion giver are to:

– Review the draft loan documents and recommend changes needed to conform the documents to applicable local law.

– Render an opinion that the documents are enforceable under local law, subject to customary exceptions.

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Document ReviewAnd Due Diligence (Continued)

• Issues arise when:– The documents fail to include verbiage which is required under state

law [e.g. statute of frauds notices or warnings regarding force placed insurance].

– Recorded documents violate formatting requirements under state law. – The documents contain provisions which if left unchanged, deprive the

lender of a remedy available under applicable state law [e.g. overbroad descriptions of the secured obligation in states with anti-deficiency laws, which deprive the lender of post-foreclosure remedies against guarantors or signatories to environmental indemnities].

– There are known ambiguities in state law [e.g. rights of an administrative agent to exercise foreclosure remedies if it is not the holder of the debt] and the lender has not followed “best practices” employed by local attorneys to minimize the risks presented by the ambiguity.

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• There is little doubt that the local counsel opinion giver should identify wording that needs to be added under state law, or violations of format requirements for recorded documents.

• But what about other defects, especially if the lender does not have its own local counsel? And especially if the issue would be a judgment call if presented to an attorney knowledgeable about local law?– Can the local counsel simply include enforceability exceptions

which are broad enough to encompass the issues presented by less than perfectly drafted documents?

– Or does the local counsel have a duty to recommend corrections that give the lender the maximum rights and protections available under state law?

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• Issues to consider in deciding what to do:

– What does your client want? In circumstances where the lender did not retain its own local counsel (thereby saving money for your client, the borrower), your client may want you to give the lender the same level of comments on document issues of a technical legal nature that the lender would have gotten from its own local counsel. Even more so if your client does repeat business with the lender (or wants to).

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• Does a lawyer have a duty to not deliver an opinion that while technically accurate on its face, is misleading? And does taking an exception while not telling the lender how the documents could have been drafted to avoid the need for the exception rise to the level of being “misleading”? See 1998 Tribar Report on Third Party Closing Opinions, 53 Business Lawyer 591, 602.

• Does a lawyer have a duty to reveal opposing counsel mistakes to opposing counsel? See California Ethics Opinion 2013-189

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• Is the borrower’s attorney off the hook if she recommends document changes to the lender’s counsel and the lender’s counsel refuses to make the changes?

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PART III—SUBSTANTIVE OPINION ISSUES

Opinion letters are generally structured in five sections:

• Documents Reviewed

• Assumptions

• Substantive Opinions

• Qualifications and Exceptions

• Reliance

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SUBSTANTIVE OPINION ISSUES—CONTINUED

A. Opinion Requests1. Entity Opinions. (Solely required in response to an

“Execution and Due Authorization” request, and included in “Enforceability Opinion”).(a) Status

• BorrowerExample: Borrower is a limited partnership (a) duly formed, (b) validly existing and (c) in good standing under the laws of the State of California.

• Guarantor [ if an entity, prepare as above example].

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(b) Power• Borrower

Example:Borrower has the partnership power and authority (a) to own, lease and operate the Property and (b) to execute, deliver, and perform Borrower’s obligations under the Loan Documents.

• Guarantor [ if an entity, prepare the same, and if not, see Execution and Delivery below].

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(c)Authorization

• Borrower [generally given in connection with “power” opinion in (b) of above.

• Guarantor [ same comment applies to Borrower].

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(d) Execution and Delivery• Borrower

Example:

The execution and delivery of the Loan Documents by Borrower and the performance of Borrower’s obligations under the Loan Documents have been duly authorized by all requisite action of Borrower and (b) the Loan Documents have been duly executed and delivered by Borrower.

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• Guarantor [ if an entity, same as above]. If an individual:

Example:

The Individual Guaranty has been duly executed and delivered by the Individual Guarantors.

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2. Enforceability and Usury. The enforceability opinion absent assumptions, qualifications and exceptions, is not only as to material provisions, but all provisions of the loan documents

(a) Loan documents are enforceable against

• BorrowerExample:The Loan Documents are the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law).

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• Guarantor

Example:The Individual Guaranty is the legal, valid and binding obligations of Individual Guarantors, enforceable against Individual Guarantors in accordance with their respective terms, except as may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law). [ if applicable: The Corporate Guaranty and Trustee Guaranty are the legal, valid and binding obligations of Corporate Guarantors and Trustees, respectively, enforceable against Corporate Guarantors and Trustees in accordance with their respective terms, except as may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law).]

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Absent assumptions, qualifications and exceptions, this is not only as to material provisions, but all provisions of the loan documents.

(b)Usury Opinions.• Loan is not usurious.• May be construed to be given by

implication in an opinion that the loan is not in contravention of any laws.

• Revert to qualification if not giving a usury opinion.

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3. Choice of Law Opinions.(a) Not always requested (as implied in enforceability

opinion).(b) When requested:

i. Multiple state law governs as in the case where the loan documents are governed by the laws of a state other than where the mortgaged property is located, but the deed of trust or mortgage and/or some but not all of other loan documents, are governed by the laws of the state where the property is located in order to exercise remedies in those states or for other purposes.

ii. When borrower and mortgaged property are in one state, and loan documents are governed by another state, and lender does not want a defense raised in litigation that there was not a nexus.

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4. Non Contravention and No Violation of Applicable Laws Opinions.

(a) Executing the loan documents will not breach or violate any organizational document, agreement, contract or obligations of:• Borrower• Guarantor

(b) Execution and delivery of the loan documents and performance of covenants of the loan documents will not result in the violation of any law by:• Borrower• Guarantor

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5. No Litigation Opinions.

(a) A statement that that there is no litigation or any legal proceedings that affect:

• Borrower

• Guarantor

• Mortgaged Property or Collateral

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B. Assumptions, Qualifications and Exceptions.

1. Assumptions. An enforceability opinion will include a statement that the Loan Documents are legal, valid and binding, subject to and limited by exceptions and qualifications, which will include:

(a)Equitable Principles Exception.

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Example:• general principles of equity, regardless of

whether enforceability is considered in a proceeding in equity or at law, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the effect of such principles on the possible unavailability of the remedy of specific performance of an obligation, injunctive relief, or the appointment of a receiver.

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(b) Bankruptcy Exception. Example:

• the effect of any bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, receivership, assignment for the benefit of creditors or other laws relating to or affecting the rights of creditors generally (including, without limitation, the effect of statutory or other laws regarding fraudulent or preferential transfers and/or the effect of California Civil Code Section 3440).

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(c) Generic Qualifications.Examples: • the unenforceability under certain

circumstances of provisions to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy or the election of some particular right or remedy does not preclude recourse to one or more other rights or remedies.

• limitations upon indemnification and contribution rights which may be imposed by equitable principles.

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• the unenforceability under certain circumstances of provisions imposing penalties, forfeiture, late payment charges, or an increase in interest rate upon delinquency in payment or the occurrence of any event of default.

• possible limitations on the exercise of self-help or other summary procedures for the obtaining of possession of various real or personal property as set forth in the Loan Documents if and to the extent they are found to be against public policy or are “unconscionable.”

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(d) State Law Qualifications.Examples (If loan governed by California law).

• possible limitations on the enforceability of the use of condemnation proceeds or insurance proceeds to reduce the principal amount of obligations, rather than making such proceeds available for restoration of property that is security for such obligations, to the extent that Lender is unable to show that its security has been impaired by reason of such condemnation or casualty. See, e.g., Schoolcraft v. Ross, 81 Cal.App.3d 75 (1978) (casualty insurance proceeds); Civ.Proc.Code1265.225 and Milstein v. Security Pacific National Bank, 27 Cal.App.3d 482 (1972) (condemnation awards).

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• the effect of California Civil Code Sections 2954 et seq. relating to impound, trust or other types of account for the payment of taxes and assessments on real property, insurance premiums or other purposes relating to such property. Among other things, California Civil Code Section 2955 requires that such accounts be retained in the State of California and invested only with persons or entities who reside in or do business in the State of California, except that a mortgagee or beneficiary of a deed of trust that is a first lien on real property may deposit such funds in an account at any institution insured by the Federal Deposit Insurance Corporation or certain other locations if such mortgagee or beneficiary qualifies under one of the categories of Section 2955(b).

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• with respect to the enforceability of those provisions of the Loan Documents that guaranty or indemnify you against any breach or default by Borrower or Guarantor under the environmental provisions of the Loan Documents, we advise you of California Code of Civil procedure Section 736 (concerning the enforcement of an environmental provision), California Code of Civil Procedure Section 726.5 (concerning environmental impairment to real property security where a borrower is in default), California Civil Code Section 2929.5 (concerning the inspection of real property by a secured lender for release of hazardous substances), and California Code of Civil Procedure Section 564 (concerning appointment of a receiver in an action to enforce the rights provided in California Civil Code Section 2929.5) (collectively "A.B. 1735 Statutes"). We believe that, provided you proceed in accordance with the requirements of the A.B. 1735 Statutes and satisfy all conditions thereof, then (i) such statutes will apply to the environmental provisions of the Loan Documents and those provisions of the Loan Documents (including without limitation the Deed of Trust and the Environmental Indemnity), which guaranty or indemnify you against any breach or default by Borrower or Guarantor under the environmental provisions of the Loan Documents, and (ii) you will be entitled to recover such damages, and take such actions as are permitted under the A.B. 1735 Statutes. We express no opinion with respect to the legality, validity, binding nature or enforceability of any environmental provisions of the Loan Documents, and those provisions of the Loan Documents which guaranty or indemnify you against any breach or default by Borrower or Guarantor under the environmental provisions of the Loan Documents to the extent such provisions provide or set forth any rights or remedies not otherwise provided under the A.B. 1735 Statutes.

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• the application of California Civil Code Sections 2903 through 2905 which provide to certain persons the right to redeem property from liens, California Civil Code Section 2889 which provides that provisions in contracts which are in restraint of the right of redemption are void (although the inclusion of such provisions do not void the remainder of the contract), and Sections 729.010 through 729.090 of the California Code of Civil Procedure which specify the procedures governing the right of redemption following a judicial foreclosure of real property, which right expires up to one year after the date of sale if the proceeds of the sale are not sufficient to satisfy the secured indebtedness with interest and costs of action and of sale.

• the effect of Section 2954.5 of the California Civil Code which provides that before any default, delinquency or late payment charge may be assessed by a lender on a delinquent payment of a loan secured by real property, certain notices and, in some cases, an opportunity to cure the delinquency must be given to Borrower.

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(e)Specific Transaction-Related Qualifications.

• Issues that pertain to the borrower or the mortgaged property.

• Issues in the loan documents that may be objectionable.

(f) Exceptions (or exclusions). Matters pertaining to law or which your firm will not give an opinion for should be excluded.

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Examples:• the priority of any lien or security interest created by

the Loan Documents, or (b) the title to, ownership of, location of, description of or existence or non-existence of any real property or personal property purported to be described in the Loan Documents, or (c) the effect of perfection or non-perfection of, any security interest which may be granted by the Loan Documents, or (d) whether a security interest has attached under the Loan Documents (and we call your attention to the requirements of Articles 8 and 9 of the Commercial Code as to such matters), or (e) the accuracy or adequacy of the description of any real or personal property described in any of the Loan Documents.

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• the characterization of any collateral as real property, personal property or fixtures;

• any provision of the Loan Documents that may be deemed to permit the Lender or any other person to sell or otherwise dispose of any of personal property collateral except in compliance with the UCC, applicable laws of the United States of America and other applicable state and local laws.

• any provision of the Loan Documents, that may be deemed to impose on Lender standards for the care of the personal property collateral in the possession of Lender other than as provided in Article 9 of the UCC.

• matters governed by federal or state securities law or the laws of any other jurisdiction other than the substantive laws of the State of California or federal law.

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• We express no opinion with regard to any matter which may be governed by the law of any jurisdiction other than the law of the State of California and the United States of America. We have considered the Loan Documents described above solely from the point of view of their sufficiency under presently existing California law, and we offer no opinion, express or implied, as to the enforceability of any choice of law provision(s) in any of the Loan Documents. We undertake no responsibility for subsequent changes in any facts, elements, or consequences, or any aspect of applicable law, including statutory and decisional law. We express no opinion as to any laws governing or limiting Lender’s activities. We express no opinion as to vesting or condition of title to the security property, the priority of Lender’s security interest therein, and we understand that Lender shall rely solely upon its title insurance policy as to such matters. We express no opinion on California or federal laws, codes, rules or regulations relating to zoning, subdivision, building code, fire and other life safety matters, elevators, handicapped or disabled access, environmental matters, and other laws pertaining to compliance of the Property with applicable laws.

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• This opinion is rendered as of the effective date set forth above, and we express no opinion as to circumstances or events which may occur subsequent to such date. We have assumed no obligation to update or to supplement this opinion or to advise you or matters which may subsequently come to our attention.

(g) Lender Assurance. All qualifications and exceptions should be subject to the following:• We do believe, however, that the statutes and judicial

decisions discussed herein do not render the Loan Documents invalid as a whole and that, subject to the limitations expressed herein, acceleration and enforcement would be available to Lender if an event of default occurs as a result of a material breach of a material covenant contained in the Loan Documents.

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C. Reliance. An opinion giver is accepting liability for its legal opinion, and to limit liability (particularly given that loans are sold or some may argue that they are third party beneficiaries of the opinion), limit those who may rely upon the opinion.

Example:• This opinion is rendered solely for the benefit of Lender and any

participant, or any prospective participant or purchaser, of the Loan, Lender’s attorneys, accountants or auditors, any regulators or rating agencies reviewing Lender’s books and records concerning the Loan or any other person or entity required by law to review such books and records in connection with the subject transaction(s) (and if the loan becomes an asset of a securitization, each person or entity which is a trustee or servicer in connection with any such securitization and each rating agency rating the securities issued in connection with such securitization), and may not be relied upon for any other purpose, or furnished to, used, circulated, quoted or referred to by any other person without our prior written consent.

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PART IV—THE RELEVANCE OF CUSTOMARY PRACTICE AND PUBLISHED OPINION REPORTS

• All of the recently published (or under discussion) opinion reports at a national level rely to a great extent on the concept of “customary practice”.

• A succinct summary of this concept appears in the ABA Business Law Section’s “Statement on the Role of Customary Practice in the Preparation and Understanding of Third Party Legal Opinions”, published at 63 The Business Lawyer 1277 (2008). [Hereinafter, the “2008 Customary Practice Statement”]

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THE RELEVANCE OF CUSTOMARY PRACTICE AND PUBLISHED OPINION REPORTS (Continued)

The 2008 Customary Practice Statement has the following to say about the definition and role of customary practice:

At the closing of many business transactions, the lawyers for one party deliver to the other party a legal opinion letter covering matters the recipient has asked those lawyers to address. These opinion letters, also commonly known as closing or third party legal opinions, are prepared and understood in accordance with the customary practice of lawyers who regularly give them and review them for clients. Customary practice permits an opinion giver and an opinion recipient (directly or through its counsel) to have common understandings about an opinion without spelling them out. The use of customary practice does this in two principal ways:

1. It identifies the work (factual and legal) opinion givers are expected to perform to give opinions. Customary practice reflects a realistic assessment of the nature and scope of the opinions being given and the difficulty and extent of the work required to support them.

2. It provides guidance on how certain words and phrases commonly used in opinions should be understood. Customary practice may expand or limit the plain meaning of those words and phrases. By providing content to abbreviated opinion language, customary practice permits the omission from an opinion letter of descriptions of the procedures that the opinion giver has performed and of many definitions, assumptions, limitations, and exceptions. Thus, it reduces the number of words needed to communicate complex thoughts. As a matter of customary practice, the explicit inclusion in an opinion letter of some but not all of these matters does not exclude others customarily understood to apply. A departure from customary practice is not implied and should not be inferred unless the departure is clear in the opinion letter. The role of customary practice in third-party legal opinion practice is well established.

The American Law Institute’s Restatement (Third) of the Law Governing Lawyers** states: In giving “closing” opinions, lawyers typically use custom and practice to provide abbreviated opinions that facilitate the closing. Such opinions may not recite certain assumptions, limitations, and standards of diligence because they are understood between counsel.

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The Restatement also refers to customary practice as an element indetermining the “meaning of the opinion letter.” The Restatementidentifies customary practice as a source of the criteria fordetermining whether the opinion giver has satisfied its obligations ofcompetence and diligence. Under the Restatement the “professionalcommunity whose practices and standards are relevant” in makingthat determination is that of “lawyers undertaking similar matters.”That professional community may vary based on, among other things,the subject of the opinion and the relevant jurisdiction. TheRestatement treats bar association reports on opinion practice asvaluable sources of guidance on customary practice. Customarypractice evolves to reflect changes in law and practice. Some closingopinions refer to the application of customary practice. Others do not.Either way, customary practice applies.(emphasis added)

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• There is a widespread view among many practitioners—in particular the business lawyers, that “customary practice” is a useful and an established standard in the rendering and interpretation of legal opinions.

• But there is also a minority view [shared by at least one of your presenters] that the concept of customary practice, as implemented, may lead to confusion on the part of opinion recipients and the creation of unnecessary liability risk on the part of opinion givers.

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• Before unequivocally jumping on the customary practice bandwagon, at least consider the following:– Customary practice assumes a sophisticated opinion

recipient. Not always the case.– The purported customary practice “standards” and

“understood meanings” of terms in the published reports are often overreaching and represent the views (desires?) of the drafters, as opposed to what most practitioners would consider reality (e.g. an ongoing controversy over whether an enforceability opinion implies a no-usury opinion; it shouldn’t under the law of at least some states).

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– Customary practice standards purport to be national; but the substantive law relating to opinion content is local. How can an opinion recipient in one state be expected to understand and interpret customary practice in another state?

– Lawyers get sued on opinions because of inaccuracies or misleading statements, or simply because they were at the scene of a bad accident. No one has ever gotten sued and lost simply because they used more words to say what they really mean.

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PART V—THEORIES OF OPINION GIVER LIABILITY

• Four potential theories of liability:– Negligence or Legal Malpractice. Difficult to establish

because:• No attorney-client relationship between opinion recipient and

opinion giver.• Contrast between duty of care to opinion recipient and duty of

loyalty to client.

– Third Party Beneficiary. Theory is that the client has contracted with the opinion giver to render an opinion and the opinion recipient is the third party beneficiary of that contract.• But is there really such a “contract” which could be said to create

rights for the opinion recipient?

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Theories of Opinion Giver Liability (continued)

• Negligent Misrepresentation.– Most commonly encountered.– Opinion recipient is taking action in reliance on the

statements in the legal opinion.– Opinion giver owes a duty of care to the opinion

recipient in rendering the opinion.– Thus opinion giver is liable to the opinion recipient for

negligent errors or omissions in making the statements contained in the opinion.

– Still an issue regarding interplay between duty of care to the opinion recipient and duty of loyalty to the client.

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Theories of Opinion Giver Liability (continued)

• Fraud

– Possible theory given the right facts—including n intentional bad act by the opinion giver.

– But elements of fraud are difficult to prove under the law of most states.

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PART VI—BEST PRACTICES FOR AVOIDING LIABILITY

• Know your client.• Assess whether the risk presented by the opinion is worth

the fee and justified by oveall the client relationship.• Do not opine on pure factual matters—even to “your

knowledge”.• And do not opine on factually dependent legal matters [e.g.

execution, delivery and performance of loan document obligations complies with all applicable laws] unless you are satisfied you have all of the relevant facts, here are no future unknown contingencies [e.g. need for zoning approval or building permit to rebuild in the event of damage or destruction] and you are the best provider of the assurances being asked for.

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Best practices for Avoiding Liability (continued)

• Local counsel opinions and the related document review and due diligence are highly technical. Opinion giving partner and reviewing partner need to have the requisite technical expertise and attention to detail.

• Consider a prohibition or at least a strong bias against incorporating published opinion reports. Reports may be useful as support for a particular assumption, a particular exception, or a refusal to give a particular requested opinion, but not as an interpretative tool for an opinion that has been given.

• Draft opinions that stand on their own; that way you live and die on what you actually say, not what a judge or jury reads into your opinion.

• Sample wording: “This opinion letter is limited to the matters expressly stated herein, and no other opinions may be implied or inferred”.

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REFERENCE MATERIALS

• For those with a deeper interest in the topics addressed in this presentation, there are a number of published opinion treatises worth reviewing .

• In addition, a comprehensive list of all significant articles and reports on legal opinions, at both the state and national levels, is maintained by the ABA Business Law Section and Tri-bar and can be found at: https://www.americanbar.org/groups/business_law/migrated/tribar.html

• The web-site above has links to the various articles and reports and is available without the need for registration or a password.

• Of particular interest are two ABA/American College of Mortgage Attorneys (a/k/a ACMA) and American College of Real Estate Lawyers (a/k/a/ ACREL) joint reports—the Real Estate Finance Opinion Report of 2012 and the Local Counsel Opinion Supplement to the Real Estate Finance Opinion Report .

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