Often times borrowers when they are going into real estate transaction will require additional collateral so if they can’t qualify for a loan with the real estate they have they will go ahead and look for other asset to then go ahead and qualify for that loan. It’s my job to figure out whether or not those assets will be secured enough for the backing of that loan. So as attorneys when we enter into the transaction we’re looking at the due diligence to ensure that both the borrower and lender that the collateral is going to work and provide the backing that the loan needs. So for example for a traditional real estate transaction the real estate would secure the loan. In this case we looked to other assets like are arts, even yachts or traditional things like accounts receivable, or service contracts. All those things can be considered by a lender when they’re looking at a borrower’s assets. There are a lot of options when it comes to structuring financing and as counselors it is our job to provide our clients thorough due diligence review to ensure that any assets including illiquid or nontraditional assets have the backing of the structure that the transaction requires. The bottom line is if you have non-traditional assets you can still secure that loan.
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A very important component of any real estate transaction is the review of a current survey no more than 90 days old of the subject property. I’m going to discuss three aspects that I think are particularly important when reviewing a survey prior to closing a transaction.
- Legal Description. The legal description on the face of the survey should be identical to the legal description on the title commitment and the closing documents, particularly the deed conveying the subject property. Any discrepancy between the legal description on the survey and the legal description on the deed of conveyance or title commitment could potentially lead to a title defect. In addition, its good practice to make sure the calls and the written legal description match the calls identified on the face of the survey. Any discrepancies or problems with the legal description should be resolved prior to closing and a survey can assist in identifying those issues.
- Title Commitment. Typically with any real estate transaction, a title commitment is a obtained during the due diligence period. The title commitment is important because it will reveal any publicly recorded easement or encumbrances that affect the subject property. The surveyor should be provided a copy of the title commitment and exception documents so that he or she can locate those easements on the survey. Depicting on the survey the location of any easements encumbering subject property assists in determining whether such location impacts the intended use of a subject property.
Encroachments and Access. Often times encroachments and access are items not included in the public records. Therefore, it’s important to pay close attention to these items when reviewing the survey Common examples of encroachments are fences and driveways. A more serious type of encroachment is of a building or structure. If the survey does reveal an encroachment determination must be made whether that encroachment can be relocated and whether there are any prescriptive rights associated with the encroachment. Finally, if the subject property has access to a publicly dedicated right away the survey should verify that. Review of a survey is a vital component to any real estate transaction. A survey can help identify problematic issues that must be resolved prior to closing a transaction to avoid problems in the future. Therefore, I highly recommend obtaining a survey prior to closing any real estate transaction whether commercial or residential