REBROADCAST: The Care and Feeding of Local Opinion Counsel in Loan Transactions

In the fast-paced world of loan transactions, efficient closing processes are crucial for both lenders and borrowers. A seamless closing process not only saves time but also reduces costs and risks involved in the transaction, and one critical yet often underappreciated role in this process is that of local opinion counsel. These legal professionals provide invaluable expertise on state-specific laws, ensuring that all legal aspects of the transaction are compliant with local regulations.

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About the author:
Bruce A. Buckley

Transcript

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In the fast-paced world of loan transactions, efficient closing processes are crucial for both lenders and borrowers. A seamless closing process not only saves time but also reduces costs and risks involved in the transaction, and one critical yet often underappreciated role in this process is that of local opinion counsel. These legal professionals provide invaluable expertise on state-specific laws, ensuring that all legal aspects of the transaction are compliant with local regulations. 

Local opinion counsel refers to legal practitioners experienced in the laws of a specific state and offer opinions on the legality of various aspects of a loan transaction under those state laws. Unlike the borrower’s lead counsel, who manages the overall transaction and coordinates between parties, local opinion counsel focuses on state-specific legal issues. Their responsibilities include verifying the legality of the transaction documents, ensuring compliance with local laws, and providing legal opinions required by the lender.

And, they play a vital role in loan transactions. Local opinion counsel possess a high degree of knowledge of state law, ensuring that all transaction components comply with local regulations. This skillset reduces the workload for lead counsel, allowing them to focus on broader aspects of the transaction while local opinion counsel handle state-specific issues. However, the role comes with its own set of challenges.

One of the most significant obstacles for local opinion counsel is the lack of direct contact with the client and the lender’s counsel. Information often passes through multiple layers of communication before reaching them, leading to potential misunderstandings and inefficiencies.

Another challenge is the delivery of fragmented information. When local opinion counsel receive bite-sized bits of information rather than a comprehensive overview of the transaction, it can lead to delays, increased costs, and potential errors in the opinion letter.

But, there are ways to manage these hurdles.

To start, local opinion counsel needs the full formal names, addresses, and jurisdictions of formation for all parties involved in the loan transaction. This information is crucial for conducting conflict of interest checks and ensuring that all parties are correctly identified in the opinion letter. And a detailed description of the loan transaction and a list of the loan documents by name and parties involved are essential, along with consistency across multiple state opinions. 

Local opinion counsel also needs the address and county information of the property involved in the transaction. This allows them to confirm the proper recording offices and review any local idiosyncrasies that may impact the transaction. Determining responsibility for UCC filings and entity authorization under different state laws is another critical aspect. Some local opinion counsel can handle opinions for other states, such as Delaware, but it often makes sense for the borrower’s lead counsel to provide these opinions separately. This approach covers them in one place for the lender and allows local opinion counsel to assume those matters as needed.

Another thing to keep in mind: procedures for obtaining and updating certificates from the Secretary of State confirming that the borrower is authorized to transact business in the local state should be established early on. Good communication can avoid duplicated efforts and last-minute rushes, reducing costs and ensuring timely delivery of necessary documents.

Early determination of whether there will be a separate UCC financing statement filed locally as a fixture filing or if the real estate security instrument will suffice is also important. The format of the local opinion letter varies depending on this decision, and making revisions later can increase costs.

Providing sample signature blocks and adhering to local requirements for signatures and notary forms can prevent the need for repeated execution processes, and circulating example drafts of opinion letters among local counsels can streamline the preparation process. This practice helps conform to the lender’s requirements while acknowledging state-specific variations, ultimately saving time and reducing costs.

And determining the number of original signature copies needed and their destinations early on can help plan logistics and avoid last-minute rushes

In summary, providing comprehensive information to local opinion counsel is essential for a smooth and efficient closing process in loan transactions. By offering detailed identifying information, comprehensive transaction details, property specifics, and early decisions on UCC filings and certification processes, borrower’s lead counsel can empower local opinion counsel to deliver well-prepared, accurate, and timely opinions. Effective communication and document sharing further streamline the process, reducing costs and ensuring compliance with state laws. By fostering a collaborative and well-informed relationship, all parties involved can look forward to a successful and seamless loan closing experience.

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