Commercial Lending Training Presentation (09082016 v2)(1)...
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9/14/2016 1 Loan Training How do you DUE diligence? By Timothy W. Grooms and Daniel J. Beck September 21, 2016 Training Outline Overview of Due Diligence What’s in a Name Title Work Survey and Surveyor Certification Insurance Certificates Environmental Reports Additional Information
Transcript of Commercial Lending Training Presentation (09082016 v2)(1)...
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Loan TrainingHow do you DUE diligence?
By Timothy W. Groomsand Daniel J. Beck
September 21, 2016
Training Outline
Overview of Due Diligence
What’s in a Name
Title Work
Survey and Surveyor Certification
Insurance Certificates
Environmental Reports
Additional Information
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Overview of Due Diligence
Overview of Due Diligence
How do you determine your borrower’s legal name?
Interest Calculations – Actual/365 or Actual/360?
Boundary Survey v. ALTA Survey
To whom should a survey be certified?
Do you check to see to whom those reports and contracts are addressed?
• Environmental
• Soil
• Management Agreements
• Contractor/architect/engineer contracts?
Why should you take an assignment of a management agreement?
contractor/architect/engineer contract?
What value does an insurance certificate have?
Do you know the difference between a title report and a title commitment?
Do you regularly ask for the standard endorsements on your title policy to be removed?
Do you ask for title policy endorsements?
Do you know what a “Read & Rely” letter is? A “Will-Serve” letter?
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Checklist(s)
1) Checklist for distributionAny checklist distributed should have the caveat as shown in Footnote 1 on the first page of the checklist
Loan Documents
Title to Subject Property
Proposed Improvements (Construction)
Financial Statements/Certificates of Insurance, etc.
Borrower/Guarantor Organizational Document
Overview of Due Diligence
Overview of Due Diligence Checklist (con’t)
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A note about the Note
1) Interest and Usury
Calculating interest -- 360 v 365
Overview of Due Diligence
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What’s in a name?
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How do you verify your borrower’s name?
1) For Entity Borrowers check the state of organization’s secretary of state’s website to verify the name.
2) All states have online databases and most are free to search for an entity name.
Must it match?
1) The borrower’s name must appear on all loan documents (especially collateral documents such as the mortgage and UCC-1 Financing Statements) exactly as it appears on the state of organization’s secretary of state website.
2) Spaces and dots are important too!LLC v L.L.C.
Summerwood Partners v Summer Wood Partners
Inc. v. Incorporated
3) You should check the name of your borrower before you order lien searches. Lien searches should be ordered by using the entity name as it appears on the secretary of state website.
4) Individual borrower names on loan documents must match their driver’s license.
5) Must get trust documents
Individuals:
Entities:
Trusts:
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Title Work
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Overview of Title Insurance
What is Title Insurance?
Title insurance is a comprehensive indemnity contractthat guarantees to make good on a loss arising from a defect in title involving real estate or property. Title insurance protects a policy holder against loss from an occurrence that has already happened, such as a forged deed somewhere in the chain of title. The Lender’s policy protects only the lender’s interest. Separate Policies are required to protect both interests.
Face Page,
Including Schedule A1) Date the report is typed by the title company
2) Title Officer-person closing or handling the request
3) Title Number-number under which the title search is made
4) Parties-names of the buyers, sellers, borrowers, etc
5) Type and liability requested for issuance –
6) Always request/require a revised ALTA (6/17/06) Loan Policy of Title Insurance insuring the Bank’s mortgage/deed of trust as a valid first lien. The commitment should, at a minimum, affirmatively insure ingress and egress to a publicly dedicated street and shall further provide such affirmative coverage and endorsements as may be required by the Bank.
7) Always ask for:
• Vesting Deed
• Purchase Contract
• Lease
Review of a Title Commitment (aka Preliminary Title Report)
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Legal Description-
• Please verify the legal descriptions to:– Appraisal– Survey– Flood Certificates
Types of Legal Descriptions-• Lot and Block, in a recorded subdivision
– Happy Trials Subdivision, Block 3, Lot 4
• Metes and Bounds– Beginning at a stone on the Bank of Doe River, at a point where the highway from A. to B. crosses said river (see point marked C.
on Diagram 1); thence 40 degrees North of West 100 rods to a large stump; then 10 degrees North of West 90 rods; thence 15 degrees West of North 80 rods to an oak tree
• Government Rectangular Survey System– Lot 2, Section 5 Township 42 North, Range 12 East
Review of a Title Commitment (Preliminary Title Report)
Schedule B – Part IRequirements
Noted Items - The preliminary title report often contains items of which the Bank/Borrower is required to comply. Determine if these items are for informational purposes only, or if the Bank is to comply with these items.
Review of a Title Commitment (Preliminary Title Report)
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Schedule B - Part IIExceptions
Taxes - Determine whether taxes are delinquent and indicate which taxes must be paid prior to closing Easements - All other easements have been reviewed. The easements have been located, the improvements do not
violate or encroach upon the easements and there are no unanticipated restrictions, additional rights of the easement holder or financial burdens upon the property.
Covenants, Conditions & Restrictions -These are limitations or qualifications on land by a previous owner. Often these are recorded against an entire tract or subdivision for the benefit of all owners. These are referred to as C.C. & R.’s.
Mortgage/ Deeds of Trust – Review for any Mortgages/Deeds of Trust recorded on the property. If so, determine which lien position is required by the Relationship Manager and obtain the appropriate documents to ensure approved lien position prior to closing.
Leases - There are no tenant leases affecting the property. If so, determine which leases are to be in a prior lien position to the Bank’s Mortgage/TOD and which leases will be subordinate.
Review of a Title Commitment (Preliminary Title Report)
Schedule B - Part IIExceptions
Other Liens - Determine whether there are any other liens affecting the property and if they are to be removed, or if an endorsementis to be obtained prior to closing.
Noted Items - The preliminary title report often contains items of which the Bank is required to comply. Determine if these items are for informational purposes only, or if the Bank is to comply with these items.
Review of a Title Commitment (Preliminary Title Report)
(Pg. 1 of 2)
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(Continued)
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Title Work Post-Closing Checklist
Once the Final Title Policy is received from the title company, the loan documentation specialist should compare to the approved preliminary title report -
• Verify Face Page accuracy
• Verify Schedule “A” agrees with credit approval
• Verify Schedule “B” only items approved by the loan officer should
reflect on
• Verify all agreed endorsements are attached/signed
• The loan officer should approve final title policy
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Title Work
Title Work
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Title Work
2015,
Title Work
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Title Work
Closing Protection LetterTitle Work
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ALTA Endorsement FormsTitle Work
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Survey andSurveyor Certification
Boundary Survey ALTA Survey
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[Borrower][Seller][Lender]
Plat Map A map of the property showing its location and dimensions.
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Boundary v ALTA Survey
1) Which type of survey should you require?
2) To whom should the survey be certified?
3) No survey = no survey coverage on your policy
Survey and Surveyor Certification
Survey and Surveyor Certification
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Survey and Surveyor Certification
Survey and Surveyor Certification
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Survey and Surveyor Certification
New 2016ALTA Survey StandardsSurvey and Surveyor Certification
The 2016 version became effective on February 23, 2016
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Zoning Letters
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Will-Serve Letters
(Construction Loans)
For new construction, will-serve letters from all utilities that serve or will serve the property should be required.
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dual obligee endorsement
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Insurance Certificates
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Insurance Certificates
Can I rely on an Insurance Certificate?
1) Short answer -- NO
Insurance Certificates
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Insurance Certificates
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EnvironmentalReports
Transaction Screen v. Phase I
1) Can I rely on an existing Phase I?
2) Why is a Phase I important to me?
3) In what circumstances may I waive a Phase I/Transaction Screen?
Environmental Reports
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Environmental Reports
Read and Rely Letters
1) Not requiring a new survey or Phase I?a) Request a Read and Rely Letter
Environmental Reports
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Corporate Documents
Name on SOS website must match name on Articles, Bylaws, Operating Agreement, etc. If the names don’t match, you should require amendments to corporate docs.
Entity Borrower / Guarantor
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Title Search v. ALTA 11
Title Search v. ALTA 11
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Title Search v. ALTA 11
Thank You!
