Due Diligence in Private Lending: Entity and Title Reviews

Laine Prescott, Esq.:

Welcome to due diligence and private lending with Casey and myself today. We're going to be discussing entity and title reviews. A few housekeeping items before we get started. This webinar is going to be recorded and the slides will be available after the webinar. There will be a follow-up link, um, either today or sometime tomorrow with a link to the recording, the slides, and some other helpful resources on this topic. So keep an eye out for that. Um, if you have any questions, you can always follow up with our team. We're happy to help. Um, we do also have a Q&A at the end planned where Casey and I will answer any questions that you have that you think of during the webinar. Please, however, put your questions into the Q&A box at the bottom and not the chat box. We'll get to as many of those as we can.

And with that, we'll go ahead and get started.

So the objectives of today's webinar, uh, first we want to walk you through understanding various entity types and their structures, including things like documentation that you need and what to look for. We'll also be walking through title insurance and coverage needs, things to request, what to watch out for, um, different exceptions and endorsements, and addressing common issues that arise for both entity, uh, types and title insurance. And to achieve that, we'll start with walking through different types of entities and their structure, how to verify signature authority and ownership of various entity types, common entity issues, and ways you can work to resolve those. Um, and then we'll get into title insurance coverage and some common title issues that come up. And with that, I will pass this off to Casey to start with entities.

Casey Busch, Esq.:

Thank you. Yeah, so starting off with entities, uh, we've got the, the four basic entity types that we typically deal with, uh, with, with private lending and bridge loans. Um, first we've got limited liability companies or LLCs, uh, probably the most common that we deal with. And then we've got the, uh, more traditional corporation structure, and then partnerships and trusts. So those are the four we'll be covering today. Next slide, please. So, um, entities, LLCs, uh, limited liability companies, like I said, these are the, the most common that we deal with, uh, with our, with our types of loans. And that's mainly because they're s- very simple to, to set up. Uh, most states have a really simple means of going into the Secretary of State website, filing the articles of organization, um, and then from there, it's, it's very easy to get started.

But what documents do you need as a lender? Um, so the articles of organization are the f- the very first document that you want to get from the borrower. Uh, this is the document that actually sets up the organization with the Secretary of State and makes it a, a, an official LLC. Um, it's often referred to by some states as, like, a certificate of formation, um, but you're, you're going to want whatever they filed initially to start the LLC. Um, and that's important because if the entity hasn't been, you know, registered or filed with the Secretary of State, uh, then it doesn't exist. Uh, so y- y- you need to make sure that's there. The articles are also going to tell you important information, um,  in most cases like the management structure, um, who owns the company. Uh, it'll vary state by state.

Some states don't require that the borrowers put that information on their LLC, on their articles, um, but, uh, you're want to review that to make sure you don't miss anything in that regard. Um, the next document is an operating agreement. Um, many states have placeholder provisions, um, that, that don't necessarily require operating agreements, right? But for your purposes as lenders, you're want to make sure that the borrower provides an operating agreement. Um, just because in a lot of cases, you go to close a loan, they say, "Well, there's no operating agreement." Uh, it's, it's a member managed entity or whatever runaround they give you. And then out of the woodwork later on comes this operating agreement that says there's all these different members, uh, different managers, what have you. And, you know, they try to argue that because of this operating agreement, not the proper people sign the documents.

So request that the borrower provides an operating agreement. Uh, if they insist that there's no operating agreement, you're going to want to get some sort of written statement from whoever you're dealing with saying, "There is no operating agreement for this entity." Um, you know, we are, we're proceeding without it. Next up, resolutions. Um, do you need one? Not, you're not always going to need a resolution. Um, most of the ca- most of the time, a resolution is going to be to, like, fix a problem that's with the entity, right? So, um, the, the, the biggest problem that we get is that your articles of organization show that the entity is managed by m- managers, um, whereas, and then the operating agreement shows that it's actually managed by the members or the owners of the LLC. Uh, in that case, you're typically going to want a resolution to, to sort that out.

Most of the time, it's easier to just copy whatever the articles have and, and go from there. Um, you know, amend the operating agreement, provide a resolution that says, you know, the management structure matches what's in the articles, and, uh, it's a lot easier than having to file new articles and amendments and stuff like that. Uh, takes a little bit more time for that stuff to go through the Secretary of State website. Um, so you don't always need a resolution, uh, but it's, it's best to, to make sure all those things match up between the articles and the operating agreement. Uh, so who should sign for a limited liability company? Uh, so I've been talking about managers and members. Uh, those are really the two positions within an LLC. Uh, you're often going to see that if there's an operating agreement, maybe they've, they've elected to put officers in charge of the, the LLC. You're still going to want whoever's managing the LLC to sign your entity, your, your loan documents.

So when you're looking at these documents, uh, there should be, like, a management provision somewhere in the operating agreement. Uh, somewhere in the articles, you're going to see, you know, the management structure, um, if it's provided. And, and whoever, you know, between the manager or the member is, is granted that authority should be signing your loan documents. Uh, that's who's going to have the authority. And, uh, you know, often we get borrowers who maybe don't get an attorney to draft their operating agreement. Uh, you end up with a lot of, like, corporation jargon within the operating agreement where that, that shouldn't be there, and you'll see, like, the president, the CEO, uh, maybe, like, a board of directors or something. Uh, really, you want to cut through all that. Um, you know, if there's an operating agreement that just ha- looks like corporate bylaws or something, you're going to want the borrower to, to re-execute those, redraw those so that it's, you know, matches the terminology that an LLC would actually use.

That's manager or member, and that's who should be signing for your loan documents, a manager or a member. Um, most common issues that we see with LLCs, uh, like I mentioned before, it's the management structures not lining up between the articles and the operating agreement. Um, so often, uh, especially in California, we'll see that a corporate, uh, LLC was formed with a manager managed structure, or, like, one manager should be in charge, uh, and then we get the operating agreement and it says that the members are actually managing the, the LLC. Uh, well, the problem there is that the Secretary of State for California see, shows this should be managed by a manager. Um, so the official, you know, governing body that regulates those LLCs shows one management structure, and then the operating agreement shows that the parties have agreed to a completely different management structure.

You want those to match as much as you can. Um, and in that case, you would need a resolution to, to sort out what's going on between the operating agreement and the articles, and you want those to be consistent. Yeah. And, um, often in the case of the manager managed structures, uh, we see that in the operating agreement, there is no manager actually elected. Um, so the members or the owners of the LLC, uh, in a managed, manager managed structure, need to elect an actual manager to be signing these documents and making management struc- decisions, um, on behalf of the LLC and, and actually managing the LLC. Um, if they don't elect a manager, then it really leaves the question of who's supposed to be signing these loan documents. Um, another, another common issue, um, along with that is that they don't have, like, a resolution or something to, to address that issue.

Another situation where you might need a resolution, um, or just a simple document that just says, "So-and-so's the manager," and have them sign, have all the members sign that resolution.

Next slide, please. Okay. So corporations, um, we do see a lot of these, um, and you're going to want to know, uh, the documents because a lot of these documents, we end up not getting off the bat and it takes a long time to get them from the borrowers, uh, especially with corporations because a lot of them are older than LLCs, um, maybe 20, 30 years old, some of them. Uh, so these documents are just really hard to track down. Uh, so you want to get on top of this from the get- go if you have a corporate borrower. Um, so what documents do you need? Uh, here for a corporation, we're going to have articles of incorporation rather than articles of organization, um, and that's because it's a corporation. So they are incorporating, not organizing. Um, articles of incorporation, again, similar to the, to the LLC, we're going to want to see that they've actually filed those articles with the Secretary of State.

We want to see the file stamp to make sure it's actually been processed by the Secretary of State and that the corporation exists, uh, according to the, to the proper regulating body. Uh, typically with the articles of incorporation, you won't see a lot of management structures. Um, so contrary to the articles of organization for an LLC, you might just see that there was a corporation filed with the Secretary of State and that they have a registered agent for service of process, uh, and that's typically all you're going to get, but you want to see that it was actually filed. Um, you're going to want to make sure that the name matches up with everything else that's, that you, that you've been provided, right? There could be, like, a comma before the ink, uh, period after the ink or something. Uh, you want to make sure that that name matches everything else that you're seeing, um, and that's where you're going to look at the articles of incorporation.

Next document that's very important is the bylaws. Uh, this is going to tell, tell you and tell the, the owners of the corporation how everything needs to be run by the corporation. Uh, this is very important because, you know, while I said on LLCs that states have, like, placeholder provisions and they don't need operating agreements all the time, um, corporations, you do need bylaws. Uh, I haven't come across a state yet that says bylaws are not required. Uh, you do need some sort of bylaws in order to actually form the corporation, uh, according to most states.

Now, the bylaws are going to have more important information. Um, they're going to lay out the, the, the guidelines for how directors are supposed to manage the company, uh, how officers are supposed to manage the company. Uh, some cases they'll give shareholder rights, stuff like that, voting. How are they going to vote on who's managing the corporation? How are they going to vote on? Um, you know, if there's, like, a loan for over $100,000, who's supposed to sign for that doc- those, those loan documents? Um, that's why we want to see the bylaws, uh, because often they'll sneak something in there that says, "Well, if there's a loan under $100,000, then so- and-so signs. If there's a loan over $100,000, then you need two signatures." Um, just you, you get a lot of different situations, uh, in bylaws, so you really want to examine those thoroughly to make sure the proper people are, are executing documents.

Typically, the person occ- uh, the person authorized to sign documents is going to be a officer. Um, it's going to be like a president, secretary, something like that. I'll get a little deeper into that, but that's where you're going to see in the bylaws who is authorized to actually sign on behalf of that corporation. And the third document that is extremely important and often very difficult to track down, um, but you do need to see something for who has been appointed as officers and directors. Um, typically, that's going to be meeting minutes. Uh, the bylaws are going to set out rules for when the, the shareholders and directors have to meet to appoint officers and directors, and those meetings need to be recorded in the official minutes of the corporation, uh, in most cases. So in those minutes, you're going to see who was present at the meeting, and then also who was elected as director, um, who was elected in the officer positions.

Typically, you're going to have, uh, at least a president and a secretary. Sometimes you'll need a, they'll ha- they'll, they'll need a vice president according to the bylaws. Um, but in those minutes, you'll see who is officially appointed, um, and that will be the authorized signer that you'll put into your loan documents. Um, now, in lieu of minutes, because often, uh, with a 20 to 30-year-old corporation, you're not going to get the original minutes from a meeting in 1997. So, um, will a unanis- unanimous consent suffice? Um, yes, in nearly every case, um, but you're going to want to make sure it's unanimous, and you're going to want to make sure the actual current shareholders of the, the corporation have elected that officer, um, or director, however, which, whichever position you're looking to fill through the unanimous consent. Um, again, typically want minutes, but if a unanimous consent is provided, uh, it will typically do the job, but again, you need to need to make sure all the shareholders or all the directors were actually, uh, signing onto that unanimous consent.

Who should sign for a corporation? Uh, you're going to want the officers, uh, in nearly every case. Again, the bylaws will dictate this, um, but nearly every case that I've seen a president and secretary should be signing on behalf of the corporation. Um, now we, we always recommend having both president and secretary sign the documents. Uh, this can be the same person. Often, the officers are all wrapped up into one person. Uh, that person's also the director and the shareholder of the corporation, um, but their title should be president and secretary, uh, if they've been elected in both positions. Uh, the reason for having the secretary also sign the loan documents, um, is like their relationship to the board of directors and their relationship to the corporation. Uh, the secretary is responsible for, uh, filing and keeping records of the corporation. Um, so having the secretary's signature on there gives it l- and just that extra, um, you know, layer of, official, you know, this is the official person who signed on behalf of the corporation.

Typically the president alone will be fine if you don't know who the secretary is, um, but getting both, uh, just covers all the bases, make sure that, um, you know, the two most authorized people in the corporation who've signed the documents. Uh, common issues that we see with corporations, typically, um, there are no bylaws. That's, that's one of the biggest issues that, that I've seen is they don't have bylaws, uh, maybe it's a 15-year-old corporation, they've lost the bylaws, um, and they need to get new bylaws drafted and approved by the shareholders and approved by, um, you get the, get the directors elected properly and the officers. So, uh, that, that's one of the major issues. Um, second major issue is that no officers have been elected. Uh, this is a very common issue that a lot of people before LLCs were very popular, uh, would form corporations and not fully understand that, that there were steps that they needed to take once they formed the corporation.

That's the first step is appointing officers and directors, um, and they, they almost never have that. Um, so they scramble at the last second to get a unanimous consent, uh, and that's perfectly fine, but it just takes a little bit longer to get the borrowers to get, get go- get rolling on the unanimous consents.

Next slide, please, Lenny. Okay, partnerships. Um, we do actually see a lot more of these lately, um, and partnerships are a little bit more broad. There's a lot of different types of partnerships. There's, uh, just a general partnership. Um, there's limited partnerships. There's limited liability partnerships. Um, so what we're typically parking, talking about here are, like, limited partnerships, limited liability partnerships. Um, general partnerships, we don't get too often, and that's basically just two people getting together to, to run a business for profit. Um, and no agreement or anything is required there. Uh, we don't recommend lending to general partnerships for the most part. Um, but limited partnerships, limited liability partnerships, absolutely fine to lend to, um, because those are actually, uh, filed, the documents are actually filed with the Secretary of State in that case. Um, so what documents do you need for partnerships? Uh, you're going to have a certificate of partnership, um, or similar document depending on what state you're in.

Similar to, like, the articles of co- incorporation and organization, uh, just a document that's filed with the Secretary of State, uh, to let the, the proper regulating body know that this partnership exists. Um, you're not typically going to get a lot of information from the certificate of partnership other than making sure it's been filed and the proper name of the partnership. Um, so if they have, like, periods in LLP or a comma before LLP, uh, you're going to check out the certificate of partnership to make sure the proper name is, is going on your loan documents. Um, and then the most important document is the partnership agreement here. Um, partnership agreement is going to dictate how the partnership operates. Um, with a limited partnership or limited liability partnership, you're typically going to have, uh, a general partner and a limited partner. Um, and the partnership agreement is going to lay out those roles and what they mean to the partnership.

That's where we're going to see who should, who should be signing on behalf of the, the partnership. So who should sign? Uh, typically the general partner is going to be the, the quote unquote manager of the partnership. Uh, they're going to be responsible for signing your documents. Uh, they're going to be responsible for just the day-to-day operation of the partnership. Um, they might have some financial involvement, um, with, with capitalizing the, the partnership originally, um, but for the most part, um, they're, they're managing the, the partnership on a day-to-day basis. Um, the other type of partner typically that we'll see is a limited partner, and, um, often, you know, we'll have, like, a LLC as a limited partner or something. Um, but the limited partner, depending on the partnership agreement, won't have too much involvement with the day-to-day operations. Um, they're kinda just like a silent partner who's involved financially, but not necessarily day-to-day on a management basis.

But you need to read the partnership agreement because similar to, like, the bylaws or operating agreement, there could be a provision in there that says, uh, for, uh, debts over $500,000, then the limited partner must sign. Um, you know, they can, they can really agree to whatever they want in that partnership agreement. Uh, so that's why it's important to read very thoroughly what's in those agreements, because not every partnership agreement is going to be exactly the same. Uh, common issues that we see with partnerships, uh, most common i- issue I see is that there's no partnership agreement. Uh, they've filed a certificate of partnership, and the partnership agreement either never existed or it's so old that they don't know where it is, um, but you are going to want to see some sort of partnership agreement, even if it's just a couple of pages to lay out who the general partner is, um, and who should be signing on behalf of the partnership.

And next slide, please. Okay. So trusts. Um, we get a lot of trusts, right? For bridge loans, there's a lot of properties that are in trusts. Um, there's a little bit different aspect to, to reviewing a trust. Um, so what documents do you need? Uh, typically, you're going to want to ask off the bat for the full trust agreement. Um, this is going to help you go through the trust to figure out who the trustees and trustors are. Um, there's a, typically a lot of terminology as far as who's going to take over the trust when the, the original trustors die. And there's a, a lot of, um, there's just a lot of stuff that might not apply to you as a lender in the full trust agreement. Um, so there's a lot to review, uh, to get down to what you actually need. Um, but in the trust agreement, typically, you're going to have a provision that says that the trustee and the trustee, think of the trustee as like the manager of the trust.

They're the, the person making the decisions on behalf of the trust. The trustee should be able to borrow money and mortgage property on behalf of the trust. Um, that's, that's typically the language that we're looking for within that trust agreement. Um, oftentimes, you're not going to get the full trust agreement, uh, and that's totally fine. Most states in their probate code have a, a code that allows you to allow, uh, to rely on a certificate of trust. Um, now a certificate of trust is basically like a quick summary of the trust. Um, a lot of, a lot of borrowers don't want to provide their full trust because there's, like, private information, uh, maybe social security numbers or something, whatever that it is in there that they don't want to provide. Um, so the probate codes allow for a certificate of trust. Um, now what this is, is, like, one, two-page document.

It just lays out who the trustees are, um, who, who their original trustors are, and, um, really, like, what powers those people have. Uh, now we're typically allowed to just rely on that because of the probate code, um, that says, you know, third parties can rely on a certificate of trust provided by the trustee. Um, and that's totally fine if that's all you get off the bat, um, that's typically all you're going to get. Um, but if you can get both of these, that's great. Uh, that's a, that's a good place to start. Um, now, both of these documents will provide the, uh, name of the trust as far as the vesting on the property, um, but you're also going to want to confirm with the borrower, because sometimes they'll have certain dates or something within the name of the trust that, uh, that they'll want in there.

So, um, confirm that investing with the borrower as well. Now, who should sign for a trust? Um, so trustees versus trustors, what, what are those? Um, trustors are people who have put property into the trust, um, so they've formed or created the trust, um, if you want to think of it that way. Uh, they're also, like, the owners of the trust, right? They own the property that originally went into the trust. Um, now it's the trust property, but they, they formed it. Um, the trustees have been granted ... They're, they've been trusted with the management of those properties. Uh, so typically with a, a trust that's, uh, revocable or a living trust, you're going to have the same person as the trustor and the trustee, right? If somebody puts their property into a trust while they're still alive, uh, they're going to want to still manage that property, um, and then once they're deceased, then somebody will take over as trustee and, uh, manage that property according to how the, the trust agreement was written.

Um, most of the time, we deal with revocable trusts. Uh, that means that the trustor is still alive in most cases, and, uh, the, the trustor, of course, is, is probably the trustee, so they're going to be signing on behalf of the trust. Um, there are some cases where the trustor is not the trustee. Um, you know, in those cases, we really recommend reaching out to an attorney to review that document because it's, there's probably something more going on than just somebody planning their estate in that situation. Um, so you, you really want to get an attorney involved to review the trust documents. Uh, common issues that we see with trusts, uh, irrevocability. Um, so I've thrown the term around revocable a couple times. Uh, that means that the trustor is still alive in most cases. And, um, what the trust door can do is revoke the trust entirely, uh, because they're still alive, the property's still technically theirs, um, and they can revoke the trust and take that property back, and now whoever was supposed to get that property when the trustor dies does not get that property.

Um, but once the trust doors are deceased, you know, if there's, like, two of them, if it's a husband and wife, uh, once they're deceased, that trust becomes irrevocable. Um, so now the original people who put the property into the trust cannot take that trust, that property back out. Um, it's not, it cannot be revoked, and now the trustees and the successor trustees, uh, are managing the trust according to however the trust agreement was written. Um, so that's a very common issue. In that case, we're going to need death certificates. Um, you know, some cases we might need letters from the beneficiaries. Uh, if you get an irrevocable trust, you definitely want to have an attorney review those documents. Um, in some cases, we've seen irrevocable trusts that have been irrevocable for 30 years. So the, the trustors died 30 years ago. The trust is, for whatever reason, not been, uh ... The, the assets haven't been distributed for whatever reason.

Um, so, you know, in that case, the attorneys really need to review that in depth to see why, why that trust is still operating the way it is. Um, yeah, and if you see that, please, please reach out to an attorney. It gets a little bit in depth at that point. Next slide, please.

Laine Prescott, Esq.:

Okay. Thanks, Casey. I'll take it from here. Um, so now you've walked through entities, different types of entities, that's very, very important Um, another really big compliance piece when you are a newer lender or just going through due diligence is title insurance. So, um, you know, first we'll start with why is title insurance so important? Why do we at Fortre recommend it on every single deal? Um, that's because it's, uh, insurance. It's an insurance policy. Um, title will generally provide you a search of the property. They'll confirm things like the current vesting of the property. Uh, that's very important so you have the right person or entity signing, uh, your deed of trust or mortgage. Without that, then that's not enforceable and that's a really big issue. But they'll also provide a search of various liens, whether there's tax liens or taxes due, um, different kind of things that could come up, easements, encroachments.

Those are all very important because they can impact the property value, which impacts the risk associated with your loan. So, um, it's really great to have all of that information. If there is anything related to the property that Title doesn't find, um, then you have a potential title insurance claim, which is wonderful. If there is a, an issue, say, with the vesting and you don't have the right person or entity signing your deed of trust or mortgage, and title said it was, then you can go to them and go, "Hey, my loan's not enforceable, and I need you to repay me now under my title insurance." So it's very, very important. Um, can be a little bit difficult to walk through, which is why we're going to go through it today, but it is just something that just gives lenders ver- like an extra peace of mind, um, extra assurance that they're going to be able to recover the money that you are lending to your borrower.

So for policy requests, our standard request for every single loan that we do is a 2021 Ulta extended policy or an equivalent. Sometimes it's called like an expanded policy or if you're in certain states like Texas, it might be called like a TLTA policy instead of an Ulta policy. But kind of just the general for most states, you're going to be looking for a 2021 Ulta extended policy. We also request 125% coverage, and this is 125% of the principal balance of the loan that you're making. This is really important for interest only loans in particular, um, because you're not paying down or the borrower's not paying down the principal amount. So if your title insurance coverage is only 100% of that principal amount and they've not paid, uh, different, you know, interest only payments or you've had to make protective advances, things like, you know, taxes or you have forced insurance, that's going to go over and above your coverage amount.

And then if you have to go to title and, you know, recover your money that way, with 100% coverage, you really don't have any cushion to get any of that extra back. You're really limited to just that principal amount. If you get the 125% coverage though, usually that's going to be sufficient to cover a lot of those extra things so that you can just recover a little bit more from your insurance policy. Most of the time, this is okay. We do get pushed back a little bit, um, and we usually just explain it to title and, and it works out, but occasionally not available, but it is our standard request. Um, as I mentioned for the 2021 Alta policy, uh, that's our new request. We used to be requesting the 2026 Alta policy. Most title companies aren't going to issue the 20 ... Or sorry, not 2026, 2006.

Uh, most, uh, title companies aren't going to issue the 2006 policy at this point anymore. They're going to all go with the 2021, but the 2021 version, the American Land Title Association, which is what ALTA stands for, just updated the policy and a few endorsements, definitely more than what's listed here, but here's just kind of a few big ones. First being, uh, they clarified coverage for e-signatures and remote notary. So coverage now reaches documents that were signed electronically or notarized remotely where this is permissible. So not every state and not every county even allows this, but in case you do end up in a place where it is allowed, and you want to run that by title for sure before you allow it and approve it. Um, but if you do end up having that, there's some clarified coverage in there, and it now is covered. You also have improved coverage for the invalidity or unenforceability of the security instrument.

This is under covered risk number nine. So this, that covered risk has, like, a list of, you know, kind of different scenarios and causes that, you know, kind of go through the coverage. And now, basically, the update is that it makes it non-exhaustive. So before, it was kind of including but not limited to any of the following, and they removed that any of the following, so it's more like a non-exhaustive list rather than you're really focusing on just those reasons. Lastly, here is Covered Risk 10, which narrowed coverage for the term indebtedness. Um, I'll talk about this a little more when we go through the endorsements because we kind of counter this with an ALTA 14, but it really limits that, uh, term indebtedness and the definition to really just be your loan. So we combat that by requesting the ALTA 14, which covers things like protective advances and helps expand the amount of coverage that you're going to be able to get.

So when you go to title and you request, um, you know, a, a title policy, what they're going to provide to you upfront is a preliminary title report, and this kinda goes through the structure of that. So every state's a little bit different. Um, every title company is going to also be a little bit different. But generally, what you're going to see is, uh, Schedule A is going to be kind of at the beginning. This is really, like, an informational section. It's going to provide you property information. Usually it has the address listed. If it doesn't, we do recommend you have that added by title. Um, it'll also go through, like, the effective date, so you'll know how, like, current the search has been, um, and the current vesting. As I mentioned before, the current vesting is very important. You want to make sure that that vesting is either going to be updated to your borrower or that it matches your borrower and that your loan documents have the, the same person signing the deed of trust or mortgage as who's on that vesting.

Um, or like I said, if it's going to be updated, say it's a, it's a sale, it's a purchase, um, just make sure that that's updated correctly. It also is going to show you usually your APN or property ID. Um, this has a few different terms depending on the state that you're in, but this is essential to have correct in your loan documents. Um, this is what's going to go on your deed of trust or mortgage, and that helps, you know, link your deed of trust or mortgage to that specific property. So when later on, if there's other title searches or, you know, other issues that come up, it's going to, you're going to make sure that that's going to be on the correct property. So you definitely want to make sure that's on there. If it is not on your title report, definitely reach out to your title company and have them confirm you do not want to get this wrong.

It causes a lot of issues when it's not correct. Next is Schedule B. Um, this kind of consists of a few different things. One is going to be your exception items. So your exceptions are exceptions to coverage. And everything that's listed there, if there's an issue or what that arises related to any of those items, generally title is not going to provide coverage for you. So if you go to make a claim related to that later, they're going to go, "Nope, this was an exception to coverage. Um, we're not, you know, going to pay you out. " So our goal when we're reviewing preliminary title reports is to remove as many of these as possible. So if you work with us, you'll see in our closing instructions, we include a list of these items that we want removed from title. And most of the time, vast majority of them can be removed.

There are some that title just straight up will not remove, like, you know, recorded easements, uh, CCNRs, you know, those kinds of things. There are others where they might tell you, "Oh, we can't remove this. " And then you go back and you go, "Well, what about if we do this instead?" Or if we provide an affidavit or something like that, and then they'll remove them. So sometimes you just have to kind of work with title to get all of these off as much as possible. Um, requirements and notes are also going to be included in Schedule B. Notes are less concerning. They're just notes, informational notes usually. Requirements though are very important. Your goal is to clear all of them. This is because if a requirement is not cleared, it's going to become an exception item on your policy. And as I just mentioned, exception items limit the coverage that you're going to have under your title insurance.

So you do not want an- any exception items that are not necessary. And lastly, here, I mentioned before in Schedule A, usually it'll show an effective date. We recommend this be within 60 days of your closing date. Uh, this is because title insurance works a little bit differently than other types of insurance where it's looking kind of backwards instead of forwards. Like you get car insurance that's looking for accidents in the future. Title insurance is looking backwards. Um, they're going to look at everything that has already happened on the property. They're going to give you the current status, like the current vesting, all of that good stuff about it, and everything up to closing, um, you know, you want all that information so that at the time of closing, you make sure you have the right vesting, which is the owner, uh, the right property ID, all that stuff.

So you want to make sure that this search is pretty current. Um, there are instances where sometimes borrowers are working on two loans at the same time, and you don't know that that other loan is being worked on, and so they'll record a deed of trust with another lender, say a week before you're closing, and you have no idea, and title doesn't find it because they're, you know, effective dates like 90 days in the past, and they haven't searched all the way up. Um, so it's really important to get that search as current as possible, but, um, should definitely be within 60 days of closing at the late- or at the earliest.

Um, so title insurance, this is a lot. I know this is a giant wall of text. I'm not going to read all of this, but these are general exceptions that are included on most title reports. When you get the extended policy that I referenced earlier, usually these are all going to just be taken off with that extended policy. Um, if title comes back and says, "We can't do an extended policy, we're just going to do a standard policy for you, " then you're going to have to deal with trying to get these removed off of title. Um, so again, I'm not going to read through all of them because it's just way too much, but just so you're familiar, when you see the slides and they are sent out via email, you can kinda look through and just see. A lot of them are pretty easy to clear, um, if you know kind of the right questions to ask.

So if you ever see these and have issues, they can't do the extended policy, won't remove them, reach out to your attorney, um, and you can get these cleared off for you.

Um, so diving more into exception items, as I just kinda showed you, there are some general exception items that are typically going to be removed by the extended policy that's that list on the prior slide. And again, they're pretty easy to remove. Um, even with the standard policy, a lot of times you can do searches or have affidavits done. Um, you know, mechanics lien affidavits, you know, owner's affidavit, those kinds of things can remove a lot of those anyway. So, um, don't be alarmed by them. It is a lot of, a lot of words, a lot of texts, but they're pretty easy to kinda work through with title. You will also see special exceptions. So these are going to be more specific to your property, where general exceptions come up on almost every title, preliminary title report. Special exceptions are going to depend on the property at hand.

So usually you're going to see some form of taxes listed as exceptions, which is fine, but it's going to be property specific. So you might have just your property taxes. You might have property taxes plus, um, you know, different assessments or supplemental taxes or things. They don't always apply to every single property, so you won't necessarily see every type of tax on every preliminary title report. But generally for taxes, you want to make sure these are all paid. Taxes do generally have super priority over your lien, so if there's anything unpaid, even if it comes up after your lien is recorded, your deed of trust is recorded, um, they're going to have super priority, which can be an issue. Um, so you want to make sure all taxes are current, everything showing is paid, anything that's, you know, not on there, um, you want to make sure title's doing these searches and make sure that it's all addressed.

You'll also see CC&Rs, which are covenants, conditions, and restrictions and easements. Again, not all properties have these, but they are very common to see on title reports. These generally run with the land. So if they're recorded on title, your title insurance company is not going to remove them as exception items. It is just kind of good to understand what's there. So CC&Rs, for example, could be, you know, that the land is, can't be developed. It can only be used as, like, a nature preserve or something, but your borrower's planning to, you know, build a whole subdivision on it. Well, that's not really going to work because that CC&R is going to prevent your borrower from doing that. So it is good to understand what CC&Rs are on the property, what easements are on the property, easements allow other parties access to your property generally, um, just to know what's going on with it and make sure that there's nothing that the borrower's planning to do that would kinda run afoul of these and cause issues later on.

You're also going to see current liens. So this could be tax liens, this could be other deeds of trusts or mortgages. Um, you want to make sure those are all cleared off. We do sometimes see things like child support liens or, like, personal property, uh, tax liens or, like, you know, federal tax liens for the actual person instead of, you know, like the entity, for example. You do generally want to make sure those are all cleared as well. You don't want anything kind of getting in, in the way of this, um, especially if you're in, like, first position, you want to make sure all those mortgages and deeds of trust are going to be cleared off, um, and that they're either going to be paid or you're getting a subordination agreement if they're going to remain. You also will frequently see water rights. Um, water rights if you've never lived into water laws is actually quite fascinating, but these sometimes are very easy to clear.

You just ask title to clear off the water rights exception and they go, "Great, all done." Uh, but a lot of times they do push back because water law can be quite complex and water rights therefore can also be quite complex. Um, usually this is okay for it to stay. It's not worth the fight. It's, the searches for it can be very difficult and complicated. Same goes for things like mineral rights. Um, the searches for that are just heinous to go through, but, um, you will see them occasionally. We do request them to be removed. We get pushback on occasion and it's okay if they can't be. Lastly, what we've been seeing a lot more recently is solar liens. So there's, you know, solar panels on the property or some other sort of, uh, you know, generating equipment. Uh, a lot of times you'll see a solar lien or a UCC related to those on your title report.

And again, generally, these are okay as long as that equipment is actually still on the property. So if that comes up, you want to reach out to your borrower, go, "Hey, I just want to make sure this is actually still there." If not, request it to be removed. Um, if the property is, or the equipment is still on the property, then you can request an endorsement be added to your title policy, um, that'll help provide a little bit of coverage and extra assurance for you.

And with that, we will walk through endorsements. So where exception items, you know, limit the amount of coverage that you get under your title policy, endorsements are there to expand your coverage. So you want to get as many of these as you can get in general. Um, if title will offer it to you, usually it's like, great, extra, extra coverage. So we love it. Our standard recommendations for every single loan file are going to be your ALTA9, your ALTA 14, ALTA 22, and ALTA 27. Now, these aren't going to be available on every single loan file that you have. For example, ALTA 22 is a location endorsement. It's not applicable to vacant properties. So we do have it as a standard request. You'll probably see in your loan documents, title will come back and go, "This is vacant. We can't issue the ALTA 22." And we go, "Okay, great." Um, generally though, these are usually pretty easy to get except that ALTA 14.

Um, I mentioned this a little bit earlier when we were talking about the 2021 versus 2006 policy. ALTA 14 has a lot of misconceptions around it where people think it's for construction advances or lines of credit. That's not the case. So if you actually read through the language of the endorsement, the way they define advance includes things like protective advances. So this is going to be, like, advances for tax liens. If you go pay a tax lien because you don't want, you know, a tax sale to happen, or you have forced insurance, so you're paying the insurance for the borrower, um, and just charging it to them. You know, things like that are covered under the ALTA 14. So we receive a lot of pushback based on the misunderstandings about this endorsement, and usually once we explain to title, like, "Hey, actually, this language is what we're looking for, like, this is really why we're requesting this coverage." Usually they're like, "Okay, great." They just have to go back to their underwriter, confirm, and then you're good to go.

Some other common endorsements that we request, if they are applicable, they're not applicable to every file, but when they are, you definitely want to go ahead and get these. Um, first is the Alta four endorsement, which covers, um, condos. So if it's not a condo, you don't need this, but just provide some extra coverage if you have a condo. Alta six is for variable rate mortgages. Um, so again, only applicable. I feel like self-explanatory <laugh> if you have a variable rate mortgage. Um, Ulta eight is an environmental endorsement. You also might see this as 8.1 or 8.2, which kind of changes depending on the property type. This is going to be very important for properties where things like, um, mechanic shops or dry cleaners or, you know, things that have a lot of, like, chemicals and environmental risk, um, you definitely want to make sure you have this on those types of properties, especially.

Uh, an Ulta 10 is for an assignment. So if you're selling the loan or you're switching out lenders or just for whatever reason you're assigning the loan to a new lender, you want to get an Alta 10 endorsement when you are doing the assignment. Then you also have Alta 11, which is not for, um, originating loans, it's actually for when you're going to go ahead and modify a loan. So in Alta 11, you want to get, they'll provide, like, a date down of title, updated searches, and make sure there's no intervening liens or other issues that have come up since you closed the loan. And then the Alta 11.2 is specific to when you're doing an additional advance. So if you're increasing the loan amount, you want to make sure you get the 11.2 as opposed to the 11. Lastly, here, another common endorsement is the ALTA 32 and 33 series, which is for construction loans.

Um, ALTA 32 is going to be issued at the time of closing, and that's going to help provide things like mechanics lien coverage and things like that. And then ALTA 33, you're going to have to request from title every time you do a construction draw. So basically what that does is it going to provide you an updated date down, check for all those intervening liens, all that good stuff, and it's also going to increase your title policy coverage based on the amount you're advancing under that draw. So it's very important so that you keep up with these and have these issued so that, again, if there's any title insurance claims that are needed, your coverage is sufficient for the amount you've actually advanced to the borrower.

Once you kind of walk through all that, you get your title report, you go through your exception items, you request all your endorsements. A lot of times during closing, title will provide you what's called a proforma or just a marked up preliminary title report. And this is going to be just essentially a revised version of that preliminary title report showing how the actual policy is going to look. So they're going to be making all those changes like removing exception items, adding endorsements, um, all that stuff that you're looking at and you'll go, "This is basically a draft of the final title policy." This is very important to review because you want to double check and make sure all of those title requests are actually reflected in there. A lot of times when we're reviewing proformas, we're helping through closing, we'll catch, you know, there's maybe a few exception items that they didn't tell us they wouldn't be willing to re- to remove, but we catch it on the pro forma, we go, "Hey, actually, this should be removed." And then they tell us that, "Hey, actually we can't do that, " and we kind of work it out from there.

You also want to make sure all the endorsements are included as well. Sometimes same thing. Sometimes they can't issue the endorsement for one reason or another, and so we catch it on the proforma review. We go back to title and we kind of work through it from there.

Lastly here, kind of similar to what I was just talking about, but title hangups, sometimes title is unwilling or unable to honor your request. So for example, Alta27 is a user endorsement. Um, you know, maybe that's not available in the state that the property's in, so they can't issue it to you. Um, that would be just a scenario where maybe they can't do it. Or, um, you know, it could be that there's an exception, an item that their underwriter says, "You know, we're actually, we're not going to remove that item." Uh, sometimes that's okay. As I kind of referred to earlier, things like water rights, for example, you know, usually we ask for it, we know there's a good chance we're not going to have that removed, and we're okay with it, you know, just kind of staying. However, other times there might be a workaround for that same coverage.

So definitely, um, reach out to your attorney and discuss with your teams if title comes back with any sort of issues, um, to see what kind of workaround there could be. Maybe there's, like, a slightly different version of coverage you can get or a slightly different request you could make, and that would provide you something basically equivalent to what you've already asked for just in a different way, and that would be enough.

And I'll pass it back to Casey.

Casey Busch, Esq.:

Thank you. Um, so to recap, uh, we've gone over the, the types of entities and their structures, uh, determining signature authority and ownership from those entities. Uh, the, the common entity issues that we mentioned for each entity, uh, title insurance coverage that Laine was discussing, uh, and what, what endorsements you'll, you'll need, uh, types of policies that you'll like, comment title issues, um, you know, which exceptions title often, often likes to fight back on. Um, we have a conference coming up, August 25th to 26th. Uh, this is the Newport Beach Conference. Uh, it's going to be a great time. I think I'm going to be there. Laine might be there. Laine is going on maternity leave, so everybody say, "Congratulations, Laine." Um, she's starting just the end of this week, so she might not be back for the conference, but, um, the rest of the Fort Ye team would love to see you there and, uh, we got some great panels and, and seminars and stuff for you, um, and plus it's in Newport Beach, so we can beat that.

Okay. We'll try to get to some of your Q&A here. Um, I'm going to take the entity ones. Um, so first one, I'm a California lender. Occasionally, we see out- of-state LLC such as ones formed in Delaware. Uh, is it necessary for the LLC to register with the California Secretary of State? Um, no, not necessary for your purposes. Uh, the borrower might want to just for, like, tax reasons or something, but has nothing to do with you. Um, regarding who signs, is there clear language if just one member needs to sign, um, i.e. If there's two or more members, uh, really depends on the operating agreement. If the operating agreement allows just one member to sign on behalf of the entity, um, you're probably okay relying on that, but the best practice here is to just have all the members sign if it's a, a member-managed entity.

Laine Prescott, Esq.:

Okay. The next one here is on recommendations for title endorsements for private money loans. Um, we did kind of walk through that a little bit. Our standard ones are the Ulta nine, 14, 22, and 27. Um, those are, again, for every single loan, we recommend, uh, all of those. However, if you have something specific, like a specific property or anything, we might have a few extra we would recommend. Um, we do on our team offer title reviews, so if you guys ever have questions on a specific loan, feel free to reach out and we're happy to help you walk through that.

Casey Busch, Esq.:

Uh, what if the OA did not specify whether the company managing, um, by member or manager, um, there are only one or multiple members of the company. Okay. So, uh, if the OA doesn't specify the management structure, we recommend having the borrower amend that to, to specify a management structure, uh, especially if the articles or certificate of formation don't show a management structure, uh, you're, you're going to want to have the borrower just amend it to show a management structure. And that should be, that amendment should be signed by, by all the members of the company. Uh, next one up, had a loan to an LLC and ended up in court, um, and it looks like there was a one person who went to file an SOI, that's a, a statement of information with the Secretary of State in California. Um, but the other person claimed that that was a bad actor.

Um, so it looks like there was a, a company that was essentially f- falsely formed in California. Uh, we don't recommend relying on statements of information or annual reports that have been filed with the Secretary of State, um, mainly because basically anybody can go file those. Um, really all you need to do, uh, it's super easy to do it in California. You just go and click on the entity and there's a couple buttons you have to click to file the SOI and you don't even have to prove that you own the entity. Um, so that's why we really, um, only recommend relying on articles and, uh, operating agreements for LLCs, um, because anybody can file an SOI.

Uh, we typically have owner, uh, any owner and member with ... Oh, yeah. So typically, only owners with more than 20% interest sign the loan documents, um, and guarantee repayment of the loan. So sometimes in conflict with the bylaws or OA, can we still require a guarantee from those parties or do we need to go by who is authorized? Okay, so for personal guarantees, uh, you can have anybody personally guarantee a loan. Uh, you can even have entities do personal guarantees. Uh, there's really no requirement that they're a owner of the borrowing entity or anything. Um, so I just want to put that out there that anybody can guarantee. Uh, as far as actually signing the loan documents on behalf of the entity, um, you know, if it's your personal underwriting requirement that people with 20% interest and up sign the loan documents, um, that's fine, but you do want to make sure that that doesn't conflict with the bylaws or the operating agreement.

Um, that's because, you know, typically the, the borrower's entity documents will prevail over your internal underwriting requirements. Um, so you want to make sure that that actually matches up with what the borrower's entity documents say.

Uh, what exact document do you need to show breakdown of shareholders? Um, again, mentioned during this that this was, really only comes up during, like, a unanimous consent if you need a unanimous consent of the shareholders. Um, but you would need a, like, a shareholder schedule is typically what we request from borrowers. Uh, good way to verify the signers are authorized by the entity. Do you ask for tax returns, C owns what percent of that entity? Uh, the operating agreement, uh, for an LLC should show the percentage, um, uh, of ownership for each member. Um, and then for bylaws, like I said, a s- a shareholder schedule, uh, typically don't, we don't rely on tax returns or tax documents, um, because those aren't entity formation documents. Um, like, I think you'll note if you go through the slides, I didn't mention, uh, EIN for any of these, uh, employer identification number, um, so because we don't really rely on tax documents for formation documents.

Laine Prescott, Esq.:

Okay. Next one is, is the 2021 Alta loan policy the same or different than the extended policy? So the extended policy is a version of the 2021 Alta loan policy. Um, so you could have, like, a 2021 Alta standard loan policy or extended loan policy. Um, it's just kind of a variation of the same forms, but it just gives you extra coverage, um, over the standard one, and so that's why we recommend that, um, as much as possible. Next question here. "Many title insurance companies decline to provide Alta to private lenders. Is there a way to add endorsements to the CLTA to improve the CLTA coverage? Um, so kind of first thing here, if you do run into this scenario, we do recommend pushing back on this as much as possible to get the ALTA policy. Um, the CLTA, if you have to take it, obviously it's better than nothing, but the ALTA policy really is going to be a lot better for you.

You do, however, have the option to add endorsements. I don't know all the equivalent endorsements off the top of my head, um, but usually if you kinda just go online, you can quickly find them. Or feel free to reach out to us. We're happy to walk through them, but you definitely want to make sure you're adding endorsements to a CL- CLTA policy as well as the ULTA policy.

Um, from Tim, very informative and thank you. Thank you, Tim. Um, okay. Next thing, if a homeowner puts a burdensome easement on the property, can the lender override the homeowner to have it removed? Um, generally, no. Easements run with the property, run with the land. Um, there are not a lot of ways to have them removed, but you would need to go back to, uh, whoever created the easement, have it, like, revoked. Sometimes if there's, like, nobody's using it, you could go kind of petition to have it removed. Um, but generally, if there are easements on the property, they're going to stay on the property and you just kinda want to be aware of them and kind of what, what's going on with them. Um, but yeah, usually the lender can't do very much about actually removing them.

Uh, next, can you detail why you recommend the ALTA 27? Um, ALTA 27 provides usury coverage. Um, so this is very important if you don't have some form of usery exemption or, you know, you're in a state where there is no usery limit. We do still recommend it in general, but it provides coverage in case, you know, there is something usurious going on that title is going to provide coverage for this. It can be a little bit difficult. We actually have been getting quite a bit of pushback on this lately where title is looking to have this, uh, like more documentation before they're willing to issue it. And actually had, uh, in Rhode Island, I think they just straight up will not issue it at all, even though it's supposed to be available. Um, so it can be a little bit tricky sometimes to get, but, uh, we do recommend it just to make sure you have that usery coverage.

Um, next is, can we ask for Alta 11 be added to the existing policy after the fact, or must it be a new policy to include it? Um, no, you can absolutely have it added after the fact. It actually only comes into play when you're modifying a loan. So if you're preparing to do a modification of a loan, you want to reach out to Title and request either the Ulta 11 or the ALTA 11.2 if you're doing an additional advance, um, and they'll have them issue it. So they'll provide you the date down and then when you're kind of ... There's not really, like, closings for modifications, but I guess if you're kind of closing modification, they would issue it at that time. Um, so it's not something that you get when you originate a loan. It's only when you're going to modify it later on, and you don't need a whole new policy for that.

Uh, next, when we reach out to Fortra for an additional review or assist due to title hangups, is there an additional fee or is that covered in the initial review cost? Um, that kind of depends. If you want to reach out to us, we can walk you through our services and what we offer. Um, if you're ordering loan docs through us, I will let you know that we're already going to be reviewing all this anyway. There's no, like, extra fee for any of that usually. Um, the only time it might increase is, like, if there's something really, really complicated, which I don't think I've ever even had happen, but, um, go ahead and reach out to us if you have specific questions on this or our services. We are happy to walk you through it and, and everything.

Casey Busch, Esq.:

Uh, I'll take this one. Uh, webinar copy and recording will be sent out, um, today or tomorrow at the latest.

Laine Prescott, Esq.:

Um, Christine says, "Congratulations, Laine. Thank you very much. Much appreciated." Um, next, can you please talk more about the Usery 27? All loans are typically backed by a license. What exactly is the added benefit? It costs $500, at least with ORTC. Um, this just provides extra assurance, um, extra coverage. This is important, I think, for lenders specifically who are relying on, like, in California, a DRE broker, for example. Um, we go and verify when we're reviewing loans that the broker is active on the DRE's website, but really a lender in this situation is still relying on that broker's license and relying on that broker to be active, you know, in good standing, all that good stuff so that they can get the user exemption as the lender. So we do still recommend just having it when you do have a license in place and you know there's a user exemption.

Um, it, sometimes, you know, if title pushes back, we'll go, "Okay, like, we could skip it, " but we do generally just recommend having it. It's always good to have extra coverage and have that extra assurance available to you.

Um, next up here, does the proforma is sufficient to prove that the title company will provide an endorsement and removing agreed upon exceptions because in some of our cases, title will make last minute changes such as simply crossing out our request at closing without notifying the lender. Also, there's the thing that proforma has explicit language that the document is not legally binding. Um, so until the actual title policy is issued, you won't know until that every single thing is done, but the proforma is a very good way to kind of see what they are actually going to be changing on between the, you know, the preliminary title report and your final title policy. Um, it, yeah, usually does include that language that it's not legally binding, so you really want to be on top of it, um, and just kind of making sure that title's not doing anything.

Um, but generally, if you can get the proforma and you address all the issues in the pro forma and get it updated, you just want to make sure you have it updated as much as possible to show everything. And then that way, you do have something if you have to go back later and go, "Hey, actually, the final title policy didn't match this and we approved this pro forma, you know, or we approved it based on this one." Um, it does give you a little bit more assurance there. Um, it also helps when you have, uh, the closing instructions. We require title and escrow to sign those, uh, agreeing to all of these changes that we're requesting, so very good to have in place, and that's why we ask for that. So you definitely want closing instructions signed, just showing that they've agreed to all of this as well.

Um, next here is a question. The borrower's doing a lot split. What do I need to do to protect my interest as a lender? Um, Mahesh, if you want to reach out to us, we can discuss this more. This could be maybe a little bit more complicated than we can get into here. Um, but generally, you want to run it by title, uh, make sure that the lot split has, you know, you have the correct APNs and all that. See if title's going to require any sort of updates to your documents, um, or, or updated recorded documents or anything like that. But if you want to reach out, we can walk through that specifically with you.

Casey Busch, Esq.:

I can take this one, Laine. Um, if I'm a notebuyer, does a lender's title policy protect me from borrower defenses seeking to invalidate the loan or mortgage, like usury and other various foreclosure defense attacks? Um, at what point does title company have to get involved? Um, so as a note buyer, you're going to want to make sure that you get the, uh, Alta 10 endorsement that's for assignments, um, and that will essentially, like, make you the lender on the title policy. Um, but not all these foreclosure defense attacks would be covered by title. Um, typically title's only going to cover, like, you know, if there's an issue with the title to the actual property, but, like, foreclosure, bankruptcy and stuff like that, title's usually not going to get involved with a bankruptcy claim.

Laine Prescott, Esq.:

And next one, what is the alternative when title says they don't provide the ALTA 32 and 33 for new construction loans? Um, we do have this come up on occasion, actually. Um, the best thing, obviously, is to get the 3233, and sometimes you just have to work with title a little bit to get those, particularly when construction is already started on the property. Um, title gets a little bit sensitive sometimes when it's mid-construction. Um, but for new construction loans, if they still won't issue it, um, a, a good alternative would be to make sure you have, uh, both mechanic's lien coverage and the 125% coverage upfront. So normally, for construction loans, title will only provide coverage for the amount you've actually dispersed. So if you've actually dispersed $500,000 and you're holding back another 500,000 for a total loan amount of a million, um, a lot of times upfront, they'll only provide coverage for that initial 500,000.

But if they're willing to cover the full million or 125% of that million upfront with mechanics lien coverage, that can work as well. So, um, just reach out to us or if you have another attorney, work with them to kind of walk through this, but that is something that can kind of be worked around as well when there's an issue with that.

Casey Busch, Esq.:

Get this one too. Uh, does the lender have to authorize a new easement on the property, uh, that the owner wants to put in place after the loan is in place? Um, so if your loan documents are properly drafted, um, then yes, the lender would have to authorize new easements. Um, it typically would be considered a encumbrance, um, after the loan is in place.

Laine Prescott, Esq.:

Uh, next, can a PACE lien be put on the property into the property taxes without lender approval? If so, how do you push back on this? Um, generally, um, you know, if your loan documents are drafted properly, any liens that have not been consented to by the lender, um, would not, you know, technically be allowed. It wouldn't stop the lien from going on the property necessarily, but it does put the loan into default. Usually it's an event of default. Um, PACE liens are a little bit unique because they're kind of like property taxes where they have that super priority, so they can be a little bit problematic. Um, so you definitely want to work with your borrower on this and get ahead of this as much as possible. Definitely reach out to your attorney if this comes up. Um, you don't want to, uh, you know, accidentally be in a situation where you're being foreclosed out and your lien is no longer valid.

Um, but it does usually for most loan documents, if you have it well drafted, that is an event of default under that.

Casey Busch, Esq.:

Um, does the ISAOA language, uh, cover the loan being assigned to a different entity of the same company lender? Um, still recommend getting the all to 10, just so title, uh, actually covers that assignment. Um, but yeah, I ... Typically, you should get the ISOA language so that if you are assigning it to, like, a ... If it's white labeled or something and you're assigning it to a parent company, um, that, that title is aware of that.

Laine Prescott, Esq.:

Um, and last question we have on here is, should we require CPLs and what if title refuses to sign closing instructions or crosses sections out? Um, CPLs are only going to be required if your underwriter is using an agent to issue your loan policy. So, um, we do have that as, like, a standard request in our closing instructions, but we get some pushback when it's the underwriter issuing it directly, in which case you wouldn't need a CPL. Um, it's just, it would be useless at that point. So, um, you don't always need it. Usually, you want it, but if the underwriter comes back and says, "Oh, we're issuing this directly," you can skip it and be fine. Um, title refusing to sign closing instructions or crossing sections out. Um, we do occasionally have a little bit of issues with this. Usually, the refusal comes from wanting to cross sections out or make changes to the closing instructions.

Um, usually we just kind of walk through this with title. We go back and forth with them. Some changes are fine. Some changes are not, and we have to kind of push back and, and discuss with them a little more. Um, I would definitely reach out to your attorney if this comes up and they want to make significant changes to your closing instructions, um, just because, like I mentioned before, you're having them sign it and agree to all of this. And if you don't have that, then, you know, you just don't have that extra assurance that shows that, "Hey, actually, this is what we requested and you didn't, you didn't do what we requested, but you signed off that you did." Um, so definitely discuss that with your attorney if that comes up.

Casey Busch, Esq.:

Okay. And then, uh, this will be the last question here. Um, if the manager of a multi-member LLC is not specifically granted authority to make all decisions within the OA document, will the resolution fix that consent problem or does the management structure need to be outlined by an amendment in the OA? Um, so do you need an amendment or a resolution here? This will really depend on what the restriction is. Um, so a lot of operating agreements will say, like, manager needs member consent to make, uh, sign a loan for over $100,000. Um, in that case, just a, a resolution will be fine as long as it's signed by all the members. Um, but it, you know, if there's something more serious, like the manager can only sign documents for auto loans or something, um, you're probably going to want to get all the members to sign an actual, like, amendment or something or, or just fix the management structure because if they don't trust the manager to that extent, that's probably a bigger issue than just getting a, a, a resolution.

Laine Prescott, Esq.:

Okay. And that is all the questions that we have in our Q&A. So, um, thank you everybody so much for joining us today. We hope it was very helpful and informative. Um, if you do have any questions, I am still in office today <laugh> and tomorrow before my leave starts, um, but after, you know, Friday or after, feel free to reach out directly to Casey. Um, our contact information is included on the slide here, which will be circulated either today or tomorrow as well. Um, we're always happy to help, even if it's not just entity and title reviews, feel free to reach out with any issues you have. And again, thank you so much for joining. We had a great time.