July 01, 1999

A User-Friendly Opinion for Real Estate Lawyers (1999, 13:04)

A User-Friendly Opinion for Real Estate Lawyers

Probate and Property, July/August 1999, Volume 13, Number 4

By Edward J. Levin
Edward J. Levin is a partner with Piper & Marbury L.L.P. in Baltimore, Maryland. He is Chair of the American College of Real Estate Lawyers Attorneys' Opinions Committee and a member of the Real Property Division's Legal Opinions in Real Estate Transactions (B-4) Committee.

Real estate lawyers now have access to an easy to read, easy to understand model opinion focused on real estate secured transactions. This opinion model (Inclusive Opinion) is contained in the Inclusive Real Estate Secured Transaction Opinion Project Report (Inclusive Opinion Report), prepared by the ABA Real Property, Probate and Trust Law (RPPT) Section Committee on Legal Opinions in Real Estate Transactions, Subcommittee on Creation of an Inclusive Opinion, and the American College of Real Estate Lawyers (ACREL) Attorneys' Opinions Committee.

The RPPT committee approved the Inclusive Opinion Report in August 1998 at its meeting in Toronto, and the Executive Committee of the RPTE Section approved the report in December 1998. The ACREL committee approved the Inclusive Opinion Report at its meeting in Washington, D.C., in October 1998, and the Executive Committee of ACREL approved the Inclusive Opinion Report in January 1999. In this article, the RPPT and ACREL committees are sometimes referred to as the "Committees." The Inclusive Opinion Report, including the Inclusive Opinion, is posted on the Internet at the following three addresses:

The Inclusive Opinion Report can be viewed as the third step toward the goals of efficiency and cost-effectiveness in the opinion process for real estate secured trans-actions. Those steps are:

* The ABA Business Law Section prepared its legal opinion "Accord" in 1991, which set the framework for national opinion projects and is described in more detail below.

* The Committees prepared their "Real Property Adaptation" in 1994, which made the Accord usable for real estate secured transactions and which is described in more detail below.

* The Committees prepared the Inclusive Opinion Report, which made the Accord, as modified by the Real Property Adaptation, user- friendly for real estate lawyers and their clients.

Opinion Practice

Legal opinions are customarily given in large business transactions, including real estate transactions, and serve a valuable role in the closings for these transactions. Consider the example of a loan secured by real estate. If the process works correctly, the delivery and acceptance of a legal opinion signifies that all participants in the transaction are in agreement on the terms of the deal, that the transaction is evidenced by particular documents and that those documents will be enforceable. In this example, the participants include the borrower, the borrower's counsel, the lender and the lender's counsel, all of whom should have a meeting of the minds about the transaction and its legal effect. A legal opinion should not be designed to put the borrower's counsel "on the hook" or to trick a lawyer into opining on something that another participant knows is factually inaccurate or legally incorrect. Instead, a legal opinion should represent the considered views of the borrower's counsel about the matters addressed in the opinion. A legal opinion should be consistent with the understandings of the borrower and in conformity with the expectations of the lender and the lender's lawyer.

This goal is difficult to achieve if the lender's counsel and the borrower's counsel start with very different perspectives, with different forms and even with different vocabularies. In too many instances, the effort expended in producing an acceptable legal opinion is disproportionate to the effort expended in documenting the transaction. Efficiency is a worthy objective of an opinion project.

For years, the form, content and scope of legal opinions differed considerably, and there was substantial disagreement about the meaning of words used in legal opinions. By the late 1980s, a number of state and local bar associations had published reports on legal opinions that included exemplar or illustrative opinion letters. Many practitioners used these reports and the illustrative opinions in connection with the preparation of the opinions that they rendered in loan closings, purchases, sales and other transactions.

The Accord

In the spring of 1989, the ABA's Business Law Section sponsored the Conference on Third-Party Legal Opinions in Silverado, California (Silverado Conference). The Business Law Section convened the Silverado Conference to create a national consensus as to the purpose, format and scope of third-party legal opinions, the precise meaning of words and terms used in third-party legal opinions and the guidelines surrounding the negotiation, delivery and receipt of third-party legal opinions--all laudable goals. As a result of the Silverado Conference and a tremendous amount of additional work, in 1991 the Business Law Section released the Third-Party Legal Opinion Report, including the Legal Opinion Accord (Business Law Report), which was published in 47 Bus. Law. 167 (1991) and 29 Real Prop., Prob. & Tr. J. 487 (1994).

The Business Law Report consists of three parts: a Legal Opinion Accord (Accord), an Illustrative Opinion Letter (Illustrative Opinion) and Certain Guidelines for the Negotiation and Preparation of Third-Party Legal Opinions (Guidelines). The Accord itself consists of a glossary and 22 numbered sections, each of which has a commentary and a technical note. According to the Accord's glossary, the commentaries and technical notes are not part of the Accord but are merely aids to provide guidance on the meaning of the Accord.

The Business Law Report was a tremendous step toward the goal of having a national standard in the area of third-party legal opinions. As noted above, the Business Law Report in-cludes the Illustrative Opinion, and the Accord includes a set of definitions as well as the assumptions, qualifications and limitations that are incorporated into an Accord-based opinion. The drafters of the Business Law Report made it clear that the opinion giver and the opinion recipient in each transaction are free to make whatever changes to the Illustrative Opinion that they believe are appropriate in their particular context and still remain within the ambit of the Accord. This is called "private ordering." See Accord § 21. The Guidelines in the ABA Business Law Report are important rules that should apply to opinion practice, whether reference is made to the Accord or any other opinion project.

From the perspective of real estate practitioners, however, the Business Law Report has two significant problems. First, the scope of the Accord includes third-party legal opinions in unsecured private transactions, underwriting transactions, mergers and acquisitions and other business transactions. The Accord is, by its own terms, not concerned with secured transactions, and particularly not with real estate secured transactions. This limited scope manifests itself in several places in the Accord, most significantly in the remedies or enforceability opinion. Many business transactions contain numerous covenants and obligations of the parties, but the documents often do not specify the remedies available on a breach. Therefore, the only available remedy may be a breach of contract action for damages. It is important, however, for many real estate lenders to know whether, on a borrower default, they will be able to exercise specific remedies, including the right to obtain the appointment of receivers, collect rents and foreclose.

Second, the Accord Illustrative Opinion is extremely short. It incorporates the Accord by reference and does not state the assumptions, exceptions, explanations and other matters frequently contained in opinion letters. Moreover, it does not even include a number of issues that are frequently covered in opinion letters. For example, opinions that the borrower is validly existing and in good standing under the laws of a particular state are not set forth in the Illustrative Opinion on the theory that the enforceability opinion subsumes them. The brevity of the Accord Illustrative Opinion is intentional and was designed to make Accord-based opinions concise and easy to use. For those lawyers very familiar with the Accord, the Illustrative Opinion has this effect. Nevertheless, as the introduction to the Inclusive Opinion Report diplomatically states, the Accord is "difficult to master." Only a minority of practicing attorneys have a high enough degree of familiarity with the Accord to make routine use of its Illustrative Opinion. A smaller percentage of clients about or for whom opinions are given are comfortable with Accord-based opinions for this reason.

The Real Property Adaptation

Both Committees have recommended against using the Accord in a real estate secured transaction without substantial modifications. To set forth certain modifications of the Accord that are needed for real estate secured transactions, the Committees produced a report in 1994. Section of Real Property, Prob. & Trust Law of the American Bar Ass'n and American College of Real Estate Lawyers, Report on Adaptation of the Legal Opinion Accord of the Section of Business Law of the American Bar Association for Real Estate Secured Transactions, 29 Real Prop., Prob. & Tr. J. 569 (1994) (Real Property Adaptation). The Real Property Adaptation adds defined terms to the glossary of the Accord, and it supplements and amends certain sections of the Accord and portions of the commentary to the Accord. Unlike the Accord, the Real Property Adaptation incorporates its commentary as a part of it. (The Committees did not intend, however, to provide that the modifications are necessary or sufficient in each case.)

A significant part of the Real Property Adaptation is devoted to the "remedies opinion," or, as is more typically referred to in a real estate secured transaction, the "enforceability opinion." This article refers to each of these opinions as the "remedies opinion." The Real Property Adaptation includes additional commentary to Accord § 11, which is the introduction to the Accord's qualifications to its remedies opinion. The Real Property Adaptation also includes a long exposition for that commentary.

The remedies opinion in the Accord and the qualifications to it are similar to an exercise of give and take. The remedies opinion provides that the transaction documents form a contract; a remedy will be available for each agreement of the borrower set forth in the contract, or such agreement will otherwise be given effect; and any remedy expressly provided for in the transaction documents will be given effect as stated. This is sometimes called the "each and every" opinion. Qualifications to this opinion typically include bankruptcy and insolvency matters as well as equitable principles. The "bankruptcy and insolvency" exception is limited to particular circumstances, and the "equitable principles" limitation pertains to future conduct of the parties. Even with those two limitations, for typical documents in secured real estate loans, which include provisions that may not be enforceable in all circumstances, the "each and every" enforceability opinion cannot be literally true. An opinion giver can address the other limitations to enforceability in one of two ways, a "laundry list" or a "generic qualification."

A laundry list is a specific enumeration of other qualifications to a remedies opinion that may be listed in the opinion itself or incorporated into the opinion by reference to a report that includes them. A laundry list of exceptions to a real estate secured transaction has the benefit of clearly identifying the particular provisions or issues that concern the opinion giver. It enables the opinion recipient to focus directly on particular problems in the enforcement of the loan documents. The Real Property Adaptation, however, does not favor use of a laundry list because of four principal defects: (1) the list may not always be comprehensive; (2) many laundry lists are extensive and broadly stated, sometimes to the extent of negating the remedies opinion; (3) because of variations in law from state to state, it may be impractical to develop a national laundry list; and (4) many of the exceptions specifically set forth are not deal- specific but instead relate to general application of law, with the result that the opinion letter may become a treatise and have little practical benefit.

Instead of using a laundry list, the Real Property Adaptation prefers a generic qualification. A generic quali-fication consists of two parts. The first is the "bad news" to the lender--that certain unidentified remedies, waivers and other portions of the documents may not be enforceable. Read literally, the bad news of the generic qualification would eviscerate the entire enforceability opinion. The second part is the "good news"--comfort to the lender that specified remedies will be available under certain circumstances.

The form of generic qualification, particularly the good news aspect, is subject to many variations. The Real Property Adaptation does not indicate a clear preference for a particular generic qualification. The content of the assurance of a generic qualification is discussed at length in § 11A of the Real Property Adaptation. (See the discussion below on § 3.6 of the Inclusive Opinion.) It must be understood that the assurance given with the generic qualification, regardless of its form, extends only to the generic qualification itself and not to the bankruptcy and insolvency qualification, the equitable principles qualification or any other specific qualifications to the remedies opinion. For example, the opinion giver cannot "opine over" the bankruptcy exception.

The Inclusive Opinion

The Inclusive Opinion includes the principal concepts of the Accord and the Real Property Adaptation without specifically referring to them or incorporating them by reference. The Inclusive Opinion Report remains faithful to the format and substance of the Accord as modified by the Real Property Adaptation. Although the members of the Committees have differing views about a number of substantive points in the Accord, the drafters of the Inclusive Opinion Report decided to retain the content of the Accord at this time. Left for another day are amendments to certain presumptions and formulations in the Accord.

The Inclusive Opinion is organ-ized into five numbered parts--Background, Opinions, Qualifications, Additional Confirmations and Use of this Opinion--and a glossary.


In opinions based on the Inclusive Opinion, the opinion givers first identify the capacity in which they serve in rendering the opinions and any limitations with respect to the clients for whom the opinion givers are opining. For example, if an opinion giver is special counsel or local counsel to the borrower, the opinion should state that. The Inclusive Opinion then lists the transaction documents reviewed for the purpose of the Inclusive Opinion. Section 1.3 of the Inclusive Opinion specifies the law of the opining jurisdiction for purposes of the opinion. The law will typically be the law of the state in which the opinion giver and the collateral are located, but it may also include, for instance, Delaware corporate law, federal law and the law of the jurisdiction in which the borrower was formed. The glossary defines "Opining Jurisdiction" as a jurisdiction the applicable law of which is addressed by the opinion giver. There may be more than one Opining Jurisdiction for a particular opinion. This is derived from §§ 1, 10 and 22 of the Accord.

The Background portion of the Inclusive Opinion addresses the scope of the opinion giver's review of documents, certificates and other matters (§ 1.4 of the Inclusive Opinion). Section 1.5 contains statements that the opinion giver has relied on "Public Authority Documents" (as defined in the glossary) and information furnished by the lender without investigation or analysis and that the opinion giver has relied on information provided by the client. As to the information from the client, however, the Inclusive Opinion provides that the opinion giver reasonably believes that this is an appropriate source for the information. These provisions are consistent with §§ 2 and 3 of the Accord. If the opinion giver is relying on the opinion of other counsel, whether for state law purposes or otherwise, the opinion giver should include § 1.6 of the Inclusive Opinion and describe the relationship with the other counsel. The opining counsel should carefully consider what level of assurance can be given about the other counsel. Section 8 of the Accord sets forth six different ways to describe the relationship between counsel.


The first three opinions of the Inclusive Opinion do not even appear in the Accord Illustrative Opinion because they are deemed subsumed in the remedies opinion given under the Accord. These opinions pertain to "status" (good standing) of the client (§ 2.1 of the Inclusive Opinion), "entity authorization" of the transaction (§ 2.2) and "due execution" of the documents (§ 2.3). Many lawyers and clients feel more comfortable seeing these opinions spelled out in an opinion letter. The presence of these opinions also serves as a checklist to assure that the opinion giver has taken the appropriate steps to render the remedies opinion.

Section 2.4 of the Inclusive Opinion states the remedies opinion as follows: "The Transaction Documents are legal, valid, binding and enforceable against the Client in accordance with their terms." Inclusive Opinion § 2.4 includes in brackets suggested additional, explanatory language about the remedies opinion that is useful for understanding its meaning. This language states that the transaction documents form a contract; that a remedy will be available with respect to each agreement of the client in the transaction documents or that agreement will otherwise be given effect; and that any remedy expressly provided for in the transaction documents will be given effect as stated. This is an "each and every" remedies opinion; however, portions of this opinion are superseded by the qualifications that are discussed below. For purposes of comparison, the remedies opinion of the Accord is only seven words in length: "The Agreement is enforceable against the Corporation."

Section 2.5 of the Inclusive Opinion concerns the form of the security doc-uments. An opinion giver could theoretically give this opinion even if the documents were not executed. Section 7 of the Real Property Adaptation adds this opinion. Because the scope of the Accord does not include secured transactions, the Accord does not contain a comparable provision. This opinion provides that the form of the documents is sufficient to create a lien on or security interest in all of the client's interest in the collateral, but it excludes an opinion on personal property in which a security interest cannot be created under Article 9 of the UCC.

The Accord Illustrative Opinion does not specifically include a usury opinion, but a usury opinion is implied in the Accord's remedies opinion. Section 2.6 of the Inclusive Opinion is an explicit usury opinion. It includes the assumption that the amounts paid under the transaction documents do not constitute a penalty.

Section 2.7 of the Inclusive Opinion is the "no breach or default" opinion. It addresses organizational documents of the client, specifies other documents to which the client is a party and obligations of the client under specified court orders. In the Accord Illustrative Opinion, the latter two opinions are implicitly limited to the "Actual Knowledge" of the opinion giver. See Accord § 15. The Inclusive Opinion includes the words "to the best of our Actual Knowledge" within brackets to indicate that an opinion giver may include them in an opinion if desired. Also, the Inclusive Opinion states that it only addresses other agreements that are identified in the opinion.

The Illustrative Accord Opinion section on "no violation of law" extends to the performance of the client under specified transaction documents. Because of the many affirmative and negative covenants that real estate loan documents often contain, § 14 of the Real Property Adaptation modified the no violation of law opinion to limit it to the payment obligations of the borrower. Section 2.8 of the Inclusive Opinion uses the formulation developed in the Real Property Adaptation. It also sets forth explicitly the limitation contained in § 16 of the Accord (but not stated in the Accord Illustrative Opinion) that the no violation of law opinion relates only to "statutory laws and regulations that [the opinion giver], in the exercise of customary professional diligence, would reasonably recognize as being directly applicable to the Client, the Transaction, or both."


Section 3.1 of the Inclusive Opinion lists 18 assumptions on which the opinion giver has relied. The first 16 of these are set forth in § 4 of the Accord. Section 4 of the Real Property Adaptation added the last two, relating to the security documents being recorded and the description of the collateral being accurate and sufficient. Section 3.1 also includes the statements, derived from § 5 of the Accord, that the opinion giver does not have actual knowledge that any of the assumptions are false or actual knowledge that reliance on the assumptions is unreasonable.

Section 3.2 of the Inclusive Opinion provides that no opinions are to be implied from any of the explicit opinions, except in limited cases. It also states that if the opinion does not specifically address 18 enumerated legal issues, then the opinion giver is not opining about any of them. This list of 18 legal topics is derived from § 19 of the Accord, except that item (h), regarding the characterization of the transaction, is from the Real Property Adaptation, which replaced the correlative Accord formulation.

Section 3.3 of the Inclusive Opinion is the bankruptcy and insolvency exception (contained in § 12 of the Accord), and § 3.4 is the equitable principles limitation (contained in § 13 of the Accord). As noted in the commentary to Accord § 13.1, the equitable principles limitation relates to the performance and enforcement of the documents and to the conduct of the parties after the documents have been executed.

Section 3.5 of the Inclusive Opinion lists 14 rules of law that further limit the remedies opinion (or any other opinion if the parties so agree). These are called "other common qualifications." Of these 14 rules, 10 are derived from § 14 of the Accord, and § 12 of the Real Property Adaptation added the remaining four. In certain states and in certain transactions, it may be appropriate to add other common qualifications. Footnote 28 of the Inclusive Opinion discusses several of these. If a generic qualification is used in an opinion, some or all of the other common qualifications may be unnecessary.

Section 3.6 of the Inclusive Opinion includes a generic qualification to the remedies or enforceability opinion. As noted above, a generic qualification consists of "bad news" and then "good news" to the lender. The remedies on which Inclusive Opinion § 3.6 gives comfort include judicial enforcement of the payment obligation, acceleration of the loan on a (material) default in the payment of principal and interest (or, if added, in a material provision of the loan documents) and foreclosure in accordance with applicable law. As noted above, the "good news" to the lender does not include comfort that supersedes the bankruptcy and insolvency exception or the equitable principles limitation.

The generic qualification may be subject to many variations. The Inclusive Opinion includes several alternatives in the text and accompanying footnotes. As noted above, the Real Property Adaptation discusses at length qualifications to the remedies opinion and concludes with an en-dorsement of the use of a generic qualification over an implied laundry list of exceptions. The Real Property Adaptation, however, does not indicate a clear preference for a particular generic qualification. The form of generic qualification included in Inclusive Opinion § 3.6 is based on the American College of Real Estate Lawyers Statement of Policy on Mortgage Loan Enforceability Opinions, in The Attorney's Opinion Letter In Real Estate Transactions 1 (Am. C. of Real Est. Law. ed., 1992).

Footnote 34 of the Inclusive Opinion points out that an alternative assurance to the generic qualification is the so-called "practical realization" opinion. At one time, practical realization opinions were widely used. Because opinion givers and recipients in the same transactions took different meanings from them, they seemed to fall out of favor. Two recent New York bar reports, however, include the practical realization approach as an alternative in their form opinions. See Special Committee on Legal Opinions in Com. Transactions, New York County Lawyers' Ass'n; Corporation Law Committee, Ass'n of the Bar of the City of New York; Special Committee on Legal Opinions of the Business Law Section, New York State Bar Ass'n, Report on Third-Party "Closing" Opinions of the Tri-Bar Opinion Committee, 53 Bus. Law. 591 (1998); Ass'n of the Bar of the City of New York, Committee on Real Property Law, Subcommittee on Mortgage Loan Opinions, and the New

York State Bar Ass'n, Real Property Law Section, Attorney Opinion Letters Committee, 1998 Mortgage Loan Opinion Report, 54 Bus. Law. 119 (1998), 33 Real Prop., Prob. & Tr. J. 551 (1998).

Section 3.7 of the Inclusive Opinion provides that the remedies opinion is given as if the substantive law of the opining jurisdiction governs without regard to choice of law rules. That section also provides that if the documents state that the law of the opining jurisdiction governs, the remedies opinion in-cludes an opinion on choice of law. No choice of law opinion is given if the documents state that the governing law is other than that of the opining jurisdiction or if there needs to be a determination that the law of the opining jurisdiction is not contrary to the fundamental policy of the law of another jurisdiction. These provisions are derived from §§ 10(b) and 10(d)(i) of the Accord as modified by §§ 8 and 9 of the Real Property Adaptation. As footnote 36 of the Inclusive Opinion explains, it is common for opinions given in real estate secured transactions to exclude a choice of law opinion or to include reasoned opinions on this subject. See Laurence G. Preble, Choice of Law Opinions: Making the Right Choice, 11 Prob. & Prop. 13 (Jul./Aug. 1997), for an interesting discussion of this issue.

Additional Confirmations

Section 4.1 of the Inclusive Opinion is a confirmation that, based only on the opinion giver's litigation docket and information provided by the client, there are no pending or threatened actions or proceedings against the client that affect the enforceability of the loan agreement or that meet stated standards. This is derived from § 17 of the Accord, but § 4.1 of the Inclusive Opinion states explicitly how the confirmation is limited. From the face of the Accord Illustrative Opinion, the defined scope of investigation is not apparent. This part of the Inclusive Opinion is termed a "confirmation" because it is a disclosure about the knowledge of the opinion giver rather than a legal opinion.

Use of the Opinion

The text of § 5.1 of the Inclusive Opinion limits the use of the opinion to the addressee, and then only for certain specified purposes. Footnote 39 provides suggested language if other entities, such as participants in the loan or rating agencies, are also intended to receive the benefit of the opinion. It is based on § 20 of the Accord.


Following the text of the Inclusive Opinion but intended to be a part of it is a glossary of 23 words and phrases that are or may be used in an opinion based on the Inclusive Opinion form. The definitions are based on the Ac-cord and the Real Property Adaptation. Having the glossary attached to the opinion enables it to be read and understood without reference to a report or other document.


To date, real estate lawyers across the country have not widely used the Accord and the Real Property Adaptation. In large part, this is because the Accord is difficult to use. It is hard to refer to an external report for the meaning of words and phrases included in an opinion. It is even harder to determine the concepts and interpretations that are implicit in an opinion but are not apparent from its face. The overlay of the Real Property Adaptation makes this process doubly hard because there are two reports that must be mastered or constantly referred to so as to understand an opinion that incorporates by reference the Accord as modified by the Real Property Adaptation.

The Inclusive Opinion fixes this problem. It preserves the principal concepts of the Accord, as modified by the Real Property Adaptation, and the Inclusive Opinion is self-contained. Additionally, for convenience, alter-natives to certain of the Inclusive Opinion provisions are shown in the form. The Inclusive Opinion is much longer than the Accord Illustrative Opinion, but it is much easier to understand. It is therefore more likely to be widely used and accepted.