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Opinions Matters

Opinions Matters Fall 2017

U.C.C. Opinion Letters in Real Estate Finance Transactions – An Update on the New Report

Sterling S Willis

Summary

  • An update on the latest Uniform Commercial Code opinions.
  • The U.C.C. Report is not intended to be a comprehensive treatise on all.
  • When the U.C.C. Report is finalized, the report will include an update to the Illustrative Opinion Letter.
U.C.C. Opinion Letters in Real Estate Finance Transactions – An Update on the New Report
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As mentioned in the Fall 2016 edition (Vol. 1, No. 2) of Opinions Matters, efforts have been underway to provide guidance to real estate practitioners when they provide opinions covering matters related to personal property collateral. In many real estate financing transactions, personal property is not an important part of the collateral package and need not be addressed in a real estate finance closing opinion. Nevertheless, personal property can be a significant part of the collateral for certain real estate deals, including entertainment, hospitality, healthcare, and mezzanine loans. To provide guidance to real estate lawyers in this context, our committee, along with our counterparts in the American College of Mortgage Attorneys, the American College of Real Estate Lawyers, and the American College of Finance Lawyers, has drafted a report on U.C.C. Opinions in Real Estate Finance Transactions (the “U.C.C. Report”). The U.C.C. Report follows the format and complements both the 2012 Real Estate Finance Opinion Report and the Local Counsel Report.

Neither the 2012 Report nor the Local Counsel Report covers opinions in real estate finance transactions concerning collateral under the Uniform Commercial Code (the “U.C.C.”) other than fixtures. The current draft of the U.C.C. Report covers collateral that can be perfected by filing or possession, or both, under Articles 8 and 9 of the U.C.C. and includes investment securities and deposit accounts that may be involved in connection with a securitized financing.

The U.C.C. Report is not intended to be a comprehensive treatise on all U.C.C. personal property security interest opinions. That wider subject is addressed in the Special Report of the TriBar Opinion Committee: U.C.C. Security Interest Opinions – Revised Article 9, TriBar Opinion Committee, 58 Bus. Law. 1449 (2003). The pending U.C.C. Report provides guidance for both lead and local counsel opinion letters.

The Joint Drafting Committee is soliciting comments and suggestions with respect to the distribution draft of the U.C.C. Report. Certain items up for discussion include whether or not to expand the scope of the U.C.C. Report to cover matters such as timber, as extracted minerals, and similar collateral. Likewise, should the Report be expanded to cover series limited liability companies? The distribution draft has tried to focus primarily on collateral directly related to most common real estate financing transactions, and drawing a line to declare what is sufficient content is not easy. Another issue being debated is whether to take a position on the need to have lengthy assumptions and qualifications in an opinion letter if the opinion concerning U.C.C. collateral is limited in scope to a U.C.C. opinion. U.C.C. security interest opinions frequently contain numerous exceptions that the drafters of the U.C.C. Report believe may not be necessary. These laundry list type of exceptions tend to go to matters that either post-date the opinion (e.g. change in debtor’s name or location), deal with post-closing filings (such as filing continuation statements), or deal with collateral that is not subject to neither Article 8 or Article 9 of the U.C.C.. The drafters felt these type exceptions are not always needed since opinions speak only as of their date and typically only cover collateral in which a security interest can be created under Articles 8 and 9 of the Uniform Commercial Code. Nevertheless, several commenters have indicated that these exceptions are standard in many firms’ opinion letters and do not detract from the opinion.

When the U.C.C. Report is finalized, the report will include an update to the Illustrative Opinion Letter. This will supplement the Illustrative Opinion Letter from the 2012 Report and the Local Counsel Report.

The topic of U.C.C. security interests in real estate transactions was the subject of a plenary program and two workshops at the ACREL annual meeting in Los Angeles in October with Steve Weise and Marshall Grodner as speakers and Ken Jacobson as moderator. Both Steve and Marshall are contributing reporters to the U.C.C. Report. A draft of the U.C.C. Report has been distributed to the relevant opinions committees and others for comment.

The joint drafting committee continues to solicit all comments to the U.C.C. Report, and should you wish to comment, please send your comments to the Reporter, Bill Dunn ([email protected]).

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