The UCC Opinions Report is Heading Your Way

The report entitled “Uniform Commercial Code Opinions in Real Estate Transactions” (the “UCC Opinions Report”) has been completed and sent to the editors of the Real Property, Trust and Estate Law Journal for publication in the Fall 2018 issue. 

The UCC Opinions Report is the third in the group of recent reports by The American Bar Association (ABA) Section of Real Property, Trust and Estate Law, Committee on Legal Opinions in Real Estate Transactions; the American College of Real Estate Lawyers (ACREL) Attorneys’ Opinions Committee; and the American College of Mortgage Attorneys (ACMA) Opinions Committee.  The first of these reports was the Real Estate Finance Opinion Report of 2012 (the “2012 Report”), which was published at 47 Real Prop. Tr. & Est. L. J. 213 (2012).  The 2012 Report was followed by “Local Counsel Opinion Letters in Real Estate Finance Transactions, a Supplement to the Real Estate Finance Opinion Report of 2012” (the “Local Counsel Report”), which was published at 51 Real Prop. Tr. & Est. L. J. 167 (Fall 2016).  For the UCC Opinions Report, the American College of Commercial Finance Lawyers joined in the fun.

As with the Local Counsel Report, William B. Dunn (Grand Rapids, MI) served as Reporter, and Edward J. Levin (Baltimore, MD) and Sterling Scott Willis (New Orleans, LA) toiled as Co-Editors.  Two prominent experts in matters UCC, Steven O. Weise (Los Angeles, CA) and R. Marshall Grodner (Baton Rouge, LA), participated as Contributing Reporters.  The other members of the Joint Drafting Committee included Edward N. Barad (Denver, CO), Kenneth P. Ezell, Jr. (Nashville, TN), Catherine T. Goldberg (Albuquerque, NM), Raymond S. Iwamoto (Honolulu, HI), Kenneth M. Jacobson (Chicago, IL), Robert J. Krapf (Wilmington, DE), Charles L. Menges (Richmond, VA), David L. Miller (McLean, VA), Laurence G. Preble (Denver, CO), Lydia C. Stefanowicz (Woodbridge, NJ), and Lawrence J. Wolk (New York, NY and Washington, D.C.).  Robert A. Thompson (San Francisco, CA) actively participated on the Joint Drafting Committee until he passed away last year. 

As stated in the UCC Opinions Report, it provides basic guidance for opinion practitioners in real estate finance transactions to consider in giving and reviewing opinions when there is a personal property security interest governed by the Uniform Commercial Code (the “UCC”).  UCC security interests are not always important in routine real estate financings (other than with respect to fixtures) but are always significant in certain specialized real estate financings dealing with hospitality, healthcare, and living facilities and with mezzanine loans.  In these real estate financing transactions, personal property, including deposit accounts and investment securities (which may include entity interests in non-corporate entities pledged in mezzanine financing), comprise a part of the security in the transaction.  The UCC Opinions Report addresses the opinions that relate to all of these types of collateral.

The UCC Opinions Report also notes the special provisions of the UCC that apply to the real estate-related collateral of as-extracted collateral, standing timber to be cut, and growing crops and that are relevant if giving opinions about these subjects.

The UCC Opinions Report discusses the issues relating to requests for opinions on UCC matters that are governed by the law of a state other than where the opinion giver is admitted to practice.  The Report points out the importance of the opinion giver’s disclosing the limited extent of its experience with the law of the UCC jurisdiction and the sources of its information about that law.

The UCC concepts of creation, attachment, perfection, and priority as they relate to opinion letters are described in the UCC Opinions Report.  The Report highlights issues that are peculiar to certain types of entities, including transmitting utilities, trusts, and series LLCs and LPs.

The UCC Opinions Report includes sections on opinion-related issues that relate to deposit accounts, which are a frequent type of collateral in real estate finance transactions, and to investment property, which includes the equity interest of the real property owner that is often pledged in mezzanine financing.

The UCC Opinions Report discusses the appropriateness of setting forth in an opinion letter lengthy assumptions and qualifications (sometimes called a “laundry list”) that: recite portions of Articles 8 and 9 of the UCC; may relate to events that will occur, if at all, after the issues of the opinion letter; and may include provisions that are not applicable to the specific transaction at hand. 

Sample opinion language for various points is included throughout the UCC Opinions Report.  Importantly, the UCC Opinions Report includes as its addendum an illustrative opinion letter (the “2018 Illustrative Opinion Letter”).  The 2018 Illustrative Opinion Letter is based on the illustrative opinion letter that is an addendum to the Local Counsel Report, and it adds to the Local Counsel Report’s illustrative opinion letter content discussed in the UCC Opinions Report.