The New York City Bar recently issued its 2021 Mortgage Loan Opinion Report (the “2021 Report”).The 2021 Report is an update of prior 1989 and 1998 Reports of the New York City Bar. The 2021 Report notes that the 1998 Report placed significant reliance on the Third Party Closing Opinions Report of the TriBar Opinion Committee and the Third Party Legal Opinion Report, including the Legal Opinion Accord, both published by the American Bar Association Section of Business Law. The Report also notes that the drafting committee considered the “influential” Real Estate Opinion Letter Guidelines issued by the American College of Real Estate Lawyers, Attorneys Opinions Committee, and the American Bar Association, Section of Real Property, Probate and Trust Law Committee or Legal Opinions in Real Estate Transaction.
Format and Summary. The 2021 Report is in the form of a model opinion letter for a commercial real estate mortgage loan transaction for property located in New York State. The model opinion letter is also annotated with endnotes that discuss and explain various aspects of the model opinion form.
The 2021 Report has citations to other reports and a selected bibliography, including the Real Estate Finance Opinion Report of 2012, 47 Real Prop. Prob & Trust J. 213 (2012) (the “2012 Real Estate Finance Report”) and the Local Counsel Opinion Letters in Real Estate Finance Transactions. A Supplement to the Real Estate Finance Opinion Report of 2012, 51 Real Prop. Tr. & Est. L.J. 167 (2016) (the “Local Counsel Report”).
The model opinion form in the 2021 Report is similar to model opinion forms customarily seen in other recent real estate opinion reports. It contains a list of covered documents as typically seen in an opinion letter, including loan agreements, notes, security documents, guarantees and other loan documents. The model opinion form also contains language that the opinion giver has examined the customary organizational documents related to the borrower and the guarantor. The model opinion form also contains customary assumptions and qualifications that are often seen in current model opinion forms.
The model opinion form contains the following substantive opinions:
Two significant changes in the 2021 Report are the addition of a usury opinion and opinions dealing with Uniform Commercial Code issues, neither of which were discussed in the prior reports.
As a general matter, the 2021 Report tends to follow in most respects the more recent opinion letter forms and model opinions, including those suggested by the 2012 Real Estate Finance Report and the Local Counsel Report. However, there are certain notable differences that in some instances depart from other opinion reports.
Up the Ladder Approvals. One issue posed by the 2021 Report concerns opinions given with respect to the power and authority of a multi-tiered loan party to execute, deliver and perform its obligations under the loan documents. In footnote 25 to the 2021 Report it is stated:
“in the case of a Borrower organized in tiers, the Committee believes an opinion as to due authorization, execution and delivery by Borrower necessarily means that the action and the documents in question have in turn been duly authorized and executed and delivered by all appropriate entities. For example, if a limited partnership Borrower is acting through a corporate general partner it is not necessary to state explicitly that the delivery of Loan Documents have in turn been duly authorized, executed, and delivered by all requisite corporate action of such general partner. Of course, counsel is required to exercise appropriate due diligence to assure that the execution, delivery and performance of the Loan Documents have been approved and authorized at all levels. [emphasis added]
This position that appropriate due diligence has been done with respect to all levels of a multi-tiered organization departs from the TriBar position that upstream authorizations are an implicit assumption that need not be stated. The TriBar Opinion Committee, in Third-Party Closing Opinions: Limited Liability Companies, 61 Bus. Law. 679, 689 n. 52 (2006) states that:
[T]he opinion preparers may assume, without so stating, that when an approval is given by a member or manager that is not a natural person, the member or manager is the type of entity it purports to be, that it was authorized to approve the transaction, and that those acting on its behalf had the approvals they required. As with any unstated assumption, opinion givers may not rely on this assumption if reliance is unreasonable under the circumstances in which the opinion is given or they know it to be false. [citation omitted] To avoid any misunderstanding, some opinion givers choose to state the assumption expressly.
As noted in the 2012 Real Estate Finance Report and the Local Counsel Report, opinion givers should consider taking an express assumption to avoid having to rely on an implicit assumption.
No Litigation Confirmation. The model opinion form also has provisions that are qualified by the knowledge of the opinion giver with respect to litigation and conflicts with the borrower’s contracts. As discussed in the 2012 Real Estate Finance Report, a request for no litigation confirmations “increasingly is recognized as an inappropriate request for opinion letters, and this Report recommends that it should be resisted.”
Generic Qualification and Assurance. The 2021 Report adopts the use of a generic qualification with assurance with respect to remedies available as to enforceability similar to that in the 2012 Real Estate Finance Report. In footnote 34 to the 2021 Report, the Committee states that this a better formulation to use rather than using a practical realization (or stated in the Report “practical obligation” limitation to the overall generalness of the enforceability opinion).
Rating Agency Reliance. In the section on reliance at the end of the model opinion form, the 2021 Report allows reliance on the opinion by rating agencies. Rating agencies do not necessarily require reliance on legal opinions, as discussed in the Local Counsel Report. Thus, the inclusion of reliance to rating agencies in this model opinion form should not be interpreted to mean that rating agencies either want, or need, reliance on legal opinions. Instead, as is the current customary practice, most rating agencies just want to be provided with a copy of the opinion for their due diligence purposes.
