I like to think that I am technologically competent. My kids might say otherwise, but in the office, I am pretty 21st century. I have adapted to and adopted the rapidly evolving office and CRE tech. In fact, because I started practicing law in the late 80’s, I actually “grew up” with the technology. I went to college with a typewriter, law school with an Apple IIC and started practice without a computer on my desk. I learned how to use all things tech for the office as it was introduced to the working world – word processing, fax, e-mail and the internet, to name a few. In real estate, I learned how to do closing statements by hand long before there was closing software. We reviewed abstracts before search engines were available.

I could go on, but even I feel like I am old. But I want to make the point that technology has evolved so quickly, that what was new and a time saver one minute, became old and a burden the next minute. Specifically, I reference fax. When fax machines first came to our offices in the early 90’s we thought it was the greatest invention ever. It was so time saving that we instantly hated it. Why? Because where we once had several days to receive and review documents sent to us and received by mail, suddenly, opposing attorneys were calling us within an hour after sending a document by fax to confirm receipt and ask for comments. Somehow, we were supposed to review those shiny, slick pieces of paper instantly, no matter what else we were working on.

As fast as fax machines came about, they also have disappeared, thanks to e-mail, scanning and pdf. Fax has become so uncommon that I don’t even know my fax number anymore. Our fax machine rarely “rings”. While the quality of fax documents is as good as any pdf or e-mail, there is no need for it because of the ability to e-mail right from your desk and have the document arrive on someone else’s desk or phone instantly.

So why is it that some large financial institutions require that we send completed loan packages back to loan administration BY FAX for funding authorization? Or, that we send applications for mortgage modifications or short sale for approval BY FAX? In the last 10 days, we have sent 3 such packages, all more than 100 pages (some close to 200 pages) to large banks by fax. Could there be any more inefficient use of time or inefficient way to transmit documents? Fax just doesn’t work in today’s fast paced business environment. First of all, you still get busy signals from fax machines. When else today can you get a busy signal? We scan the fax in, walk away and come back to check 30-60 minutes later only to find out that large financial institution didn’t receive the fax because the line was busy. The process begins again. Hopefully, by the end of the day, the package will get through.

Remember how often the fax line would either cut off or there would be some kind of blip so that the entire fax wouldn’t go through and then you had to figure out what pages the recipient didn’t get?   Even with digital lines and high quality scanners, this still happens. And, because these faxes go to some general mailbox, there is no one to talk with to determine which pages are missing. Therefore, most of the time, the entire fax has to be resent in which case you run the risk of busy signal or partial fax again. This is a double or triple waste of time and effort.

On that same theme, fax machines used to be monitored full time, at least in big companies and firms. As technology improved, e-fax came about and, in theory, faxes were delivered, like e-mail, directly to the intended recipient. One would think this to be the case with these banks. However, the closers, administrators, underwriters and others, all monitor all files, in theory. They are supposed to pull the files out of the fax box as they come in. Anyone should be able to look at a file and answer a question or authorize funding. In practice, this does not occur. Your closer is your closer. You loan administrator or short sale processor is who you are supposed to deal with. When you send a loan package in for funding, if you can’t e-mail directly and are required to fax to the general number, you have to wait for him/her to find it. Another delay occurs.

Technology is ever advancing. Big companies, like banks and financial institutions, should be at the forefront of the revolution. Fax was a great advancement 25 years ago. But its time has come and gone. So, you know who you are big banks. Get with the times and dump your fax machines!

Sometimes, it’s just too good to be true. Sometimes, a client just wants something so much, that the message you deliver isn’t received.  A client comes to you with the sure fire money maker, or some other deal he just has to have.  The client lays out the terms and tells you the structure and says “make it happen”.  But how often does it happen that once we, the attorneys, start looking at what the client wants to do, we find that it can’t or shouldn’t be done.  The client hasn’t really done any due diligence yet, or there are so many obstacles to overcome that it just isn’t worth the effort or expense.  That’s when you hear Mick Jagger singing in your head, “You can’t always get you want…” and you hope you can tell the client, that at the end of the day, “you get what you need”.

One client of mine called me a few weeks ago proposing to make a small loan (under $500,000) to a friend so that his friend could buy out his partners’ interests in a warehouse they owned in a Midwestern state.  The loan would be secured by a 2nd mortgage on the warehouse.  The 1st mortgage balance was under $2,000,000 and the property was worth nearly $5,000,000.  The property was leased to a single tenant who’s rent more than covered the total debt service of the 2 loans.  And, the friend and his wife would personally guaranty the loan.

It sounded like a slam dunk to the client.  Of course, he had not reviewed, or even received any documents.  Over the next week I learned:

  • The 1st mortgage had a no subordinate lien paragraph. Therefore, consent of the 1st mortgagee would be required;


  • There were only 18 months left on the lease with one – 3 year renewal option (yet to be exercised). The proposed term of the loan was 5 years; and, most importantly;


  • The friend would not have total control of the property upon purchase of the partnership interests, and therefore, no authority to grant a mortgage. He was acquiring only a controlling (not even 100% interest) in the 53% owner of the property and could not, without full consent of the 47% owner, execute and deliver the second mortgage.


I spent 2 weeks with the friend going over this. He supplied numerous documents including tax returns, financial statements, property tax bills, internal entity resolutions and other irrelevant documents to convince me to let my client make this loan.  My client called and emailed me often with suggestions on how to get comfortable with the security.  He suggested taking a security interest in the entity rather than a mortgage so that we could force a sale of the property.  But ownership of the property is by tenants in common and not as one entity, so there is no governing agreement that would dictate that we could force a sale in the event of a default under the not.  He suggested that we accept a 2nd mortgage on the friend’s primary residence.  I explained that would amount to alternate security not additional security.  If he were comfortable with the equity in the house and the inability to realize on the security until the future sale and, if could accept the risk of a foreclosure by the first mortgagee, he could accept the alternate security.


Decisions have yet to be made nearly 6 weeks later.  Further proposals are being made.  But, in this case, the client has learned, though it may have taken sometime, that you can’t always get what you want.  As a result, he will end up in a better position.  He will get what he needs which will either be adequate security for the loan, or, it could be that he won’t do the deal at all.  Sometimes, that is the best result.

Loan Negotiation (00164323)

Commercial Loan Documents continue to get thicker and become a tedious read not only for borrowers and their attorneys, but for lenders and their attorneys as well. The “standardization” of loan documents (and the corresponding shrinking of font size) has made it easy for many borrowers to simply shrug off the pile of documents and sign whatever is put in front of them. Of course, no one should sign any document without carefully reading and considering its effect. And, despite lenders’ best efforts and hopes to standardize, many provisions are ripe for negotiation. Lenders understand expect certain comments to the standard boilerplate comment paragraphs. I’ll write about some of these provisions from time to time. Today’s installment: use and control of casualty proceeds.

Borrowers and lenders have opposite interests following a casualty. Lenders’ immediate focus is repayment of the loan. Upon the total or partial destruction of the security for a loan, the lender’s source of repayment is gone or at best, compromised. Therefore, the loan documents generally provide that lender has the right to settle insurance claims and insurance proceeds will be paid to lender and applied to repayment of the loan or restoration of the property at lender’s sole discretion. On the other hand, borrower’s concern is the continuation of its business, including its obligations to tenants and investors, not to mention protection of borrower’s own investment and income stream. Therefore, borrower will want access to insurance proceeds to rebuild/restore as quickly as possible.

If the borrower/lender relationship is good and long term, or if the project is strong (and that is not to say that lesser relationships or projects can’t  and don’t negotiate), it is easy for the parties to come to a mutual understanding as to the use of insurance proceeds. The lender will often agree to allow the borrower to participate in the settlement of the insurance claim if not lead negotiations (while lender retains approval over final settlement). In addition, the parties may agree that, although insurance proceeds will be paid to lender, lender will make the proceeds available for restoration if 1) borrower is not otherwise in default under the loan, 2) the loan is more than X months from maturity, 3) a certain percentage of tenants (or perhaps the anchor tenants) agree to continue their leases, and 4) borrower agrees to fund any costs of restoration, including deductibles, in excess of available insurance proceeds (in many cases borrower would be required to deposit all or a portion of such funds with lender). Sometimes, borrower and lender will negotiate a cost or percentage loss threshold where lender would be obligated to make the proceeds available to borrower for restoration of the property.

Where lender retains the insurance proceeds and allows borrower to use them for restoration, it is important for borrower to negotiate a construction draw provision. That is, the insurance proceeds (and any borrower funds required to complete restoration) should be held and disbursed by lender in the same manner as a construction loan. Lender should disburse such funds as work progresses and should not withhold funds until work is completed. Retainage provisions should be considered but should be flexible enough to allow borrower to negotiate with contractors in the future. In other words, retainage provisions should not be mandatory nor should retainage amounts be set in stone.

Other considerations for both parties should include wither leases require restoration and the effect of any prepayment provisions in the loan documents. Borrower should be certain that there should not be a prepayment penalty or yield maintenance premium due to the application of insurance proceeds to the outstanding balance.

Most lenders expect borrowers to make some variation of these comments to the use of insurance proceeds provisions of so-called standard documents. Lenders and their attorneys are generally prepared to respond to these requests and the back and forth should not be extensive meaning that in this case, standardized documents should be negotiable.


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    Welcome to Assouline & Berlowe’s Florida Real Estate Law and Investment Blog with news, insights, and commentary for investors, developers, and their advisors.


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