Negotiating a deal can be a tricky proposition for an attorney. Every attorney wants to do his/her best job and not only assure that the client is adequately protected, but also to try to get the best deal possible for the client.  As to the former, the attorney is and should be given great latitude.  But ultimately, the client will weigh the risks and make the decision.  If the attorney is doing his/her job properly, legal terms will be thoroughly debated, drafted and re-drafted so that the clients can see a nearly final product and the attorney can say “I did the best I could” and explain how the client is protected and where language could be stronger.  That way, the client can make an educated decision as to whether to proceed.

Business terms are another issue. These are the client’s domain.  The client gives parameters that the attorney should negotiate within.  During negotiations, there comes a point when both sides have to have discussions with their clients about which direction to proceed and whether to alter the parameters or terms.  Sometimes, an attorney forgets this role and speaks and acts as if he is the client.  When this happens, your deal can implode.

I recently worked on a future advance loan for a client. For some reason, the bank did not retain the same attorney to close the future advance loan who closed the original loan 2 years prior.  The original loan was an $8.9 million term loan which we amicably negotiated.  We hammered out all of the terms of the original note, mortgage, guaranties and other loan documents with the bank and the original attorney.  Negotiations were tough but fair, and the bank agreed to many of our requests to change standard bank provisions as well as numerous business terms.

The bank’s new attorney for the relatively small future advance ($425,000) did not have this history and it appeared as if he did not read the original loan documents. Clearly, he was not familiar with them because the first draft of the future advance loan documents did not include any of the terms that had been previously negotiated.  The drafts were very much the bank’s original form documents with the new terms of the future advance filled in.   All of the standard objectionable terms that we had negotiated out in the original loan had been re-imposed.  Special provisions that we had negotiated in, were omitted.  In addition, I was not satisfied with the way the attorney proposed to document the new provisions that the bank required for the future advance.  Frankly, he was not documenting the loan as a future advance and loan modification.  As I began to explain my requests, he summarily rejected them as out of hand without discussing them with his client, the bank.

The deal froze in its tracks. The attorney insisted that he was right because the credit approval made no mention of the revisions we had made to the original loan and therefore, he was supposed to amend and restate the loan documents and re-impose the original language.  I was astonished that he would not discuss this interpretation with his client.

By taking this position, he increased the interest rate of the original loan which was not the deal. The future advance interest rate was about 100 basis points higher than the original loan interest rate.  There was no intent on the bank or my client’s part to increase the rate of the original loan.  In addition, each loan was to have a 5 year prepayment penalty, with the penalty decreasing each year.  By amending and restating the loans, the original loan’s prepayment penalty period restarted.  Again, not intended.  Again, the attorney would not listen.  To me, these weren’t even items to negotiate.

To save the deal, I had to have my client intervene directly with the loan officer. Ultimately, the bank accepted every request that I made except one and that one was modified, I believe to appease the attorney.

I am fine when someone makes a mistake as this attorney obviously did. I’m not ok when they refuse to admit it or refuse to go back to the client to see if they did.  This guy, either through arrogance or ignorance decided it was his place to tell me no to every point that I raised.  What’s worse was that he asked me why I was so hostile about everything going on in the deal!  I flat out had to tell him that he was unprepared and that he refused to ask his client about anything I raised.  You can imagine how that went over.  Let’s just say that 4 weeks after closing he is still trying to find “mistakes” that our office made only to find that he remains unprepared and unfamiliar with the language in his own documents.

Attorneys who try to act as the client by making decisions for them and without being thorough and careful, do so at the risk of the deal for their client.

At the end of every year, every one has a Top 10 list. As 2017 ends and we begin 2018, Florida Real Estate Law and Investment Blog is pleased to present its first ever Top 10.  This is my own Top 10 list of my favorite posts from 2017.  It is not based on number of hits or any other qualitative data that I received over the year.  Rather, it is my own list of favorite postings, the ones that I most enjoyed writing and the ones that I think might have the most impact or meaning.  I did receive a lot of positive feed back on many of these posts and, if you haven’t read them, I encourage you to do so.  They are worth a re-read.  I’d love your thoughts this time around.  Looking forward to 2018!

#10 – Proper Zoning Determines Property Value – Posted March 7, 2017. A simple discussion about the correlation between a property’s zoning and the value of the property and how knowing the zoning prior to entering a contract can help in negotiations.

#9 – Renewal Option Language Often Overlooked – Posted July 24, 2017. Lease renewal option language is important for tenants in planning for the future.  It should not be overlooked when negotiating the original lease.

#8 – Offset Language Puts Lender’s Hands in the Cookie Jar – Posted May 22, 2017. I liked this post because it told a good story about a good client to work for, the Girl Scouts.  We had a problem with the loan documents that could adversely affect thousands of girls and their cookie money which no one intended or wanted – and we solved it.

#7 – Could the Grenfell Tower Disaster Happen in the United States? – Posted July 3, 2017. After the fire, many of us wondered how something like this could ever happen and whether it could happen in the US.  The post looked at US building and fire codes in the projects.  Despite our laws and codes, are we protected?  As I am finishing this post, a tragic apartment fire killed 12 people in the Bronx.  The investigation is just beginning, but I think the answer is that we are not fully protected in older buildings.

#6 – 6 Protections for Real Estate Partnerships – Posted July 31, 2017. We talk about real estate every day.  This post outlines some of the protections that should be included when we form entities with partners to invest in real estate.

#5 – US Withdrawal From Paris Climate Accord Met With Resistance From Local Leaders – Posted June 15, 2017. I have blogged many times about climate change and sea level rise and will continue to do so.  This is a particularly important topic to us in South Florida.  South Florida leaders in particular reacted to the news when President Trump announced the US was withdrawing from the Paris Accord.  South Florida will continue to abide by the Accord as it battles rising seas and climate change.

#4 – House Flipper’s Attempted Purchase Exploits Elderly Woman – Posted December 18, 2017. Posted just a few weeks ago, this article has touched a nerve with many of my friends and colleagues.  We see and read so much about exploitation of the elderly, and this post talks about how the real estate industry is also involved.  Beware.

#3 – Riding Out Hurricane Irma – Posted September 18, 2017. This was the single biggest news event in South Florida in 2017. We were fortunate, compared to the people on the west coast and those in Houston and Puerto Rico and elsewhere in the Caribbean.  Nevertheless, we had our story to tell.

#2 – Smart Houses Make Me Feel Dumb – Or At Least Unsafe – Posted October 30, 2017. Amazon Key was the inspiration for this post, but it encompassed all the products that make your house “smart”.  How secure are these products?  I expressed fear about a loss of privacy, not to mention trepidation about Amazon’s physical access to your house.  A few weeks ago, there were news reports of the first hacks into Amazon Key.

#1 – Email Scam/Wire Fraud Hits Close to Home – Posted July 10, 2017. This post has probably generated the most attention.  Hopefully, everyone in real estate will be more diligent and we can stop the fraud and the scammers.  I should put a note on my calendar to re-post this at least once a year as a reminder.

Happy New Year everyone!

Caucasian mid-adult businessman and woman staring at each other with hostile expressions.

        It always helps to know what your client hopes accomplish in a transaction when you begin negotiations. It also helps to know the strength of your client’s position.  Otherwise, you can get your head handed to you.  And it is much better to be the one handing your opponent his head than the other way around.

        I have been working with a client recently on the sale of some commercial real estate. My client really wants to sell this property and the assets associated with the business he operates on the property.  He is losing a lot of money in this business.  A business broker found a buyer in the same business who agreed to buy the property and the inventory of the business.  Both parties wanted to close very quickly.  However, the buyer would not be able to get financing in time and in fact, because of the size of the inventory involved, would need to tackle the inventory loan first and then wait for a few years before financing the real estate.  Not to worry.  My client was willing to consign the inventory and to purchase money financing on the real estate.

        After the terms were negotiated by the broker, I prepared a contract and it was signed. Closing was to be in less than 3 weeks.  I started right away on the loan documents.  Buyer had a law firm acting as the title company who I assumed would be his attorney as well, but I never got a response.  Nevertheless, I sent my draft loan documents out as soon as they were ready.  My client and I had discussed that the loan documents had to be as if a bank were the lender because we were financing more than 85% of the purchase price and consigning the inventory.  Because we held 2 parcels of property in 2 different entities, there were 2 different sellers.  Thus, there would be 2 different lenders and 2 different mortgagees – 2 notes and 2 mortgages.  The notes and mortgages would be cross defaulted with each other and with the consignment agreement.

        A few days before the scheduled closing date, the title company/law firm was retained to review the loan documents. They sent comments to me.  The buyer 1) did not want to enter into a consignment agreement, 2) saw no need for cross default provisions, 3) saw no need for assignments of leases and 4) thought the mortgage was too long (and thus gutted it).

        My job was then to remind buyer and his lawyer that 1) he had no cash and no ability to obtain cash, 2) this was purchase money financing of more than 85%, 3) if buyer went to a bank, not only would the mortgage be at least as long as the one I had provided (probably longer), but there would be many more documents than I provided, all very long, including assignments of leases, and 4) if he didn’t like the structure of the loans or the forms of documents we were offering, he needed to find another lender because seller isn’t going to give you his property, including the inventory for under 15% down and the handshake you’re offering.

        The moral of this story? It could be he who has the gold makes the rules, but that is tired and cliché.  Maybe it’s, before you swing for the fences, make sure you aren’t going to get knocked down by the pitch.

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