LOCAL COUNSEL OPINION LETTERS IN REAL ESTATE FINANCE TRANSACTIONS A SUPPLEMENT TO THE REAL ESTATE FINANCE OPINION REPORT OF 2012 A Report of: the American Bar Association Section of Real Property, Trust and Estate Law, Committee on Legal Opinions in Real Estate Transactions the American College of Mortgage Attorneys, Opinions Committee the American College of Real Estate Lawyers, Attorneys’ Opinions Committee∗ Editors’ Synopsis: The Report on Local Counsel Opinion Letters in Real Estate Finance Transactions supplements the Real Estate Finance Opinion Report of 2012 (2102 Report), which provided an update on the practice of opinion givers and recipients in a real estate finance transaction from the perspective of sole transaction counsel. Local counsel typically are involved in discrete and often disconnected pieces of these transactions. However, the scope of opinions expressed in a local counsel’s opinion letter cover many of the same topics addressed by lead counsel as well as other topics. The Report builds on the foundation of the 2012 Report to explore the role of local counsel, specific language of opinions local counsel may render, modification of assumptions on which opinions are based, and appropriate limitations ∗This Supplement was prepared by a Joint Drafting Committee comprised of William B. Dunn, Grand Rapids, Michigan (Reporter), Edward J. Levin, Baltimore, Maryland (Co-Editor), Sterling Scott Willis, New Orleans, Louisiana (Co-Editor) and Edward N. Barad, Denver, Colorado; Kenneth P. Ezell, Jr., Nashville, Tennessee; Catherine T. Goldberg, Albuquerque, New Mexico; Raymond S. Iwamoto, Honolulu, Hawaii; Kenneth M. Jacobson, Chicago, Illinois; Robert J. Krapf, Wilmington, Delaware; Charles L. Menges, Richmond, Virginia; David L. Miller, McLean, Virginia; Laurence G. Preble, Denver, Colorado; Lydia C. Stefanowicz, Woodbridge, New Jersey; Robert A. Thompson, San Francisco, California, and Lawrence J. Wolk, New York, New York. This Supplement does not render legal, tax, or accounting advice. This Supplement has been approved by the Committees but does not necessarily represent the position of the bar organizations of which the Committees are a part. Further, this is a collaborative work reflecting an overall consensus of the Joint Drafting Committee and of the Committees, but not necessarily reflecting the views of any given individual as to the treatment of any particular issue. The members of the Joint Drafting Committee and of the Committees reserve the right to assert contrary or other positions with regard to the issues discussed in this Supplement. 2 51 REAL PROPERTY, TRUST AND ESTATE LAW JOURNAL of opinions. The text illustrates assumptions, opinion statements, and limitations in an Illustrative Opinion Letter Addendum. In addressing the subject, the Report is the first that focuses exclusively on opinion letters of local counsel. The text provides many citations for further reference. The Report represents the collaborative effort of bar members of many jurisdictions, as members of three national bar organizations. INTRODUCTION ....................................................................................... 3 EARLIER REPORTS AND REFERENCES ....................................................... 5 CONTEXT .................................................................................................. 6 PROFESSIONAL RESPONSIBILITY ............................................................. 13 I. INTRODUCTION AND BACKGROUND OF THE OPINION LETTER ........................................................................................ 15 A. Introductory Matters. .............................................................. 15 B. Background of the Opinion Letter. ......................................... 15 1.0 Role of Opinion Giver as Local Counsel. ........................ 15 1.1 Defined Terms; List and Definition of Transaction Documents ........................................................................ 15 1.2 Authority Documents ....................................................... 15 1.3 Opinion Jurisdiction ......................................................... 19 1.4 Scope of Review .............................................................. 20 1.5 Reliance on Other Sources Without Investigation ........... 20 II. ASSUMPTIONS ............................................................................. 20 III. OPINIONS ..................................................................................... 25 3.1 Status – Existence and Good Standing ............................. 26 3.2 Power ................................................................................ 28 3.3 Authorization .................................................................... 29 3.4 Execution and Delivery .................................................... 30 3.5 Enforceability ................................................................... 32 3.6 Form of Documents .......................................................... 39 3.7 No Breach or Violation of Organizational Documents or Other Obligations ......................................................... 48 3.8 No Violation of Law ........................................................ 48 3.9 Choice of Law .................................................................. 48 3.10 Usury ................................................................................ 50 3.11 Legal Proceedings Confirmation ...................................... 51 3.12 Recording and its Effect ................................................... 52 3.13 No Governmental Approvals Required ............................ 54 FALL 2016 Local Counsel Opinion Letters 3 3.14 Effect of Exercise of Remedies ........................................ 57 3.15 All Customary or Specific Remedies ............................... 60 3.16 Recipient Party Matters .................................................... 61 3.17 Zoning and Land Use, Compliance with Laws ................ 62 3.18 Negative Assurance .......................................................... 63 IV. CERTAIN LIMITATIONS ............................................................. 63 4.1 Bankruptcy Exception ...................................................... 64 4.2 Equitable Principles Exception ........................................ 64 4.3 Generic Enforceability Qualification, with Assurance .... 64 4.4 Other Transaction-Related Qualifications ........................ 65 4.5 Other General Qualifications ........................................... 65 4.6 Exclusions ........................................................................ 68 4.7 Knowledge ....................................................................... 68 V. USE OF THE OPINION LETTER ................................................. 68 5.1 Use and Reliance .............................................................. 68 5.2 Effective Date; No Obligation to Update ......................... 72 5.3 Governing Law ................................................................. 72 5.4 Disclaimer of Implied Opinions ....................................... 73 5.5 Expression of Professional Judgment .............................. 73 5.6 Signatures ......................................................................... 73 ADDENDUM - ILLUSTRATIVE OPINION LETTER .............................. 74 INTRODUCTION This Supplement to the Real Estate Finance Opinion Report of 20121 is prepared to assist lawyers who do not have overall transaction responsibility but who express legal opinions2 in real estate financing transactions on subjects governed by the law of a specific jurisdiction, often with limited knowledge of the transaction. These lawyers are referred to as “local” counsel.3 1 See Joint Drafting Committee, Real Estate Finance Opinion Report of 2012, 47 REAL PROP. TR. & EST. L. J. 213 (2012) [hereinafter 2012 Report]. 2 The term “legal opinion” in this Supplement refers to a legal evaluation provided in writing (an “opinion letter”) by a lawyer or law firm (the “opinion giver”) to a party (the “opinion recipient”) who is not a client of the opinion giver (referred to as a “third- party”) with respect to the subject matter of the evaluation in a financing transaction secured by real estate in the United States. 3 The 2012 Report and this Supplement focus on opinions about applicable law of a jurisdiction. Counsel may also be needed to provide opinions about specific legal issues in a transaction, such as substantive non-consolidation, specialized tax, or regulatory 4 51 REAL PROPERTY, TRUST AND ESTATE LAW JOURNAL The 2012 Report presents a discussion about legal opinions expressed in third-party opinion letters provided in real estate finance transactions by a lawyer or law firm on behalf of a transaction party, usually a borrower or a guarantor, to a nonclient transaction party, typically a lender. The legal opinions, along with customary assumptions and limitations4 pertaining to them, were compiled in the setting of such an opinion letter as illustrated in Illustrative Language of a Real Estate Finance Opinion Letter provided with the 2012 Report (the 2012 Illustrative Language).5 The discussion of topics that may be commonly the subject of such an opinion letter in the 2012 Report is in the context of a single opinion letter from one opinion giver, referred to in the 2012 Report as “lead” counsel, for an obligor party.6 The 2012 Report expressly did not address opining situations and conventions for “local” counsel. For ease of