Issues with Loan Opinion Letters

Are you in the process of developing real estate in Seattle? Are you from out-of-state? It is likely that your lender will require a loan opinion letter. Loan opinion letters are provided by legal counsel for borrowers and provide a number of opinions including the assurance that loan documents will be binding under the law of the jurisdiction, the borrower and guarantor entities have the necessary signing authority, and that such entities have been properly formed.

Loan opinion letters are an integral part of commercial real estate acquisitions, new commercial developments, and refinancing. Lenders in the state of Washington, and across the country, often require loan opinion letters from an in-state legal counsel and use them to inform the borrower’s application process. In short, they are important for all parties to a transaction.

At Holmquist + Gardiner, we’ve been successfully working with clients and their commercial development loans in Seattle since 2008, and loan opinion letters have been a big part of our success. Here are five concepts behind loan opinion letters from Holmquist + Gardiner – and why they should matter to you.

Extra Layer of Protection for the Lender

While Washington has no specific legal requirement for a loan opinion letter, lenders do generally require one to be submitted. This is especially true when higher loan amounts are involved or when the borrower is from outside of Washington and may not be as familiar with state law and regulatory requirements.

Subject to certain exclusions and assumptions, a loan opinion letter provides the lender with certain assurances, including:

• verifying borrower compliance with Washington law;

• determining whether entities were validly formed and have the authority to transact with the lender; and

• that the transaction documents will generally be binding between the borrower and the lenders.

It shows the lender that the borrower is entering into this agreement transparently, is in good standing, and fully intends (from a legal perspective) to repay the loan in full.

A Strong Second Set of Eyes for the Borrower

Writing a loan opinion letter requires a complete review of the loan documents and a substantiated opinion about the entity structure of the borrower and its binding nature, including all assumptions and exclusions.

This in-depth analysis of the borrower’s intentions, legal capabilities to repay the loan, and ability to meet Washington’s requirements amounts to a very important second set of eyes on all of your documentation. The legal counsel is reviewing the documents for accuracy, due diligence, fluency and completeness. In other words, your lawyers are trying to make sure the Lender’s forms are accurate and applicable to the transaction, and to identify any edits. A legal opinion letter provides the lender with certain assurances, and the borrower with the confidence and security that what they are signing is accurate in light of the transaction.

Enables Out of State Borrowers to Develop

If the borrower is an out-of-state entity, and its general counsel is also out-of-state, the borrower is going to need to find local counsel. Loan opinions must be completed by a firm licensed in the state of Washington. If an opinion is necessary, it is critical that out-of-state developers or counsel retain a local law firm for a loan opinion letter as early as possible in a transaction.

Flexible Assistance from Start to Finish

Holmquist + Gardiner is flexible in our approach to full-service assistance. Some clients have a well-established team with general counsel and require less assistance in the review of the loan documents or preparation of a loan opinion letter. Others seek more direct assistance from start to finish. Unlike more rigid law firms, we first learn about the needs of our clients and work with them to determine how best we can help. It’s not one size fits all with us.

We Do What’s Right by our Clients

At Holmquist + Gardiner, our real estate legal team specializes in helping our clients prepare and apply for high-end commercial development loans. As a Seattle real estate law firm, we’ve helped real estate developers secure billions of dollars in loans over the years by doing what’s right for our clients and being good at what we do—without the need for exorbitant legal fees.

Learn more about what sets Holmquist + Gardiner apart by visiting us online or contacting our Seattle office for more information.