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Contents Preface and Acknowledgments xvii Part I: Introduction 1 CHAPTER 1 Introduction 3 § 1.01 Bridging the Gap between Law School and Real Estate Practice 3 § 1.02 Format of the Book 4 § 1.03 The Mechanics of a Transaction: Drafting, Negotiation, and Revision 4 § 1.04 Gathering Information and Allocating Risk 5 Part II: Conveyancing Transactions 7 CHAPTER 2 The Contract of Sale 9 § 2.01 The Need for a Contract 9 § 2.02 Buyer's Perspective 10 § 2.03 Seller's Perspective 11 § 2.04 Statute of Frauds 12 § 2.05 Caution: Letter of Intent 12 § 2.06 Form: Letter of Intent 12 § 2.07 Parties 12 § 2.08 Caution: Entities Still to Be Formed 13 § 2.09 Form: Contract of Sale 13 § 2.10 Recitals 14 § 2.11 Definitions 14 § 2.12 Identity of Property 15 § 2.13 Agreement to Buy and Sell the Property 16 § 2.14 Purchase Price 17 § 2.15 Purchases Subject to Existing Financing 18 § 2.16 Portion to Be Paid by Assumption of Existing Debt 18 § 2.17 Caution: Assumptions and Purchases "Subject To¿ 19 § 2.18 Portion to Be Paid by Amount Borrowed from a Third-Party Lender 19 § 2.19 Portion to Be Paid by Seller Financing 19 § 2.20 Caution: Seller Financing 20 § 2.21 Down Payment 21 § 2.22 Caution: Interest on Down Payment 22 § 2.23 Caution: Brokerage Commissions 23 § 2.24 Escrow for Down Payment 23 § 2.25 Caution: Lawyers Serving as Escrow Agents 23 § 2.26 Sale or Removal of Personal Property 25 § 2.27 Caution: Liquor Licenses 26 § 2.28 Caution: Sales Tax 26 § 2.29 Seller's Representations, Warranties, Covenants, and Indemnities 26 § 2.30 Caution: Continuing Representations 29 § 2.31 Caution: "As Is¿ Representations 30 § 2.32 Due Organization of Seller 30 § 2.33 Caution: Seller's Good Standing 31 § 2.34 Authority of Seller; No Approvals Required; No Violations of Other Agreements 31 § 2.35 Entire Premises 32 § 2.36 No Options 33 § 2.37 Caution: Inquiring about Options 34 § 2.38 Condition of Property and Improvements 34 § 2.39 Caution: Condition of Property and Caveat Emptor 35 § 2.40 Maintenance and Operation of Property until Closing 35 § 2.41 Seller's Title and Permitted Encumbrances 36 § 2.42 Schedule of Tenant Leases; Status of Tenant Leases 37 § 2.43 Caution: Accuracy of Tenant Lease Schedules 38 § 2.44 No Brokerage Commissions on Leases 38 § 2.45 Access to the Property 39 § 2.46 Caution: Scope of Easements 40 § 2.47 Utilities 40 § 2.48 Certificates of Occupancy and other Permits 41 § 2.49 Compliance with Law 42 § 2.50 Zoning 42 § 2.51 Claims and Litigation 43 § 2.52 Environmental Matters 44 § 2.53 Employment Matters; Service Contracts 45 § 2.54 Covenants, Servitudes, Easements, and Reciprocal Easements 46 § 2.55 Licenses and Franchises 47 § 2.56 Caution: Franchisor's Approval 47 § 2.57 Trademarks; Copyrights; Visual Artists' Rights 48 § 2.58 Insurance 48 § 2.59 Casualty 49 § 2.60 Condemnation 50 § 2.61 Real Property Taxes and Assessments 50 § 2.62 No Prior Mortgages 51 § 2.63 No Other Liens 52 § 2.64 Buyer's Representations, Warranties, and Covenants 52 § 2.65 Due Organization of Buyer 54 § 2.66 Caution: Forming Buyer Entity before Executing Contract 55 § 2.67 Authority of Buyer; No Approvals Required; No Violations of Other Agreements 55 § 2.68 Survival of Representations, Warranties, Covenants, and Indemnities; Relationship to Due Diligence 55 § 2.69 Caution: Survival Clause 57 § 2.70 Technique: Survival Clause 57 § 2.71 Conditions Precedent to Buyer's Obligation to Close 57 § 2.72 Review Period -- § 2.73 Continuing Accuracy of Seller's Representations and Warranties; Performance of Covenants 61 § 2.74 Caution: Continuing Accuracy of Seller's Representations and Warranties 64 § 2.75 Buyer's Access to the Property during Due Diligence Period 64 § 2.76 Financing 64 § 2.77 Caution: Financing Condition 67 § 2.78 Authority of Seller 68 § 2.79 Condition of Property and Improvements 68 § 2.80 Delivery of Deed 70 § 2.81 Caution: Types of Deed Warranties 70 § 2.82 Title Insurance Policy 70 § 2.83 Affidavit to Title Company 72 § 2.84 Caution: The Title Insurance Policy, the Title Affidavit, and Mechanics' Liens 73 § 2.85 Technique: The Seller's Title Affidavit 74 § 2.86 Survey 74 § 2.87 Caution: Inconsistent Legal Descriptions 74 § 2.88 Appraisal 74 § 2.89 Assignment of Seller's Interest in Leases 75 § 2.90 Tenant Estoppels 75 § 2.91 Technique: Tenant Estoppels and Landlord Affidavits 76 § 2.92 Form: Tenant Estoppel Certificate 76 § 2.93 Notices to Tenants 78 § 2.94 Delivery of Security Deposits 78 § 2.95 Opinion of Seller's Counsel 79 § 2.96 Caution: Risks to Seller's Counsel in Preparing Opinions 81 § 2.97 Assignment of Seller's Interest in All Other Property and Agreements 81 § 2.98 FIRPTA Affidavit 82 § 2.99 Form: FIRPTA Affidavit 82 § 2.100 Permits, Certificates, Plans, Warranties, and Keys 83 § 2.101 Conditions Precedent to Seller's Obligation to Close 83 § 2.102 Payment of Purchase Price 84 § 2.103 Caution: Confirmation That Wired Funds Have Been Received 85 § 2.104 Continuing Accuracy of Buyer's Representations and Warranties; Performance of Covenants 85 § 2.105 Authority of Buyer 86 § 2.106 Opinion of Buyer's Counsel 86 § 2.107 Waiver of Closing Conditions 87 § 2.108 Technique: Waiver of Closing Conditions and Drafting the Conditions Section 88 § 2.109 Casualty or Condemnation before Closing 88 § 2.110 Closing Date, Time, Location, and Mechanics 91 § 2.111 Caution: Outside Closing Date 92 § 2.112 Defaults and Remedies 92 § 2.113 Nonrecourse 95 § 2.114 Transfer Taxes, Gains Taxes, Sales Taxes 95 § 2.115 Apportionments and Adjustments 96 § 2.116 Brokerage Commissions 99 § 2.117 Caution: Brokerage Indemnities 100 § 2.118 Recording of Contract 100 § 2.119 Caution: Releasing Recorded Contracts 101 § 2.120 Payment of Expenses 101 § 2.121 Time Is of the Essence 102 § 2.122 Caution: Time Is of the Essence 103 § 2.123 Assignment of Contract 103 § 2.124 Caution: Assignability by Buyer 104 § 2.125 Caution: Signing on Behalf of Entities to Be Formed 104 § 2.126 Miscellaneous Contract Sections 104 § 2.127 Further Assurances 105 § 2.128 Integration, Merger, and Waiver 105 § 2.129 Choice of Law; Choice of Forum 106 § 2.130 Notices 107 § 2.131 Other Miscellaneous Provisions 108 § 2.132 Counterparts and Multiple Originals 109 § 2.133 Signature Lines; Date 110 § 2.134 Legal Description and Other Exhibits 111 CHAPTER 3 Post-Contract Due Diligence 119 § 3.01 What Is Due Diligence? Gathering Information, Reviewing Information, and Addressing Problems 119 § 3.02 Due Diligence and the Contract of Sale 120 § 3.03 Contract Remedies for Problems Unearthed during Due Diligence 120 § 3.04 Checklist: Due Diligence and Closing Checklist 122 § 3.05 Technique: Allocating Responsibility for Due Diligence Matters 123 § 3.06 Title and Survey Matters 123 § 3.07 The Title Commitment 124 § 3.08 The Form Title Insurance Policy 127 § 3.09 Real Property Taxes and Assessments 129 § 3.10 Caution: Real Estate Taxes, Local Law, and Non-Local Lawyers 131 § 3.11 Covenants, Servitudes, Easements, and Reciprocal Easements 132 § 3.12 Caution: Reviewing Covenants, Servitudes, Easements, and Reciprocal Easements 133 § 3.13 Existing Mortgages 134 § 3.14 Caution: Existing Mortgages and Prepayment Fees 135 § 3.15 Tenant Leases and Parties in Possession 135 § 3.16 Mechanics' Liens 136 § 3.17 Violations 138 § 3.18 Caution: Discovering Violations 139 § 3.19 Judgments and Lis Pendens 139 § 3.20 State and Federal Tax Liens 140 § 3.21 Air Rights and Development Rights; Mineral Rights 141 § 3.22 Permitted Encumbrances 142 § 3.23 Title Endorsements 143 § 3.24 Checklist: Title Endorsements 143 § 3.25 Zoning and Subdivision Laws 144 § 3.26 Coinsurance and Reinsurance 145 § 3.27 Survey 147 § 3.28 Access to the Property 151 § 3.29 Utilities 151 § 3.30 Torrens Registration 152 § 3.31 Lease Review and Estoppels 152 § 3.32 Obtaining Tenant Leases 153 § 3.33 Reviewing Tenant Leases 154 § 3.34 Form: Lease Review Summary 155 § 3.35 Permitted Uses; Radius Restrictions; Covenants of Continuous Operation 155 § 3.36 Duration of Leases 156 § 3.37 Caution: Determining Lease Commencement Dates 157 § 3.38 Renewal Options 157 § 3.39 Expansion Options 158 § 3.40 Caution: Expansion Options 158 § 3.41 Termination Options 158 § 3.42 Purchase Options; Rights of First Refusal; Rights of First Offer 159 § 3.43 Assignment and Subletting Rights 160 § 3.44 Security Deposits 162 § 3.45 Guarantees 162 § 3.46 Landlord's Construction Obligations; Improvements by Tenants 163 § 3.47 Leasehold Financing 164 § 3.48 Caution: Leasehold Financing 164 § 3.49 Tenant Estoppels 165 § 3.50 Form: Tenant Estoppel Certificate 166 § 3.51 Subordination, Nondisturbance, and Attornment Agreements 166 § 3.52 Form: Subordination, Nondisturbance, and Attornment Agreement 169 § 3.53 Condition of Property and Improvements 169 § 3.54 Suitability for Intended Use 169 § 3.55 Caution: Responsibility for Ordering Inspections 170 § 3.56 Suitability for Construction 170 § 3.57 Availability of Necessary Permits 170 § 3.58 Environmental Matters 171 § 3.59 Caution: Liability for Hazardous Waste 171 § 3.60 Assignability of Contracts and Licenses to Buyer 171 § 3.61 Corporate, Partnership, and Limited Liability Entity Matters 172 § 3.62 Due Organization of Parties 172 § 3.63 Authority of Parties 173 § 3.64 Opinions of Counsel 174 § 3.65 Financing Matters 175 Part III: Loan Transactions 177 CHAPTER 4 The Loan Commitment 179 § 4.01 The Need for a Loan Commitment 179 § 4.02 Similarities to and Differences from the Contract of Sale 181 § 4.03 Lender's Perspective 182 § 4.04 Borrower's Perspective 183 § 4.05 Terms of the Loan Commitment 184 § 4.06 Caution: Loan Commitment Issues and Loan Document Issues 185 § 4.07 Form: Loan Commitment 186 § 4.08 Tenant Leases; Lease Priorities 186 § 4.09 Environmental Matters 187 § 4.10 Insurance 188 § 4.11 Assignability of Contracts and Licenses 190 § 4.12 Real Property Taxes and Assessments 191 § 4.13 Prior Mortgages 192 § 4.14 Appraisal 192 § 4.15 Creditworthiness Matters 193 § 4.16 Loan Guarantees and Other Forms of Credit Enhancement 194 § 4.17 Opinion of Borrower's Counsel 194 § 4.18 Nonrecourse Provision 195 § 4.19 Loan Commitment Fee 196 § 4.20 Loan Expenses 196 CHAPTER 5 Post-Loan Commitment Due Diligence 199 § 5.01 Due Diligence and the Loan Commitment 199 § 5.02 Loan Commitment Remedies for Problems Unearthed during Due Diligence 201 § 5.03 Title and Survey Matters 201 § 5.04 The Title Commitment to Lender and the Form Title Insurance Policy 203 § 5.05 Mechanics' Liens 204 § 5.06 Lease Review 205 § 5.07 Renewal, Expansion, and Termination Options 206 § 5.08 Purchase Options and Rights of First Refusal 207 § 5.09 Landlord's Construction Obligations 207 § 5.10 Tenant Estoppels 208 § 5.11 Subordination, Nondisturbance, and Attornment Agreements 209 § 5.12 Creditworthiness Matters 210 § 5.13 Environmental Matters 211 § 5.14 Insurance 211 § 5.15 Contracts and Licenses 212 § 5.16 Prior Mortgages 212 § 5.17 Caution: Prior Mortgages 213 § 5.18 Appraisal 213 CHAPTER 6 Loan Documents 215 § 6.01 Document Preparation 215 § 6.02 Note 216 § 6.03 Form: Simple Secured Note 218 § 6.04 Mortgage 218 § 6.05 Similarities to and Differences from the Loan Commitment 219 § 6.06 Form: Mortgage --- § 6.07 Granting Clause 219 § 6.08 Due-on-Transfer 221 § 6.09 Prepayment 222 § 6.10 Technique: Yield Maintenance and Defeasance --- § 6.11 Limitations on Junior Financing 224 § 6.12 Cross-Default 226 § 6.13 Maintaining the Property 227 § 6.14 Events of Default 228 § 6.15 Caution: Lender Advances to Cure Defaults 229 § 6.16 Preforeclosure Remedies 229 § 6.17 Foreclosure 230 § 6.18 Nonrecourse Provision 232 § 6.19 Releases and Partial Releases 235 § 6.20 Escrows for Payment of Taxes and Insurance 236 § 6.21 Usury 237 § 6.22 Bankruptcy 238 § 6.23 Caution: Bankruptcy Stays 239 § 6.24 Deed of Trust 239 § 6.25 Assignment of Leases and Rents 240 § 6.26 Form: Collateral Assignment of Leases and Rents 242 § 6.27 Security Agreements and Financing Statements; Fixture Filings 242 § 6.28 Form: Security Agreement 243 § 6.29 Guarantees 243 § 6.30 Form: Loan Guarantee 244 § 6.31 Participation Agreements 244 § 6.32 Caution: Loan Participations 245 § 6.33 Seller Financing 245 § 6.34 Assumption of Existing Financing 246 § 6.35 Acquisition Subject to Existing Financing 248 § 6.36 Subordinate Lending 249 Part IV: The Closing 253 CHAPTER 7 Preparing for the Closing 255 § 7.01 The Need for a Closing 255 § 7.02 The Closing Checklist 256 § 7.03 Checklist: Due Diligence and Closing Closing Checklist 257 § 7.04 Document Preparation 257 § 7.05 Caution: Reliance on Form Documents 258 § 7.06 Deed 258 § 7.07 Corporate, Partnership, and Limited Liability Entity Documents; Power of Attorney 260 § 7.08 Form: Certificate of Secretary, with Attached Resolutions 262 § 7.09 Bill of Sale 262 § 7.10 Form: Bill of Sale 263 § 7.11 Title Insurance 264 § 7.12 Payoff Letters and Satisfactions of Existing Mortgages 266 § 7.13 Opinions of Counsel 268 § 7.14 Method of Payment 268 § 7.15 Insurance Coverage 270 § 7.16 Employment Agreements, Service Contracts, Licenses, and Other Agreements 270 § 7.17 Permits, Certificates, Warranties, Plans, and Keys 271 § 7.18 Utility Readings 271 § 7.19 Calculating Closing Apportionments and Adjustments 272 § 7.20 Calculating Fees, Commissions, Taxes, and Other Closing Costs 273 § 7.21 Notices 275 § 7.22 The Walk-Through 275 § 7.23 Form: Post-Closing Agreement 276 § 7.24 The Closing Statement 276 CHAPTER 8 Running the Closing 279 § 8.01 Structure of a Typical Closing 279 § 8.02 The "Table¿ or "New York¿Style¿ Closing 279 § 8.03 The Escrow Closing 280 § 8.04 Following the Closing Checklist 281 § 8.05 Form: Closing Instruction Letter from Buyer 282 § 8.06 Title Insurance 282 § 8.07 Execution and Acknowledgment of Documents 284 § 8.08 Multiple Copies 285 § 8.09 Delivery and Distribution of Funds 286 § 8.10 Caution: Confirming That Funds Have Been Wired 287 CHAPTER 9 Post-Closing Matters 289 § 9.01 Recordation of Documents 289 § 9.02 Distribution of Documents 290 § 9.03 Following Up 291 § 9.04 Organizing the File 291 Appendices 293 Appendix A: Form of Letter of Intent 295 Appendix B: Form of Contract of Sale 298 Appendix C: Form of Tenant Estoppel Certificate --- Appendix D: Form of FIRPTA Affidavit --- Appendix E: Due Diligence and Closing Checklist --- Appendix F: Checklist of Title Endorsements --- Appendix G: Lease Review Summary Form 301 Appendix H: Form of Subordination, Nondisturbance, and Attornment Agreement 309 Appendix I: Form of Loan Commitment 316 Appendix J: Form of Simple Secured Note 330 Appendix K: Form of Mortgage --- Appendix L: Form of Collateral Assignment of Leases and Rents 335 Appendix M: Form of Security Agreement 342 Appendix N: Form of Loan Guarantee 351 Appendix O: Form of Certificate of Secretary, with Attached Resolutions 364 Appendix P: Form of Bill of Sale --- Appendix Q: Form of Post-Closing Agreement 368 Appendix R: Form of Closing Instruction Letter from Buyer 375 About the Authors 379 Index 381
Library of Congress Subject Headings for this publication:
Vendors and purchasers -- United States.
Commercial real estate -- United States.