OPINIONSMATTERS CONTENTS. From the Chair. William B. Dunn, Editor

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1 Spring 2016 Volume 1 Number 1 OPINIONSMATTERS The Newsletter of the Committee on Legal Opinions in Real Estate Transactions From the Chair As chair of the Committee on Legal Opinions in Real Estate Transactions of the ABA Section on Real Property, Trust and Estate Law, it is my pleasure to welcome you to the inaugural issue of Opinions Matters, a newsletter dedicated to informing Committee members of the latest developments in real estate opinion practice, frequently encountered issues in giving real estate opinions and the evolving national consensus on real estate opinion practice. We will also keep you abreast of what other organizations are doing and saying about opinion practice, such as the Working Group on Legal Opinions, the Tri- Bar Committee and the Legal Opinions Committee of the ABA Business Law Section, among others, to the extent relevant to legal opinions in real estate transactions. Our current plan is to publish this newsletter twice each year, in the spring and in the fall, although that may change depending on the resources and support available to us, particularly the number of volunteers providing content for the newsletter. We encourage you to contact us if you are interested in submitting an article for a future issue or serving on the editorial board or if you simply have an issue that you would like us to address in the newsletter. In any event, we hope that you fill find the information in this issue and in subsequent issues of the newsletter useful in your practice, whether you render legal opinions on a regular basis or just occasionally. The title of this newsletter, Opinions Matters, may seem a little askew. It was chosen as a quirkier version of the more mundane Opinion Matters so as to catch your attention. It is grammatically correct and is intended to convey matters about opinions. However, as with all items in this newsletter, we welcome your comments and suggestions. In each issue, the newsletter will have regular features on certain topics. One such feature is a summary of the discussions from our Committee s listserve. The listserve (some may prefer the term, blog ) is available on the Committee s page of the ABA/RPTE website. It allows anyone to ask Committee members a question about opinion practice. For example, you might want to know how best to phrase a certain opinion and what assump- William B. Dunn, Editor CONTENTS From the Chair...1 Future Meetings and CLE Programs...2 Summary of Recent Listserve Activity...3 Coming Next: Local Counsel Opinion Letters in Real Estate Finance Transactions...4 Other Opinion Activity Working Group on Legal Opinions...5 Genuineness of Signature...5 Rating Agencies: Access Not Reliance...6 No Violation of Law Opinion - A Local Counsel Perspective in a Real Estate Finance Transaction...7 Note from the Editor...9 Annex A, Spring Symposium Program, Local Counsel Opinion Letters in Real Estate Finance Transactions American Bar Association ALL RIGHTS RESERVED 1

2 tions and/or qualifications are appropriate, or whether a particular opinion should be given at all. Committee members will weigh in with their views on the subject. Another topic to be included in future issues of this newsletter is real estate opinions to federal agencies. For example, real estate lawyers give opinion letters on a regular basis to the Department of Housing and Urban Development, Fannie Mae and Freddie Mac in connection with the origination of multifamily mortgage loans and other transactions. (Technically Fannie Mae and Freddie Mac are not government agencies, but as a practical matter they act very much like they are.) For several years now, our Committee has wrestled with the form of these opinion letters and has attempted to persuade the agencies to be more flexible in accepting opinion letters that do not strictly adhere to their forms. As might be expected, the pace of change on this front has been glacial, but the Committee believes that this is an important initiative that should be continued, and we welcome the participation of our members in this effort. Finally, I want to recognize and thank William B. Dunn with Clark Hill PLC, who has graciously agreed to serve as the editor of this newsletter. As many of you know, Bill Dunn has served the organized bar in numerous capacities during his distinguished career, including as President of the American College of Real Estate Lawyers, Chair of the American Bar Association s Section on Real Property, Trust and Estates Law, Chair of the ABA Standing Committee on Ethics and Professional Responsibility and Chair of the State Bar of Michigan Professional Ethics Committee. Bill is also the past chair of our Committee, and he has authored numerous articles and reports and lectured extensively on opinion letter practice. Most recently, he served as the reporter for the supplemental report on local counsel opinion letters in real estate finance transactions, which is discussed in this newsletter. Please contact Bill if you would like to contribute to future issues of this newsletter or otherwise assist in any way. We very much want this newsletter to be a team effort and not too great a burden for one person, and we are immensely grateful to Bill for agreeing to serve as our editor. Charlie Menges McGuireWoods LLP cmenges@mcguirewoods.com Future Meetings and CLE Programs 28th Annual Spring Symposia CLE Meeting May 12-13, 2016 Boston, MA Fundamentals of Commercial Real Estate: Legal Opinions May 25, :00-1:30 p.m. CT 1.50 General CLE Credit Hours ABA Annual Meeting August 4-9, 2016 San Francisco, CA RPTE Fall Leadership Meeting September 14-17, 2016 Banff, Albert, Canada ABA/RPTE Committee on Legal Opinions in Real Estate Transactions October 13, :00 p.m. ET Teleconference 29th Annual RPTE Spring Symposia & Leadership Meeting April 20-23, 2017 Denver, CO SPRING

3 Summary of Recent Listserve Activity December 2015 March 2016 This summary of Listserve activity among members of the Committee on Legal Opinions in Real Estate Transactions does not necessarily represent the views of the Committee, but rather reflects views of individual members of the Committee on current practice topics. The comments referred to below may be viewed by clicking on the Listserve item on the Committee s web page. 1. Genuineness of Signatures. Charles Menges, Richmond, VA, shared a message from David Kochanski, Potomac, MD. David reported that Freddie Mac s counsel recently required an opinion that the client s signatures were genuine, but would not require that opinion if all of the loan documents were notarized. Charles asked if others had similar experiences with any lenders, noting that (a) it may not be practical to notarize all of the documents and (b) the issue normally is whether a recipient will permit an assumption as to the genuineness of signatures (see Real Estate Finance Opinion Report of 2012 ( 2012 Report ), 2.1(d)). James Levine, Chattanooga, TN, commented that, while he understands the interests of borrower s counsel, when he is lender s counsel, he usually requires either an opinion or notarization of the documents. Douglas Sanderson, Fairfax, VA, wrote that some years ago he confirmed the genuineness of signatures. However, Michael Nordin, Oklahoma City, OK, commented that genuineness of signatures is a question of fact, not of law, and he does not confirm genuineness. Michael acknowledged that there are sometimes arguments, but said he has always been able to resolve the issue by referring to the 2012 Report and other authorities. NOTE: An article on this subject appears in this issue of Opinions Matters. 2. Public Policy. Daniel Devaney, Honolulu, HI, asked for thoughts on the appropriateness of a general public policy assumption that the exercise of any rights or enforcement of any remedies would not be contrary to public policy. All four commenters generally agreed that a general assumption (or qualification, exception, or limitation) that the exercise of rights under the transaction documents is not contrary to public policy is not customary and is strongly disfavored. They also agreed that specific public policy assumptions are customary and acceptable when called for by applicable law. (Examples of this might include provisions for indemnification and exculpation or for waiver of trial by jury, when the laws applicable would characterize them as contrary to public policy.) Arthur Norman Field, New York, NY, noted that the meaning of the term public policy includes statutes which are the legislative expression of public policy. A public policy exception, therefore, guts any opinion and, unless the exception is narrowed in a way that makes sense in the context, should always be unacceptable. Author s Note: The Real Estate Opinion Letter Guidelines, according to the Editors Synopsis, are intended to reflect the current state of customary real estate opinion letter practice. Section 4.8 of the Guidelines addresses matters of public policy and appears to be consistent with all of the comments on this topic in the Listserve: Because public policy is a principal basis for invalidating contractual provisions, opinion givers should not qualify their opinions as a whole with a general exception for matters of public policy. When appropriate, however, an opinion giver may include an exception for matters of public policy with respect to a particular provision (such as a provision releasing the other party from liability without excluding liability for willful misconduct or fraud). 38 Real Prop. Prob. & Tr. J. 241, (2003) (footnote omitted). Questions involved in and arising from this discussion included these: (1) does an enforceability opinion mean that there is no invalidity based on public policy unless a specific exception is made about that; (2) is a public policy exception embodied in the usual equitable principles limitation and hence generally applicable to the exercise of rights and remedies; and if so, is there any objection to expressing it there; (3) does the generic enforceability qualification (see 2012 Report at 4.3) include whatever public policy issues there are in the unenforceable terms without needing to specify them also; (4) does an opinion giver opine about public policy to the extent it is not embodied in statutes, published rules, and reported court decisions? In the example given in the SPRING

4 Guidelines quoted above, the basis for the exception is not a general conclusion about policy of the public ascertained in the judgment of the opinion giver, but an expression of how a court has regarded the provision or ones similar to it under the law that is the defined applicable basis of the opinions, using the term public policy in its formulation. 3. Mortgage Amendments. Charles Menges, Richmond, VA, was interested in how members of the Committee would handle a request, in connection with an amendment of a credit facility, to opine that the existing mortgages (without being amended) will continue to secure the obligation under the amended credit agreement and that no mortgage amendment is necessary to reflect the credit agreement amendments. Charles and some of the commenters noted that this may be a state-specific issue. Three of the five commenters were not particularly concerned about providing such an opinion if the mortgage contemplated amendments to the loan documents and was granted to secure future amendments and changes to the secured parties. Joseph Manello, Boston, MA, wrote that if the named mortgagee is the agent, and the mortgage provides that it secures the obligations in the loan agreement as it may be amended, then the amendment to the loan agreement should not affect the status of the mortgage. Sterling Scott Willis, New Orleans, LA, similarly responded that he thought he could give such an opinion if the initial mortgage contained sufficiently broad language stating that the mortgage was granted to secure future amendments to the credit facilities and changes as to the secured parties or the mortgagee. Michael Nordin, Oklahoma City, OK, concurred and noted that in Oklahoma he would have to consider wither additional real estate mortgage tax would be due. David Miller, McLean, VA, commented that an amendment might be sufficiently material to cause a loss of priority (a novation) despite language in the mortgage. Noting that the specifics may vary by state, David also suggested that the requested opinion, if not properly crafted and limited, could be construed to address lien perfection and priority, issues typically addressed by title insurance rather than a legal opinion letter. David s recommended general approach is to avoid giving the opinion if possible and, if not possible, to be careful. Kenneth Greene, Greensboro, NC, recommended seeking to obtain an endorsement to the title insurance policy that essentially provides the same assurances to the lender as the opinion. The endorsement Kenneth negotiated reads substantially as set forth in his post on the Listserve made on Fri, 26 Feb :42: Members of the Committee on Legal Opinions in Real Estate Transactions are encouraged to raise legal opinion issues on the Listserve and to participate in the exchanges. Members also are encouraged to bring new developments (such as recent case law or newly identified issues) to the attention of Committee members through the Listserve. Daniel H. Devaney IV Cades Schutte LLP ddevaney@cades.com Coming Next: Local Counsel Opinion Letters A report on local counsel opinion letters in real estate finance transactions, prepared through the work of a Joint Drafting Committee for the opinions committees of the ABA Real Property, Trust and Estate Law Section, the American College of Mortgage Attorneys (ACMA), and the American College of Real Estate Lawyers (ACREL), was approved by those committees and with edits made as authorized, has been sent to the Section Journal editors to begin the process toward publication. If that process goes smoothly, publication will be in the Fall 2016 issue of the Journal. The report is titled Local Counsel Opinion Letters in Real Estate Finance Transactions: A Supplement to the Real Estate Finance Opinion Report of As its title indicates, (i) it is a supplemental report, not an independently developed product and thus proceeds from prior art; and (ii) its scope is real estate finance, meaning it does not purport to cover all local counsel opinions given when a real estate asset is involved in a transaction. The latter distinction may not seem readily apparent, but it is important to understand that the Supplement is not intended to provide guidance beyond the scope of a transaction that was contemplated by the 2012 Report one in which financing of real estate is the central purpose. Nevertheless, all opinion practitioners should find value in, and applicability of, the Supplement. The Supplement is the subject of a presentation at the May 2016 Spring Symposium by William Dunn (the Supplement s Reporter), Edward Levin (a co-editor of the Supplement), Charles Menges (chair of Section s SPRING

5 Committee on Legal Opinions), and Lydia Stefanowicz (chair of the ACMA Opinions Committee), all of whom served on the Joint Drafting Committee. A copy of the paper for that presentation, omitting the text of the Supplement, appears as an Annex to this Newsletter. William B. Dunn Clark Hill PLC wdunn@clarkhill.com Other Opinion Activity Editor s Note: There are many committees, working groups, and projects ongoing at state and national levels devoted to legal opinions. News of other opinion activities that relate to opinion practice generally and to real estate opinion practice specifically will be shared in this newsletter when it is brought to the attention of the Editor. Articles about these activities are solicited. This newsletter will report regularly on opinion matters of both general and specific interest to opinion practitioners. A prominent actor among national opinion forums is the Working Group on Legal Opinions Foundation, referred to as WGLO, the purpose of which is to provide a national forum for the discussion of important issues relating to closing opinions. Participants in the Working Group on Legal Opinions include opinion givers, opinion recipients, the ABA, state and local bars as well as law firm malpractice insurers. WGLO is comprised of member law firms and sponsoring bar associations, and is predominantly focused on opinions in business transactions but with significant participation from real estate transaction lawyers, as noted below. More about the organization can be viewed on its website. Ken Jacobson, Chicago IL, reports that a Committee jointly sponsored by WGLO and the Legal Opinions Committee of the ABA Business Law Section has proposed an Exposure Draft of a Statement of Opinion Practices ( Statement ) for circulation to various bar groups for comment and approval. Ken has served as co-chair of this project for WGLO. Pete Ezell, Nashville TN, is co-reporter for the Statement. The purpose of the Statement is to update in its entirety the Legal Opinion Principles ( Principles ) published by the Legal Opinions Committee of the Business Law Section, 53 Bus. Law. 831 (May 1998), and to update selected portions of the Guidelines for the Preparation of Closing Opinions ( Guidelines ), also published by that committee in 57 Bus. Law. 875 (Feb. 2002). The Guidelines along with the Principles were adopted, and the Guidelines enhanced to address subjects of relevance and significance for real estate secured loan transactions, in a joint statement of the American College of Real Estate Lawyers Attorneys Opinions Committee and the ABA Section of Real Property, Probate and Trust Law Committee on Legal Opinions in Real Estate Transactions, entitled Real Estate Opinion Letter Guidelines and published in 35 Real Prop. Prob. & Tr. J. 241 (2003). At the publication deadline date for this issue of Opinions Matters, dissemination of the Exposure Draft of the Statement to the various bar organizations had not yet been authorized by both sponsoring organizations. The ABA Business Law Section s Legal Opinions Committee authorized such a distribution at its meeting on April 8, 2016, and it is anticipated that the board of directors of WGLO will consider similarly authorizing distribution of the Exposure Draft during its meeting on May 9, The Exposure Draft will be provided to members of the Committee on Legal Opinions in Real Estate Transactions of the ABA Section of Real Property, Trust and Estate Law once distribution is authorized, and comment to the Chair will be invited. William B. Dunn wdunn@clarkhill.com Genuineness of Signature A Borrower s and Guarantor s counsel s opinion letter may include opinions to the effect that The Loan Documents: (i) have been duly executed and delivered by the Borrower and the Guarantor; (ii) represent binding obligations of the Borrower and the Guarantor; and (iii) are enforceable against the Borrower and the Guarantor in accordance with their terms. The opinion letter otherwise makes it clear that as to factual matters, there has been no investigation except as specifically described in the opinion letter. There is no mention of genuineness of signature. The Guarantor, when called upon to pay, claims forgery and establishes that its signature is a forgery. What is the liability of Guarantor s counsel with respect to these opinions? Many authorities agree that genuineness of signature is a matter of fact, and therefore, an inappropriate subject for an opinion. These authorities also are of the view that genuineness of signature is implicitly assumed when SPRING

6 giving an enforceability opinion. 1 Although the Real Estate Finance Opinion Report of recognizes that customary practice should implicitly assume genuineness of signature, it also notes that there is a risk in relying on the implied assumption until customary practice has become so ingrained and judicially accepted that no arguable doubt can be cast on the omission of an assumption. 3 The Illustrative Opinion Language of the 2012 Report, in 2.1(e), expressly assumes the genuineness of all signatures. Two cases are often cited in any discussion of this area: (i) Voyager Guaranty Insurance Company, Inc. v. Brown, 631 So.2d 848 (Alabama, 1993). Here the opinion made no mention of genuineness of signature, which turned out to be forged. The court held the lawyer not liable on the grounds that he did not certify that the signature was genuine and if the lender had wanted the lawyer to advise as to genuineness, it should have expressly asked him to do so; and (ii) Fortress Credit Corp. v. Dechert LLP, 89 A.D.3rd 615, 934 N.Y. S.2nd, 119 (App Div., 2011). Here the lawyers expressly assumed genuineness and, therefore, there was no liability on account of forged signatures. Importantly, exploration of the legal issues of whether the assumption is implicit and whether the opinion giver should have made greater inquiry to opine about execution and delivery were avoided because of the express language. As face-to-face closings become rarer, two issues remain for lender s counsel: (i) if the opinion expressly assumed genuineness, this should probably be brought to client s attention; and if the opinion is silent, the client should be advised of the implicit assumption; and (ii) inquiry should be made of the client of the extent, if any, that there should be some verification of signature. Obviously, this should be raised early enough to allow sufficient time before closing to arrange for the requested mechanism. Notarization of signatures would provide as much 1. Glazer & Fitzgibbon on Legal Opinions, Third Edition, 2008, and 2015 Cumulative Supplement at pages 151, 287 and 400; Legal Principles, ABA Committee on Legal Opinions, 53Bus. Law 831, 833; and Third Party Closing Opinions, Tri- Bar Opinion Committee, 53 Bus. Law 591, 615, Real Prop. Tr. & Est. J. 213, 234 (Fall 2012), the 2012 Report, accessed at PublicDocuments/Real%20Estate%20Finance%20Opinion%20Report%20of%202012%20Circulation%20Final% PDF. 3. Id at 222. legally reliable assurance as is reasonably possible. A method of verification is suggested in the soon-to-bepublished local counsel supplement to the 2102 Report. 4 Counsel having responsibility for arranging for document execution may be able to provide some assurance, short of an opinion, that certain described customary actions were taken to verify the identity of a signer, including an affidavit or certificate of the signer or of an officer of the entity for whom the signature is affixed. Joseph Manello Seyfarth Shaw LLP jmanello@seyfarth.com Stanley Wrobel Womble Carlyle Sandridge & Rice, LLP swrobel@wcsr.com Rating Agencies Access not Reliance Opinion givers in commercial real estate finance transactions are often instructed by recipient s counsel to include rating agencies (formally known as nationally recognized statistical rating organizations and referred to as NRSROs) as addressees of the opinion letter or as persons entitled to rely on the opinions expressed in the opinion letter. This requirement appears to have been based on Standard & Poor s US CMBS Legal and Structural Criteria, which provided that opinions that were provided to meet its criteria should be addressed to and delivered to Standard & Poor s. The Standard &Poor s Criteria was superseded by restated criteria in 2006 that did not include this requirement. Standard &Poor s confirms it is not and has not since 2006 been a requirement. Nevertheless, the momentum of the requirement has continued as if it is gospel. In connection with work on the local counsel opinions project leading to a report titled Local Counsel Opinion Letters in Real Estate Finance Transactions: A Supplement to the Real Estate Finance Opinion Report of 2012 (the Local Counsel Supplement, to be published in the Real Property, Trust and Estate Law Journal), six NRSROs were asked to confirm that being named as an addressee or as a reliance party in loan closing third-party opinion letters was not a requirement for their rating 4. Local Counsel Opinion Letters in Real Estate Finance Transactions: A Supplement to the Real Estate Finance Opinion Report of 2012, submitted for publication in Real Prop. Tr. & Est. J., Note 55. SPRING

7 of a commercial real estate mortgage loan intended for securitization, although access to the opinion letters is essential. They have done so, as reported in an article by William B. Dunn and Joseph Philip Forte in CRE Finance World. The Local Counsel Supplement provides at Paragraph 5.1 of the text and of the Illustrative Opinion Letter addendum to the text a reliance statement consistent with this position, omitting rating agencies from the list of persons entitled to rely on the opinion as if addressees; and also provides an appropriate statement, also cleared with the NRSROs, about access to the opinion letter, to be added when appropriate to the transaction, in the list of those persons to whom the opinion letter may be furnished: ( ) nationally recognized statistical rating organizations rating an issuance involving the Loan or otherwise entitled to access under Rule 17g-5 under the Securities and Exchange Act of 1934, as amended (or any successor provision to such subsection) by providing a copy of this opinion letter to the appropriate 17g-5 information provider for the securitization into which the Loan or a component of the Loan is deposited or as otherwise permitted by the applicable pooling and servicing agreement or trust and servicing agreement, as the case may be. It will take some time to educate lenders and lenders counsel to this, and the message needs to be disseminated as well as possible. It should also be understood that the position is expressed in the context of originating commercial real estate mortgage loans intended for securitization the scope of the request to the NRSROs -- and not to every transaction in which ratings may be made. William Dunn Clark Hill PLC wdunn@clarkhill.com No Violation of Law Opinion - A Local Counsel Perspective in a Real Estate Finance Transaction The Illustrative Opinion Letter (Chapter Three) of the Real Estate Finance Opinion Report of (the 2012 Report ) provides the following example of a no violation of law opinion: 3.8 No Violation of Law. The execution and delivery by the Borrower of, and performance by the Borrower of its payment obligations in, the Transaction Documents, neither are prohibited by applicable provisions of Law comprising statutes or regulations duly enacted or promulgated by the State ( Statutes or Regulations ) nor subject the Borrower to a fine, penalty, or other similar sanctions, under any Statutes or Regulations. Our opinions in this Paragraph do not extend to any action or conduct of the Borrower that a Transaction Document may permit but does not require. The same language is incorporated in the Illustrative Opinion Letter appended to the soon-to-be-published Local Counsel Opinion Letters in Real Estate Finance Transactions: A Supplement to the real Estate Finance Opinion Report of 2012 (the Local Counsel Supplement ). This opinion language clarifies that the law referred to is statutory or regulatory, and not common law. This is consistent with recognized customary practice. The 2012 Report notes that judicial decisions interpreting statutes and regulations must be considered also. The illustrative language of the 2012 Report in Paragraph 3.8 (as well as in Paragraph 3.7 providing an example opinion that no governmental approvals are required) limits the opinion to payment obligations, as formulated in Sections 14 and 15 of the ABA/ACREL Accord Adaptation Report. 6 This reflects the view that in real estate secured transactions, there are often loan Real Prop. Tr. & Est. J 213 (2012), Chapter Three, Paragraph 3.8. See Chapter Two, Paragraph 3.8 for a discussion of this opinion in a lead transaction counsel opinion letter. The 2012 Report can be accessed at org/documents/publicdocuments/real%20estate%20finance%20 Opinion%20Report%20of%202012%20Circulation%20Final% PDF Real Prop. Tr. & Est. J 569, (1994). SPRING

8 covenants that would require compliance with specific laws at the time of performance, and an unqualified no violation of law opinion cannot be given about them in an opinion letter delivered at loan closing. When obligations other than payment obligations are an issue, they should be separately addressed, and often may be satisfied by certificates, warranties, and representations of a loan party or other professionals rather than by a legal opinion. The no violation of law opinion, like the no governmental approvals are required opinion, relates to the party about whom the opinion is given, and is not formulated to apply only to the transaction documents. For local counsel, this may pose difficulty. If local counsel is engaged to provide an opinion only about the enforceability of an instrument granting a lien on real estate owned in the jurisdiction whose law governs the opinion by an entity not organized under the law of the state, about which matters of entity status, power, authorizations, and execution and delivery are assumed, pursuant to loan documents not governed by the law of the state, providing an opinion about the performance of obligations by the specific mortgagor (borrower or guarantor) is well outside the scope of the engagement. Local counsel would expect to opine about the mortgage terms themselves, but would not expect to opine about them in terms of actions of the specific mortgagor. In giving the enforceability opinion, local counsel would not need to have knowledge of the mortgagor party. Acquiring the specific knowledge necessary to provide a broad no violation of law opinion would require extensive due diligence into the business activities of the mortgagor for which there would likely not be either time or budget. The Local Counsel Supplement will suggest an assumption or a limitation that addresses the scope of the request and the meaning of a response. Assumption Paragraph 2.1(w) provides: The Borrower [or the Guarantor] is a general business entity of a type that is not regulated by governmental authority or court order in a way that would restrict the ability of the Borrower [or the Guarantor] to alienate or encumber its property to secure indebtedness [or to enter into the Transaction Documents]. Limitation Paragraph 4.4(b) provides an alternative way to qualify the opinion: In rendering the opinions in Paragraph(s) as applicable [3.5 Enforceability], [3.8 No Violation of Law], and [3.13 No Governmental Approvals], we have not made any independent investigation into the nature of the Borrower or its business that may require governmental or court approvals or procedures for execution and delivery of the Transaction Documents or the performance of the Borrower s obligations thereunder. We are relying solely on information provided to us that has been the basis for our review; and our opinion is rendered as if the Borrower is a general business entity authorized to conduct business in the State without special conditions. Or, We express no opinion as to any consent, approval, authorization, or other action by, or filing with, any governmental agency or court required as a condition to the Borrower s entering into and delivering the Transaction Documents or performing its obligations thereunder. The assumption or the limitation provides safe harbor when the only opinion provided is enforceability, but when an express no violation of law opinion is required, the assumption or the limitation narrows, if not excludes, the opinion as to the party. Some recipient s counsel assert that the opinion must be rendered without limitation to payment obligations, and without the suggested assumptions or limitations. In these situations, it is important to reason through the request with recipient s counsel. Often, such a process results in an amelioration of extreme requests. First, what is the risk that recipient is seeking assurance about? If there are statutes that prohibit the mortgaging of property, they typically pertain only to significantly regulated entities. In providing a mortgage enforceability opinion, local counsel in the setting described would not be expected to know of or research the business of the mortgagor. If such an opinion is requested, it should be justified by an expressed specific concern that can be evaluated by an appropriate person. Second, providing an opinion about specific regulation or licensure of the mortgagor would more properly be the role of lead or in-house counsel. If the entity is doing business in a foreign jurisdiction, its officers need to know what laws apply to it, and whether it is subject to statutes or regulations that control its ability to encumber its assets. If local counsel has been engaged to advise the mortgagor in such matters independent of the closing opinion, local counsel may be an appropriate source of the assurance, but if, as is more typical, local counsel s role is limited to providing a closing opinion, such an SPRING

9 unlimited opinion is beyond the reasonable scope of its engagement. The request for the no violation of law opinion is often a checklist item, made without specific relevance to the transaction. Local counsel could be informed by certificate of specific business activity or status that may give rise to governmental regulation or necessity for court approval, and evaluate whether based solely on that information, there is any law that would be violated by the act of encumbering assets or performing obligations. The cost vs. benefit of this inquiry should be considered. The opinion giver should be conscious of the breadth of the no violation of law opinion. It is similar in some respects to an enforceability opinion. For example, a usury opinion would be deemed to be given implicitly in a no violation of law opinion. Limitations appropriate to such an opinion should be included in the opinion letter. Further discussion of this subject is found in the 2012 Report Chapter Two 3.8. William B. Dunn Clark Hill PLC wdunn@clarkhill.com Lydia C. Stefanowicz Greenbaum, Rowe, Smith & Davis LLP lstefanowicz@greenbaumlaw.com Note from the Editor This first issue of Opinions Matters is published to begin regularly communicated useful information about the practice of providing legal opinions in real estate transactions. As noted elsewhere in this newsletter, there are many activities not only in the ABA Section of Real Property, Trust and Estate Law ( RPTE ) but in other ABA Sections, other national organizations with a real estate focus such as the American College of Mortgage Attorneys and the American College of Real Estate Lawyers; and those involved more generally with business transactions and specifically with certain aspects of them. In addition, there are many state and specialty bar organizations considering these same subjects. This newsletter will be of greatest value by providing both contributions from members of the ABA RPTE Committee on Legal Opinions in Real Estate Transactions and noteworthy information from other sources. This value can be realized only if each of you help by providing alerts and updates to the Editor and submitting articles such as some of our colleagues have for this first issue. Thanks to Dan Devaney, Ken Jacobson, Ed Levin, Joe Manello, Charlie Menges, Lydia Stefanowicz, Scott Willis, and Stan Wrobel for their written contributions to this issue. I wish also to express my great appreciation to Monica Larys, the Section s Membership and Marketing Associate, for the production and presentation of this newsletter. Our next issue is planned to publish in November, 2016, with a submittal deadline by October 21, Please help to make this a successful endeavor. William B. Dunn wdunn@clarkhill.com SPRING

10 Annex A LOCAL COUNSEL OPINION LETTERS: A REVOLUTIONARY SUPPLEMENT TO THE REAL ESTATE FINANCE OPINION REPORT OF 2012 Presented by William B. Dunn, Edward J. Levin, Charles L. Menges, and Lydia J. Stefanowicz 1 At the Spring Symposia of the ABA s Section of Real Property, Estate and Trust Law Boston, Massachusetts, May 12, 2016 Third party opinion letters are requested from real estate lawyers in a variety of settings. There have been a number of papers and reports on this topic, including state bar reports, the Third-Party Legal Opinion Report of the ABA Business Law Section, which included a Legal Opinion Accord (the Accord ) of 1991, 2 Real Property Adaptation to the Accord of 1994, 3 Inclusive Real Estate Secured Transaction Opinion of 1999, 4 the Real Estate Opinion Letter Guidelines of , and the Real Estate Finance Opinion Report of 2012 (the 2012 Report ). 6 Not much discussion in legal opinion literature exists, however, regarding opinion letters of local counsel in real estate loan transactions. In an effort to provide guidance to real estate attorneys who provide local coun- 1. Special thanks to Sterling Scott Willis for his work in the preparation of this paper Bus. Law. 167 (1991) Real Prop. Prob. & Tr. J. 569 (1994) RP213000/newsletterpubs/opinion.pdf (Feb. 2, 1999). 5. ACREL Attorneys Opinion Comm. and ABA Section of Real Prop., Prob. and Tr. Law Comm. on Legal Opinions in Real Estate Transactions, Real Estate Opinion Letter Guidelines, 38 Real Prop. Prob. & Tr. J. 241 (2003) Real Prop. Tr. & Est. J. 213 (2012). sel opinion letters, representatives of the legal opinions committees (the Committees ) of the ABA s Section of Real Property, Trust and Estate Law, ACREL (the American College of Real Estate Lawyers), and ACMA (the American College of Mortgage Attorneys) have prepared a report entitled Local Counsel Opinion Letters A Supplement to the Real Estate Finance Opinion Report of 2012 (the Local Counsel Supplement ) (see Annex A). Each of the three Committees has approved the Local Counsel Supplement, and we expect that it will be published in the Fall 2016 issue of Real Property, Trust and Estate Law Journal. The Local Counsel Supplement, as its name suggests, is a supplement to, and must be read in conjunction with, the 2012 Report. The 2012 Report can also be found on the website of RPTE s Legal Opinions in Real Estate Transactions Committee and at the ACREL website, I. Background of the Local Counsel Supplement. The 2012 Report was also a joint effort of the three Committees. As the Local Counsel Supplement notes, the 2012 Report discusses a variety of opinion topics in real estate finance transactions that are commonly the subject of opinion letter requests, along with appropriate assumptions and limitations, in the context of a single opinion rendered by one opinion giver. The 2012 Report referred to that counsel as lead counsel. The 2012 Report does not cover situations where opinions are needed from different attorneys in multiple jurisdictions or where one opinion giver may be acting in a limited role and capacity. Normally attorneys acting in such a limited role are referred to as local counsel. The purpose of the Local Counsel Supplement is to provide guidance to attorneys in a real estate finance transaction acting in a capacity other than as lead counsel. It was written to make the 2012 Report applicable to local counsel. It includes discussion of the opinions that are the subject of the 2012 Report from the perspective of local counsel, and it addresses certain other opinions that are frequently requested of local counsel. II. Using the Local Counsel Supplement. The Local Counsel Supplement is a supplement to the 2012 Report. Accordingly, an understanding and knowledge of the approach, structure, and format of the 2012 Report is required in order to make full use of the Local Counsel Supplement. The Local Counsel Supplement contains a form of illustrative opinion letter as an addendum. Chapter Three of the 2012 Report is similar in form to an illustrative opinion letter, but that SPRING

11 chapter is called illustrative language of a Real Estate Finance Opinion Letter. The illustrative opinion letter with the supplement contains suggested language that may be selected depending on whether the opining counsel is rendering opinions about entity formation, existence, power, authority, and authorization, or about enforceability and other opinions about some or all of the transaction documents. It may be used to lead counsel or local counsel. There is no single form of local counsel opinion that fits all local counsel opinion situations or requests. III. Who is Local Counsel? At the beginning of the project, the drafters of the Local Counsel Supplement 7 thought differentiating between opinions normally given by lead counsel and opinions given by local counsel would be self-evident. Early in the drafting process, however, it became apparent that no such bright line of distinction exists. Opinions of local counsel vary across the board. These distinctions can range from opinions given by a local counsel who is retained in the very late stage of a transaction with respect to a client with whom the local counsel has never had any prior dealings, to opinions rendered by a local counsel who has acted regularly for years for a client. As noted in the Local Counsel Supplement, In themselves, the labels lead and local have insufficient inherent meaning to determine without more information what opinions each counsel is to provide. The labels more appropriately describe a hierarchy of relationship in the transaction than determine the scope of each such counsel s opinion letter. The legal matters to be addressed in an opinion letter of local counsel often are not as comprehensive as those matters on which lead counsel opines. The menu of opinions is substantially the same, however; and which opinions will be given by lead or by local counsel will depend on the facts and circumstances of each transaction. Local counsel opinion requests are typically generated in two primary factual scenarios. First, the borrower, guarantor, or other party covered by the opinion (the client ) is organized under the laws of the jurisdiction of 7. Bill Dunn served as Reporter of the Local Counsel Supplement, and Ed Levin and Scott Willis served as its Co-Editors. The Joint Drafting Committee consisted of the ten original drafters of the 2012 Report, and five additional members. Charlie Menges and Lydia Stefanowicz were members of the Joint Drafting Committee. the local counsel. The second common scenario is when the real estate or other significant collateral involved in the loan transaction is located in the jurisdiction of the local counsel. These are the two most common examples, but any number of combinations or variances of these are possible in local counsel situations, especially given the fact that several entities may be involved as borrower, guarantor, member, or manager, and they may be formed under the laws of different jurisdictions. Situations in which a real estate lawyer may be asked to provide an opinion letter as local counsel include the following types of financing transactions: A loan to finance a specific real estate project located in local counsel s state, where some or all of the loan documents are governed by, and the borrower is organized under, the laws of the local counsel s state, but the borrower is represented in the transaction by other lead counsel. A loan to finance a specific real estate project located in local counsel s state, where some or all of the loan documents are governed by the laws of the local counsel s state, but the borrower is organized under the laws of a state other than the local counsel s state. A loan to finance one or more specific real estate projects located in local counsel s state (and perhaps other states), where the core financing documents the loan agreement, the note, any guaranty are governed by the laws of another state (usually New York), but the mortgage, any assignment of rents and leases, and perhaps other documents specifically related to the real estate located in the local counsel s state will be governed in whole or in part by the laws of the local counsel s state. The borrower may or may not be organized under the laws of the local counsel s state. One or more loans secured by real property all located outside of the local counsel s state, but the borrower is organized under the laws of the local counsel s state. (This scenario would generate essentially a corporate law opinion.) IV. No One Size Fits All. The Local Counsel Supplement acknowledges there SPRING

12 is no single form of local counsel opinion or set of opinion requests appropriate in all circumstances. The Local Counsel Supplement contains suggested language to address the most common requests, together with notes as to when certain language should be used. The drafters of the Local Counsel Supplement are aware that a whole host of other topics, such as UCC opinions, could be covered, but the decision was made to save those topics for another day. One reason for this was to limit the opinions addressed in the Local Counsel Supplement to those covered in the 2012 Report or those that are frequently asked of local counsel. Opinion practice in a local counsel setting, just as it would be in the case of lead counsel, is subject to appropriate customary practice and often involves matters that are better obtained from sources other than local counsel. As noted in the Local Counsel Supplement: Local counsel should prepare an opinion letter that addresses the matters that are appropriate in the circumstances under customary practice. If this response is considered inadequate by the recipient, further content should be discussed and agreed upon, again within the bounds of customary practice, respecting the legitimate interests of the parties, including cost effectiveness and the necessity of the opinions and assumptions and limitations under consideration. Some subjects of the request may be answered more appropriately and customarily by service providers other than local counsel or by reliance on commonly accepted alternatives. Examples of such subjects are ownership of collateral (provided by title insurance), litigation (provided by search services, unless the request is limited to matters in which the opinion giver is representing the client), and U.C.C., tax, or similar searches (provided by search services). V. Professional and Ethical Responsibilities of Local Counsel. The degree of familiarity that local counsel may have with the client can be extremely limited or it may be significant, and it may be anywhere in between. Certain practitioners believe that local counsel with limited knowledge of the client or the client s activities may have somewhat lesser ethical and professional responsibilities than opinion givers who continually represent the client or have greater knowledge of the client. While this may seem intuitive, there is no basis for this distinction under the ethical rules, and the authors of the Local Counsel Supplement have not found any case law that states that the ethical rules are applied differently to local counsel than to lead counsel. Therefore, the Local Counsel Supplement takes the position that local counsel has the same professional responsibilities and duties that must be discharged in rendering local counsel opinions that it has any other legal matter. The Local Counsel Supplement addresses professional responsibility in three primary areas. First, it notes that [t]he formalities of establishing [the lawyer-client] relationship [between the opinion giver and the subject of the opinion] cannot be overlooked even in the face of a request for an opinion to be delivered in a very short time. Ethical obligations to the client are imposed by that relation even though the local counsel may have no direct contact with the borrower. Second, the Local Counsel Supplement recognizes that situations exist in which local counsel are asked to opine on documents that may be defective, or to provide changes to documents that will improve them or provide for the best available remedies. These changes may be contrary to the interests of the borrower, but certain of these changes may for necessary in order for the local counsel to render the opinions requested of it. This can create an ethical dilemma for the local counsel. Some view this dilemma inherent in the role of local counsel and that client consent is deemed waived in the situation. However, local counsel should be mindful of this. As noted in the Local Counsel Supplement, it may be better in these situations for local counsel to represent the lender, not the borrower, so as not to have these problems. Finally, the Local Counsel Supplement notes that while the standard of care of local counsel should generally be determined by practice standards of the law of the local counsel s jurisdiction, providing an opinion about the law of another jurisdiction could impose the duties of professional responsibility of that other jurisdiction. VI. Format of the Local Counsel Supplement. As a supplement to the 2012 Report, the Local Counsel Supplement follows the outline, the formatting, and the numbering of the 2012 Report for ease of use. Following some initial introductory matters, the Local Counsel Supplement contains an introduction and then a discussion of the content of most opinion letters: assumptions, substantive opinions, limitations to the opinion, and matters with respect to the use of the opinion letter. There is also the form of an illustrative opinion like the 2012 Report. VII. Local Counsel Opinion Letter Introduction. The introductory provisions of a local counsel opin- SPRING