Practice Pointer. The coverage for mechanic’s liens often arises and is a requirement for most lenders. If construction is contemplated, it is important that no construction commences before the closing and recording of the mortgage. If the Owner’s Statement identifies that work is ongoing on the property, ITG will not cover mechanic’s liens unless waivers and indemnities obtained.
Practice Pointer. Iowa Title Guaranty Commercial will act as the closing agent and hold the xxxxxxx money on any commercial transaction. In my experience they are far better to work with than out of state closing offices, which at minimum require delivery of documents out of state and then utilize in-state agents to record.
Practice Pointer. If a generous inspection period is provided by seller, seller should insist in return that the sale of the property be As-Is, and thus limit the representations and warranties provided in the contract.
Practice Pointer. Be careful of contingencies that run to the date of closing.
Practice Pointer. The leases should be reviewed before closing. Some high credit leases include a provision that the tenant is not responsible for any tax increases resulting from an increase in assessed value after the property is transferred. This could mean that the buyer is unable to pass-through subsequent increases in the real estate taxes.
Practice Pointer. The buyer may at times be concerned that the seller has the proper authority to transfer the property. This is usually determined prior to closing and is an important benefit of title guaranty since the title certificate will usually insure the buyer for such matters (whereas not generally covered by the opinion of title).
Practice Pointer. If the legal description is lengthy and impossible to plot, a survey should be obtained. If survey not obtained, ask the County Auditor to review the legal description during due diligence to make sure the Auditor will not reject the deed at closing.
Practice Pointer. There is added risk for buyer in purchasing the membership interest since they will be assuming any liabilities of the entity. This risk is not great for single-tenant buildings where the property is subject to a true NNN lease since owner in that situation is generally not managing the property and only collecting rents. The risk increases significantly if the selling entity is operating and managing the property. Bed bug litigation is an example of potential risk being assumed.
Practice Pointer. Mortgages for certain asset classes include detailed assumption of debt provisions. These should be reviewed carefully before signing the purchase agreement to determine the process and costs for obtaining lender’s approval for the assumption. In most cases, if debt is being assumed, the assumption process commences after the initial inspection/due diligence period.
Practice Pointer. Commercial landlords should always use a lease form that requires tenant to provide estoppels certificates within 10 days of request.
