Who Comes To Closing?

That depends. How much do you really want to create valid conveyances and mortgages? The reason you pick title companies and law offices that know what they are doing and take seriously their duties as the referee on any transaction is that the buck stops right there. Here’s one of the most vexing challenges that most people never give a second thought: Today’s state laws allow all kinds of designer entities that 20 years ago were not possible, or certainly were not commonly used. We all know corporations, limited liability companies, limited partnerships, professional associations, and on and on. But what we don’t know, without asking the right questions is: Who signs for each of these? What happens if we get the wrong people, or maybe no people, signing for a company that has some interest in the property to be conveyed or mortgaged?

Last week I read an article about a case in New York in which a bank loaned money to an LLC, to be secured, not by the LLC’s own property, which was already mortgaged, but by the interests in the Company of each of its members. The pledge of the interests were signed by the LLC, not by the members of the entity. A New York court found the pledges to be void, and the loan to be unsecured, because the individuals who owned interests did not sign the pledge. Can you imagine the surprise to the bank officer or law office that closed that loan? Jobs are hard to find. I suspect someone may still be looking.

That loan is just the reason I advise banks, and anyone making business conveyances, especially involving personal property, to let a law office experienced in such conveyances do the closing. But regardless of who does a closing of property owned by an entity, the threshold question is: Who signs for the entity? That is the artistry of closing and that is why lawyers and title companies earn their keep.

You won’t know the answer without the organizational documents for the entity. Often absentee investors put money in to make a company work, but insist on limiting the officers’ ability to borrow additional money without investor consent. Those limitations, if they exist, will only be documented in the charter or operating agreement for the entity.

You won’t know the rights of the people who appear in your office to make a conveyance without inspecting the documents by which their entities are created. You must also confirm that the documents you see are authentic and have not been amended. Finally, go online to confirm that what you see is as simple as it is appears. Almost every state has passed statutes that make your job harder, though I’m sure that was not their intent. Almost every entity can now merge with or convert its charter to another form of entity. They can change their name, and like an amoeba, they take different shapes, sizes and restrictions.

Watch especially for multi-layer entities. For example: If an LLC owns a piece of property, and the managing member is a limited partnership whose general partner is a corporation. If you are one for simple things, don’t do this closing. Your goose will be cooked, well done and quickly. Every entity must be verified to be current in its state of organization, every operating agreement and their amendments must be inspected for limitations of authority.

The nature of the property being conveyed can be important. There are statutory limitations on the ability of a corporation, for instance, to convey the interests of a corporation without shareholder consent unless the conveyance is in the ordinary course of business of the company.

Our purpose in the title business is to assure every person—buyer, seller, lender, and Realtor—of the safety and security of transactions. Otherwise there would be no transactions, and we would be the ones looking for jobs. A careful closing agent is a horrible thing to waste.