After a commercial loan transaction closes, it’s easy to feel that all the important work has been completed, but the truth is there are many post-closing matters that still require the lender’s attention.
Often, the tasks that must be performed after a loan closing involve perfecting the lender’s collateral liens, and in many situations, lenders need the borrower’s cooperation in order to satisfy post-closing requirements.
However, borrowers are often eager to focus on managing their businesses, creating difficulty for the lender to redirect their attention back to the loan closing. Taking an opportunity during the closing process to define and communicate the responsibilities of each party, including post-closing expectations, can help simplify the cumbersome post-closing process for lenders.
A crucial step in an efficient post-closing process is letting borrowers know that their cooperation may still be required after a loan closes, which is why we recommend using a Post-Closing Agreement with all loan transactions.
These agreements outline specific requirements that need to be satisfied post-closing, and they provide an opportunity to manage the borrower’s expectations while informing them that they still have a responsibility to communicate and work with their lender after their loan closes. It is advisable that all post-closing requirements have specified deadlines listed in the agreement.
Another document we recommend lenders use is an Errors and Omissions Agreement. This document requires borrowers to provide additional information and execute additional documentation, as may be required by the lender after a loan closing.
The closing process presents several opportunities for mistakes to be made, including omitting certain documents from the closing document package, incorrect signatures on documents, and execution of outdated versions of documents.
The Errors and Omissions Agreement is a good way for all parties to agree to resolve these potential issues after closing.
An additional tool that lenders can use to help manage post-closing issues is the Loan Agreement. A good Loan Agreement clearly outlines each party’s ongoing responsibilities, and in doing so, helps manage the borrower’s expectations. Loan Agreements are particularly useful in more complicated transactions because the agreements can be tailored to fit various scenarios and include additional terms a lender may require.
The Loan Agreement may include events of default should the borrower fail to satisfy any post-closing requirements prior to the applicable deadlines.
Depending on the type of collateral involved in a transaction, there can be many different potential post-closing issues for a lender to track and resolve.
Real estate is a good example of a potentially complicated type of collateral to deal with post-closing because it involves ensuring mortgages get recorded properly, tracking receipt of recorded documents and final title policies, confirming the adequacy of title policies, and working with title companies to resolve any issues or unexpected exceptions that may appear on a final policy.
Automobile liens can also be especially tricky, and not only require the correct documentation from the borrower, but also may require substantial interaction with the DMV in the state where the vehicle is titled.
Additional post-closing responsibilities include review of executed loan documents, filing UCC financing statements, obtaining confirmation of UCC terminations, tracking financial reporting covenants, ensuring proper documentation is received in connection with draw requests, and following-up on collateral insurance expirations.
As complicated as the post-closing process can be, lenders can help ease the burden by utilizing Post-Closing Agreements,
Errors and Omissions Agreements, and Loan Agreements, all of which clarify the responsibilities of each party and help manage post-closing expectations with borrowers.