In real estate related businesses, loans are a fact of life.  Most real estate projects would simply be unable to meet their growth and profit goals without access to appropriate financing.  Unfortunately, most loan documents are rather long and complicated.  This is because loan agreements are usually drafted very carefully in order to fully protect the lender's interests. As part of the effort to protect the lender, loan documents generally are filled with "legalese" and technical language regarding rates of interest, loan payment terms, conditions, covenants, representations and warranties.

While many real estate loan documents are standardized, it is imperative for a borrower to review and fully understand the terms of any loan agreement.  Under the law, a party to a loan agreement is obligated to understand and comply with the terms of the agreement.  It goes without saying that no one should sign loan documents without first consulting with an attorney who is experienced in negotiating real estate financing documents.

The following are examples of important provisions that should be carefully considered in any real estate loan transaction:

1. Receiving Loan Funds. How will the loan funds be delivered?  Will they be delivered by check or wired into a bank account? Are all of the loan funds going to be disbursed at one time, or will they be transmitted in a number of installments?

2. Loan Conditions. Almost all loan documents contain various conditions that the borrower must meet before the lender will be obligated to fund the loan. It is of the utmost importance that the borrower read and understand each and every condition contained in their loan agreement.

3. Borrower's Covenants. Covenants are nothing more than a borrower’s promises to the lender about certain aspects the loan transaction.  If the borrower breaches their covenants, they will have defaulted on the loan agreement.  As a result, the entire loan agreement will likely be due immediately (i.e., acceleration).

4. Repayment Terms. Repayment terms must always be very carefully considered. Many attorneys believe that the most important repayment term of all is the right to cure a default stemming from a late or missed payment.  The right to cure a default is key in this type of unfortunate circumstance since it will prevent an automatic acceleration of the entire loan amount.  Interestingly, most lenders generally will not voluntarily offer to include this kind of term in their loan documents.  However, the right to cure maybe included in a loan agreement if the borrower or their attorney effectively negotiates for it.   

Any real estate project that is seeking financing should consult with legal counsel before signing any loan documents (including a commitment letter) to ensure that they have an accurate understanding of the terms of their loan agreement and that their rights and legal position are preserved.