I am often asked to speak tonon-lawyers who work for lenders about the loan documentationprocess but never about underwriting or loan commitments. But theapplication to underwriting-to commitment to loan documentation toclosing phases is closely linked.

And, it is more than simply one long hyphenated series ofwords.

It's making the deal.

Occasionally, loan originators will contact me with legal issuesrelating to a loan before they issue a loan application. Thesmart among them want to ferret out what could become anunderwriting issue and they want to have some level of confidencethat an issue that might be a problem is not deal killer.

Identifying and failure to identify deal-killing issues are alarge problem facing credit unions especially for loans intendingto be participations.

While originators sometimes fearing their own underwriters maycall legal counsel in advance, too often there are nocommunications between underwriters and lender's counsel. Our bestengagements and best loan closings involve underwriter-lawyercommunications. It is bottom line efficiency for any loanclosing. Moreover, it is the bottom line to better portfoliosor participations.

Too often, in credit union lending, the problem is thatunderwriters and others do not know what they do not know. Docorders become shorthand for taking the basic deal points andinputting them into form documentation that spits out from adocument system or document service. In other sectors of thelending industry, loan documentation is inextricably related tounderwriting.

Some clients provide me underwriting memoranda. I may gaininsight from what is in the underwriting memorandum. Sometimes theprovision of a commitment is further amplified by what is in theunderwriting memorandum and this will drive provisions of the loandocuments, of preparation of special documents.

It is particularly important for lawyers to be involved incommunicating with underwriters prior to commitment on certainissues. Some of these issues include does the lawyer have anyinsight as to a legal hurdle that may preclude the loan fromclosing and with special escrows, are there special issues, and ifso, how should they be handled. Other issues can involve parcelreleases, properties unleased, letter of credit issues, groundlease transactions, and single tenant properties.

Good outside counsel may frequently provide input howunderwriting problems can be resolved, so that lenders may helpmake the loan. In some instances, I may be drawn intopre-commitment review of matters such as special title matters orground lease matters. In these instances, I am able to makespecific recommendations that make it possible for a particularloan to be approved or documented correctly.

The hyphenated loan closing stanza at the start of this articlelinked the words commitment and loan documentation. The commitmentwill define loan documents. No one understands why battles mayarise post-commitment, but usually it's because certain problemsand solutions were not clearly covered at the commitment stage.

Going back to the premise that your lawyer can be a deal makerrather than a deal killer requires a closer look at a commitmentfrom a borrower's point of view. If not negotiated carefully,the borrower will lose right to negotiate certain issues in loandocuments. The commitment fee has been paid. Theborrower cannot negotiate, and later claim that it did notunderstand matters. Borrowers will live and die by thecommitment.

Even when borrowers do not have legal counsel, lenders mayconsider use of outside legal counsel at the commitmentstage. Based upon the way certain issues are framed in thecommitment, we might tighten some of the issues, and better protectthe lender.

Gordon L. Gerson is managing principal ofGerson Law Firmin San Diego. He can be reached at (858)869-8686 or [email protected].