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Business Entities: A Peek Behind the Underwriting Curtain
Underwriting requirements can slow down a closing, especially if you, as the real estate agent, do not have the requisite documents or, even worse, don’t understand why the underwriter is asking for them.  Here’s a look at what the underwriter needs to insure transactions where at least one party is a business entity.  Spoiler Alert: The underwriter wants to say yes and give you that “Clear to Close!”

The two main areas of concern for underwriting:

Existence – Has the entity been properly/legally formed?  Has the entity been dissolved or its status suspended or terminated? 

Authority – Who has the authority to bind the entity?
 
Specific types of entities and the usual requirements:

Corporations
  • Obtain a copy of the organizational documents and proof of formation.
  • Obtain a certificate of good standing (status with the Department of State will suffice).
  • Depending on your state, obtain a corporate tax certification.
  • Obtain proof relevant to your area confirming the name and title of the signing officer.
General Partnership
Obtain a copy of the general partnership agreement.
  • Who are all the partners?
  • Any restrictions on their ability to act?
  • Where necessary, run a search on the partners?
Limited Partnership (LP)
Obtain a copy of the LP agreement and proof of formation.
  • Who is the General Partner that will sign?
  • Often the General Partner is also an entity – you will need the proper documents for it as well.
Limited Liability Company (LLC)
  • Obtain a copy of the Operating Agreement for LLC.
  • Confirm LLC is in good standing with the state in which it was formed.
  • Depending on your state, obtain a corporate tax certification.
  • Review and analyze authority/resolution for the person(s) executing the Deed/Mortgage.
    • You may need ALL stockholders, limited partners, or LLC members to execute or at least consent for transactions not in the ordinary course of business (e.g. sale of only asset or Deed in Lieu).
    • What if the entity is dissolved? – typically, state laws allow an entity to enter into a sale for the purpose of “winding up its affairs.”  Consult your local underwriter for specific state questions.
    • What if the entity acts under a DBA? – Each state has their own rules.  Typically, a legal entity or a sole proprietor can use a DBA, or assumed business name but any legal transaction (such as the conveyance of property) would still require the legal name of the owner/entity. 
The reason for these requirements is that title insurance protects the new owner or lender against the risks that the seller or borrower did not exist and lacked the capacity to grant an interest in the subject property, or that its officers, partners or members acted without proper authority.

Adapted from any article on titleresources.com by Janelle Rosenbaum.

This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice.  You are encouraged to consult your legal, tax or investment professional for specific advice.  The material is meant for general illustration and/or informational purposes only.  Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. 

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