Top Five Questions Asked In Order To Close a Commercial Escrow

The top five most frequently asked questions for a seller on a commercial real estate transaction.

The requirements vary on each transaction depending on property type and terms of the deal. However, there are a few items that are consistently needed in order to close a commercial escrow. Here are my top five:

1. Entity Documentation. Oftentimes commercial real estate is owned under an entity, Whether that entity is a corporation, partnership, limited liability company, or even a trust, as a title insurance company, we will request certain documents for review. These include, but are not limited to bylaws, resolutions, operating and partnership agreements, and trust agreements. We will review the documents to confirm who is authorized to sign on behalf of the entity and if the entity has the power to sell real property. Sometimes, we will ask for more documents once our initial review is complete. We will also need to confirm the entity is property formed and in current valid status in the domicile state. This includes requesting articles of organization or incorporation and a certificate of good standing.

2. Existing Encumbrances. After conducting a title search, we may request additional information to clear exceptions on the title report. The most common request is if the seller has a current loan to be paid off through the closing. Others may include an old loan that was paid off previously and not property reconvened. There may also be assessments, liens, judgments, or other obligations.

3. Income and Expenses. In preparing the settlement statement, we will ask seller or representative for further information on the property. Is there rental income, deposits, CAMs or recurring expenses that we would need to prorate between parties through the closing. We will need to know if any of the tenants pay taxes or other traditionally prorated expenses so we would not include those as well.

4. Exchange. We will inquire if seller is effecting a 1031 tax deferred exchange. We will confirm with the exchange accommodator that we are complying with the exchange instructions to property meet the IRS requirements.

5. Logistics for Signing. In some cases, we will need to make arrangements for a seller to sign with a company approved notary. We will ask if the seller is local and can come into our office to sign or if we should coordinate with our notary service for mobile signing appointment.

Next month I will share my top five most frequently asked questions for a BUYER on a transaction.

Shoot me an email at michele@seiboldgroup.com if we can answer any questions you may have.