Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

Loaning to Individuals, Trusts, Partnerships, LLCs, and Corporations

Individual Parties and Entity Borrowers

by Dan J. Harkey

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Introduction:

Lenders and title insurers require different documentation depending on the type of Borrower.  Individual borrowers consist of one or more parties, including married couples and other related entities.  Title to a property for individuals may be held as tenants in common or joint tenants.  Entity borrowers include general partnerships, limited partnerships, limited liability companies, and corporations   Family trusts are not entiti, es buthey t have loan underwriting documentatiosimilar to thatse of entities.   That is why I have included trusts.

The following is an overview of the methods and documentation for properties owned by individuals, family trusts, and entities.  Emphasis is placed on entity borrowers.

Individuals:

An individual’s method of holding title is memorialized in the recorded grant deed.  This can be found when downloading a property profile from a title company.

If a title is held in the names of one or more individuals, each will have a separate application and must sign the disclosures and loan documents.  If a husband and wife hold the title as joint tenants with rights of survivorship, there is only one application, and both parties must sign it.

As I discuss family trust and entities, I refer to California regulations.  Each state has its own laws, which are easily accessible.  Separate state regulations differ in specific ways.

Family Trusts:

As a matter of law, only the trustees can hold legal title to real property, not a family trust.  The trustee owns the property on behalf of the trust.  Unlike a company (entity), a family trust is not a separate legal entity.  It can only function in the direction of the trustee.  The trust document is an agreement between the key parties of the trust that defines the trustee’s authority to act on behalf of the trust.

The trustee is authorized to sign documents on behalf of the trust and is responsible for providing Lendernder with the necessary trust documents.

https://www.taxes.ca.gov/Income_Tax/limitedpartbus.html

Family trusts are not recorded with the municipal records office or registered with the Secretary of State.  They are considered private agreements between the parties.

Who are the parties to the family trust?

The trust agreement will define the terms and relationships of the parties regarding the trust assets, including the grantor, trustee, and beneficiary.

Grantor or Trustor:

Every trust has one or more grantors who convey the property to the trustee.  The trust agreement will state the terms of the trust.

Trustee:

The trustee or trustees receive and hold the property for the benefit of the beneficiaries.

The trustee is the legal owner of the property but must use the assets for the benefit of the beneficiaries.  The trustee owes fiduciary responsibilities to the beneficiaries, including duties of loyalty and care.

The grantor and trustee may be the same person, and the trust can be created by declaring that they are both parties and holding the assets in the trust to benefit the beneficiaries.

The trustee may be an individual or an organization.  A trust typically provides for both a trustee and successor trustees.  Rust companies and banks have specialized subsets of entities that act as trustees in addition to conducting their banking business.

Beneficiary:

The beneficiaries have equitable ownership but lack control, as the trust was established to hold the assets in confidence, which will be distributed to them upon the trust’s dissolution.

  • Original trust agreement and all amendments
  • Lenders, lawyers, and title companies have differing opinions on whether a lender or title company should obtain the entire trust document and thoroughly review it.  Or do you know whether the statutorily authorized Certificate of Trust (discussed below) should be the sole source of information to be used?  The statute provides that possessing four trust documents rather than the complete document is satisfactory to prove that Lendernder has actual knowledge.

Trust certification(Probate Code section 18100.5)

Some Lenders only request four sections from the trust: the title page, the trustee identification page, the signature page, and the powers page, along with any amendments.  Some, including me, suggest that this is a poor business practice.

  • A trust certification may be prepared by a lender, the trustee, or an independent source, such as a title company, to record it.  The prepared and executed document certifies the identities of the trustors, trustees, and beneficiaries.  It establishes the authority to borrow, provide information, and sign loan documents.  As part of Probate Code section 18100.5, the certification protects lenders who rely on the information it contains.  However, a lender can only rely on the trust certification.  Lendernder is confident that the matters outlined in the certification are accurate and complete.
  • Suppose a lender agrees to accept a trust certification that does not require including excerpts from the original trust documents, any amendments, or any other documents evidencing or about the succession of successor trustees.  In that case, material facts may need to be included.  Dispositive (deciding the matter finally) provisions of the trust deed do not need to be attached.
  • Obtaining a copy of the entire trust and any amendments is not only best practice, but it is also a crucial step in the process.  The trust document should be thoroughly reviewed to understand who the trustors, trustees, and beneficiaries are, as well as the rights, responsibilities, and benefits of each.  This understanding will make sure you are fully prepared for the transaction.
  • A lender should ask for copies of excerpts from the original, any amendments to it, and any other documents that designate evidence about the trustee’s succession or confer upon the trustee the power to act in the pending transaction.
  • How does trust relate to the subject property?  Does the trust give authority to the trustee or a successor trustee to borrow on behalf of the trust?  Does the trust give authority for one or more trustees to borrow, submit information to a lender on their behalf, and sign the related documents encumbering the subject property?  The purpose of reading the trust document, and especially the amendments, is to determine if the Trustor, trustees, and beneficiaries have changed.  The powers and authorities may have changed, and successor trustees may have replaced deceased trustees.   Also, conflicts may arise between successor trustees.
  • Caution: A lender who demands trust documents in addition to a certification of trust to prove facts outlined in the Certificate of trust acceptable to the third party shall be liable for damages, including attorney fees, incurred as a result of the refusal to accept the certification of trust instead of the requested documents if the court determines that the person acted in bad faith in demanding the trust documents—a lender shouldattempty to negotiatefore the entire trust document and all amendments.

Partnership's types:

There are various types of partnerships, each with its own distinct documentation requirements.  We will only discuss general partnerships and limited partnerships.

  • General Partnerships.
  • Limited Partnerships (LPs)
  • ForeiLPs LimitedPartnership’sp’s
  • Limited Liability Partnerships (LLPs)
  • Foreign Limited Liability Partnerships

General Partnerships

A general partner’s authority can be classified in one of several ways:

  • Apparent authority: any partner acting alone if the transaction is in the ordinary course of business (mortgage loan not likely to qualify).  The limitation on authority is not applicable if it is disclosed in the Partnership's agreement.

Actual authority: any one or more partners expressly authorized by all other partners under the Partnership's's's’s agreement or other approval.

How does a lender establish the partner’s authority to act on behalf of the Partnership's's's (GP-1) if one has been filed with the Secretary of State?  Filing a GP-1 has become more common in recent years.  If one exists, it can be recorded with the county recorder.

https://www.sos.ca.gov/business-programs/business-entities/faqs

  • Copy of the General Partnership Agreement.  Most Real Partnership's's's agreement.
  • An option is to obtain the Borrower’s attorney’s legal opinion on the Partnership's's identity, as well as the partners’ authority to sign.  Please note that details are outlined elsewhere.

Obtain a Partnership's's’s resolution, signed by all general partners, specifying approval of the loan and authorizing and directing a particular general partner(s) to execute all appropriate documents necessary to conclude the loan.

  • Obtain a notarized Certificate of Incumbency under the penalty of perjury, signed by all partners, certifying:
  • The Partnership's's's is validly organized, exists, and is in good standing under the laws of California or similar laws in other states.
  • The Partnership’s agreement, attached to the Certificate of Incumbency, governs the Partnership.  The Partnership's' agreement has not been amended, superseded, or modified in any way, or, if it has, all such changes are attached to the original.
  • There is no litigation pending or threatened against the Partnership's, including the addresses, telephone numbers, and email addresses of its principals and all partners.
  • That the partners listed have full authority and power to encumber the real and personal property of the partnPartnership out any further requirements or consents from any other party or entity (then list the parties with such authority), citing the provisions of the Partnership's agreement that give them such authority (then, check the section of the Partnership's agreement giving them such authority and read it to make sure it says what they say it says).
  • Agreeing that the executed loan documents will constitute the Partnership's legally binding obligations and will be enforceable against the Partnership in accordance with their respective terms.
  • Spousal consent.  If one or more partners are married, the Partnership's agreement should include spousal consent.  If not, Lendernder may consider obtaining the loan.
  • UCC-1 lien and judgment searches include the names of all general partners and personal guarantees.  General partners are already personally liable and cannot guarantee their debts.  Therefore, A guarantee provides minimal protection.

How are the parties to sign?

Standard signature block:

Bunker & Stick Partnership’s

a California general Partnership's

By:

Archie Bunker

General Partner

Is one of the partners an entity?   (If so, verify the formation and authority of the partner entity as you would any other entity.)

Signature block with one of the partners being an entity:

Sanford & Son

a California general Partnership's,

By: Sanford & Sons, A California Corporation,

Its General Partner

By:

Fred Sanford.

Its President

By:

Lamont Sanford

Its Secretary

A Limited Partnership's is a collaboration in which there may be one or two general partners, and the remainder of the partners are considered limited partners.  General partners have the authority to operate the business and Act on its behalf, while limited partners have little or no involvement in management.

General partners are liable for their decisions on behalf of the company.  Limited partners are generally not liable for the actions of the general partners.  However, for those who have gone to court often, the court system usually finds some deviation from following the written law.

https://www.law.cornell.edu/wex/limited_partnership

  • A lender should obtain:
  • The Secretary of State should obtain a Limited Partnership's Certificate (LP-1).  Ascertain its good standing with the Secretary of State.
  • The Limited Partnership's Agreements should be reviewed for borrowing requirements and limitations.
  • https://www.taxes.ca.gov/Income_Tax/limitedpartbus.html
  • The names, addresses, phone numbers, and email addresses of all General and Limited Partners should be obtained.
  • The street addresses of the Partnership's places should be designated.
  • All Partnerships’ documents should be reviewed to determine restrictions on borrowing and the procedures partners follow to authorize borrowing.
  • A resolution of all general partners should authorize the Partnership's's's to undertake the borrowing and authorize specific general partners to execute the loan documents.  Usually, limited partners have no say in managing the Partnership's's’s affairs.  There may be particular restrictions that could also require the signatures of all limited partners.  For example, some LPs limit the assets of the Limited Partners without their permission.
  • A Certificate of Incumbency that identifies all general and limited partners should be obtained.

Authorized agents of the limited Partnership have the sole right and authority to bind the limited Partnership.   However, the Partnership's agreement may limit the general partner’s power.  For example, certain loans may be prohibited.  There may also be limited partner consent rights to specific actions.

  • How should the signature blocks look?

Standard Signature Block:

The Stoic’s LP, a CaLP limited Partnership’s

By: Gloria LPic, General Partner

A general partner may be an entity, such as a Corporation, LLC, or limited Partnership.  To verify the formation and authority of the general partner entity, what steps should be taken?

Non-Standard Signature Block accommodating entity general partners:

The signature block should look something like this:

The Jefferson Family, a California limited Partnership

By: Wezzy Inc., a California Corporation, its General Partner

By: Louise Jefferson

UCC-1 lien and judgment searches are available on the names of all partners and the Partnership's', as well as on the Secretary of State’s website.

https://www.sos.ca.gov/administration/news-releases-and-advisories/2020-news-releases-and-advisories/ap20070-secretary-states-office-launches-new-uniform-commercial-code-web-portal

Limited liability company (LLC)

Limited liability companies are for-profit entities with ownership divided into types.  Like a Partnership, the managing members manage the company, while the non-managing members are referred to as members.  The rights, responsibilities, title, and interests are defined in an operating agreement.

A lender should obtain:

  • A certified copy of the Articles of Organization (Form LLC-1), including any amendments, from the Secretary of State.
  • Request a certified copy of the Articles from the Secretary of State.
  • The Articles will define, among other things, whether the LLC is single-manager-managed, multiple-manager-managed, or member-managed.  The type of management will determine who is required to sign the loan documents.

A lender may order here:

Request a good-standing letter (Certificate of Status) from the Secretary of State.  Please don’t make the loan if the LLC is not in good standing.

Lendernder can order here:

htLenderww.sos.ca.gov/business-programs/business-entities/information-requests#certs

If the LLC is foreign (from another state), obtain a certified copy of the Certificate of Status from the California Secretary of State showing that the LLC has registered with the State of California and is qualified to do business in the State of California.  If not, do not make the loan.

Lendernder may order here:

htLenderww.sos.ca.gov/business-programs/business-entities/information-requests#certs

  • Could you obtain a certified copy of the current Statement of Information that is currently filed with the Secretary of State?  This document lists the managers or members of the Statement, as well as the date the Statement was signed; however, it is not conclusive.  Only the complete, amended operating agreement can determine who is authorized to sign on behalf of the company.

Lendernder may order here:

Could you obtain a copy of the Operating Agreement, certified by the Member(s)//Manager (s), including any amendments?

  • Operating Agreement.  The Operating Agreement outlines the rules governing the LLC and its operational procedures.  It is similar to the laws governing corporations.  A lender will generally find the following information in the Operating Agreement, although, technically, a written operating agreement is not even required:
  • The management structure of the LL is whether it is member-managed or manager-managed.
  • Are there any limitations on borrowing, and what steps are required to authorize borrowing?
  • Any restrictions on pledging collateral.
  • Designation of the Members and, if it exists, the Manager (s) and designation of the ownership interests in the LLC.
  • Any additional requirements, such as voting requirements, for the LLC to borrow money or convey property.
  • Delineation of the required persons to execute the loan documents.
  • Could you obtain a Certificate from all Member (s)/Manager(s) stating that the Operating Agreement is current and complete, as attached to the Certificate?

Please review the powers and authorities sections of the Operating Agreement and the Articles of Organization to determine who is authorized to sign for a loan, whether there are any limitations on the type or amount of loan that can be obtained, and whether additional signatures are required.

Obtain a Borrower’s Opinion of Counsel Letter if the loan is significant or complicated.

If the loan is complicated or involves a substantial sum, Lendernder may want to obtain Lendernal assurance; it may be prudent to seek the Borrower’s opinion.  This opinion usually discusses and opines as to many things, most often including the legal capacity of an individual and signatories, the proper formation of the entity, authorization and authority to deliver and execute the loan documents, lack of conflict with other contracts, judgments, orders, etc. to which the entity is a party or bound, lack of litigation,““no usury” representation, the enforceability of the loan documents, and many other possible representations.  It should be addressed to the lenders and originating brokers for reliance purposes.

  • Obtain a Resolution signed by the appropriate Member(s)/Manager(s).  Member resolution.  A resolution signed by all members of the LLC authorizes the proposed borrowing or, if the LLC is manager-managed, a resolution signed by the Manager.  Could you read the operating agreement for restrictions?   The borrowing resolution should authorize the LLC to enter the borrowing transaction and allow the appropriate members or Manager to sign any loan documents on behalf of the LLC.
  • Federal tax returns (required by institutional lenders but not typically required by private money lenders).
  • Personal Guarantees.  A Borrower cannot guarantee their loan.  A separate person or entity must sign the guarantee. Watch for the sham guarantee issue.   An excellent supplement to a loan application package and business purpose declaration will often help distinguish between absolute and sham guaranties.
  • https://www.natlawreview.com/article/california-appellate-court-narrows-scope-sham-guaranty-defense

Determine which parties must sign the loan documents:

From the documents above, Lendernder can determine proper signatories.

  • There are certain presumptions in the California Revised Uniform Limited Liability Company Act (the “Act,” effective 1 January 2014) as to parties signing on behalf of the LLC.    These presumptions are based on similar presumptions regarding corporations.  The presumptions validate the authority of the persons or entities listed as acting on the LLC’s behalf.   The actions are valid unless the third party, in this case, Lendernder, is aware that the Lender signer’s lack of authority.
  • https://codes.findlaw.com/ca/corporations-code/corp-sect-17703-01/
  • These presumptions are found in section 17703.01.  These provisions state:

17703.01   (a) Unless the articles of organization indicate the limited liability company is a manager-managed limited liability company, every Member is an agent of the limited liability company for its business or affairs.  The acActf any Member, including, but not limited to, the execution Actthe name of the limited liability company of any instrument, for the apparent purpose of carrying on in the usual way the business or affairs of the limited liability company of which that person is a Member, binds the limited liability company in the particular matter unless the memMember acting has no authority to act for the limited liability company in the specific matter and the person with whom the memMember dealing has actual knowledge of the fact that the memMembers no such authority.

If the articles of organization indicate that the limited liability company is a manager-managed limited liability company, each of the following applies:

No Member acting solely in the capacity of a Member is an agent of the limited liability company, nor can any Member bind or execute any instrument on behalf of the limited liability company.

Every Manager is an agent of the Limited Actability company for its business or Actairs.  The acActf anyManagerr, including, but not limited to, the executionAct the name of the limited liability company of any instrument for apparently carrying on in the usual way the business or affairs of the limited liability company of which the person is a Manager, binds the limited liability company, unless the Manager so acting has no authority to act for the limited liability company in the particular matter and the person with whom the Manager is dealing has actual knowledge of the fact that the Manager has no such authority.

No act of a Manager or Membe, orr contravention of a restriction on authorit,y shall bind the limited liability company to persons having actual knowledge of the limitation.

Notwithstanding the provisions of subdivision (c), any note, mortgage, evidence of indebtedness, contract, CertifStatementatement, conveyance, or other instrument in writing, and any assignment or endorsement thereof executed or entered into between any limited liability company and any other person, when signed by at least two managers, or by one Manager in the case of a limited liability company whose articles of organization state that only one Manager manages it, is not invalidated as to the limited liability company by any lack of authority of the signing managers or Manager in the absence of actual knowledge on the part of the other person that the signing managers or Manager had no authority to execute the same.

  • Could you confirm who has authority as assumed under section 17703.01 of the Act?
  • Suppose a lender decides to confirm the authority of the authorized signatory under the Act.  Inn that case, Lendernder should review the following documents, ensuring the records are accurate and up to date to the best of their ability.
  • Review the Articles of Organization, the Operating Agreement, and the Statement of Information (remember, the SOI is not determinative of who is entitled to sign).  The current organizational documents (Operating Agreement and Articles of Organization) will tell you who has the authority to sign.
  • Determine what type of LLC it is:
  • Is the LLC a Sole Member LLC?  (Check the Articles of Organization and the Operating Agreement).
  • If so, the Sole Member has complete power to take all actions on behalf of the LLC, including signing for loans.  You will only need the Sole Member’s signature.
  • A lender may request appropriate resolutions and a Certificate of incumbency.  See below.
  • Is the LLC a multi-member managed LLC?
  • There is a presumption that any managing Member can act on behalf of the LLC.  Absolute authority is defined and limited in the Operating Agreement.  Please review the Operating Agreement to determine who must sign on behalf of the LLC and for what purpose.  Certain restrictions may apply to real estate loans, including whether they can be obtained and whether there are dollar amount limitations.  While not always possible or legally required, the lender/broker may want to consider obtaining consent from all members for the loan in the form of authorization for the signing Member(s) to sign.  This may help in preventing authority problems down the line.
  • Is the LLC managed?

The Manager is authorized to sign the loan documents in accordance with the terms of the operating agreement.  He is presumed to have the authority under Section 17703.01(b) and (d) of the Ac.  Actual knowledge that the signers lack authority can invalidate the loan documents.  One must examine the Operating Agreement for restrictions on extraordinary items, such as real estate loans.  There may be restrictions on the amount or type of loan that can be obtained with just the Manager’s signature.  Member consent may also be required.   It is a best practice to have all members) Sign the resolution authorizing the loan so that it cannot be challenged.

  • If the LLC is Manager Managed:
  • Is it a multi-manager-managed LLC or a sole-manager-managed LLC?
  • If multiple managers manage the LLC, have at least two managers sign.  Lendernder will benefit from the statutory presumption.

Are there any restrictions on the Manager’s ability to sign for loans?  Please review the Operating Agreement.

A similar vetting process must occur if the Manager is an entity, e.g., (e.g., TrustC, Corp, Trus).  Please review the organizational documents, resolutions, and an incumbency Certificate that confirms the individual(s) signing on behalf of the Manager are authorized to serve as the LLC Manager and sign LLC documents as such.

  • Obtain a notarized Certificate of Incumbency (sample illustrative form attached at the end of this presentation) under the penalty of perjury from all Members and Managers as listed in the Operating Agreement (as it may be amended) filled out in the hand of the MembeMember anager(s), certifying that they are the only Member(s) and Manager(s) of the LLC.
  • The LLC is fully and validly organized, existing, and in good standing under the laws of the State of California.
  • The Operating Agreement attached to the Certificate of Incumbency is the agreement currently in effect, governing the LLC.
  • The Operating Agreement has not been amended, superseded, or modified in any way, or, if it has been, all such changes are attached to the original Operating Agreement.
  • There is no litigation pending or threatened against the LLC.
  • The principal address of the LLC.
  • The telephone numbers, email addresses, and home and business addresses of alMembereManager er(s).
  • That the Member(s)/Manager(s) listed have full authority and power to encumber the real and personal property of the LLC without any further requirements or consents from any other party or entity (then list the parties with such authority), citing the provisions of the Operating Agreement that give them such authority (then, check the section of the Operating Agreement giving them such authority and read it to make sure it says what they say it says).
  • Upon signing, the loan documents will constitute valid, legally binding obligations of the Borrower that are enforceable against the Borrower, subject to their respective terms and conditions.

How are the parties to sign?

Is the MeMembern individual?

Archie Bunker Media Company, a California limited liability Company

By:

Edith Bunker, Managing Member

(If multiple Members, all should sign.):

By:

Archie Bunker, Member (etc. for additional members)

  • Are the Members or the Manager an entity?
  • If so, the duplicate Certificate and resolution process must be followed regarding that entity to ensure that the person signing on behalf of the Member or Manager is appropriately authorized to sign the document.
  • The signature block should read something like this, modified for the circumstances if the Manager is an entity:
  • Archie Bunker Media Company, a California limited liability company
  • By:__________________
  • By: Tidbit Corporation,
  • Archie Bunker, President.

Corporations:

  • Many corporate entities, including stock, non-profit, religious, and public benefit organizations.  For each of them, Lendernder should verify that the Corporation is validly formed and in existence, and select the proper signatories for the loan documents.  For those purposes:

The lenders should obtain:

  • A certified copy of the Articles of Incorporation, including the Corporation’s name, from the Secretary of State.
  • Request a certified copy of the Articles from the Secretary of State.
  • The articles will provide you with the Corporation’s name, purpose, addresses, and other minor information, such as stock details.
  • Lendernder may order Lende:
  • http://www.sos.ca.gov/business-programs/business-entitiesCorporationn-requests#certs

Request a good-standing letter (Certificate of Status) from the Secretary of State.  Please don’t make the loan if the Corporation is in good standing.

If the Corporation is foreign, obtain a certified copy of the Certificate of Status from the California Secretary of State, the form entitled Statement and Designation by Foreign Corporation (or some earlier version of that document) showing that the foreign Corporation has registered with the State of California, and is qualified to do business in the State of California.  If not, do not make the loan.

 Could you provide a Secretary’s copy of the Bylaws, certified by the Corporation’s Secretary, including all amendments?

  • If a lender would like to go above and beyond, please obtain the Certificate signed by all shareholders, stating that the Bylaws, including any amendments, are current and complete, as attached.

Review the powers and authority sections of the Bylaws, along with the Articles of Incorporation, as amended, to determine who is authorized to sign for a loan and whether there are any limitations on the type or amount of loan that the Corporation can obtain, or if there is a requirement for additional signatures.  For example, there may be a limitation on encumbering the Corporation’s shareholders.  If Lendernder has a concern, Lendernder can obtain a certified copy (by the Corporation) of the original minutes of the Corporation’s first organizational meeting.  This should, or will, show who was issued shares of the Corporation, who the original officers were, and who the original directors were.

Obtain a notarized, signed under penalty of perjury Certificate of Incumbency and Representations affirming the officers, directors, and shareholders to act on behalf of the Corporation and affirming certain other matters, such as the lack of litigation affecting the property or the Corporation   This form should be signed by all current shareholders and certified by the Secretary, thereby confirming that the parties outlined in the Certificate are authorized to sign the loan documents and agree to the specified other matters.

  • Obtain the Borrower’s Opinion of Counsel Letter if the loan is significant or complicated.
  • If the loan is complicated or is in a large enough sum, or if you want to add safety to the transaction, obtaining an opinion from Borrower’s counsel may be prudent.  This opinion usually discusses and opines as to many things, most often including the legal capacity of an individual and signatories, the proper formation of the entity, authorization and authority to deliver and execute the loan documents, lack of conflict with other contracts, judgments, orders, etc. to which the entity is a party or bound, lack of litigation,““no usury” representation, the enforceability of the loan documents, and many other possible representations.  It should be addressed to the lenders AND THE BROKER for reliance purposes.  This letter serves as a welcome confirmation of your Corporation’s signers’ authority, as discussed in the letter.

Obtain a resolution from the Secretary of the Corporation authorizing the borrowing of funds represented by the Loan Documents and directing the person signing the documents to execute them.

Determine who must sign the loan documents:

  • They should be able to determine the proper corporations from the documents above.
  • Certain presumptions are found in Corporations Code section 313 regarding corporations signing on behalf of the Corporation.   The presumptions validate the authority of the persons or entities listed on the Corporation’s behalf.  The actions are valid unless the third party, in this case, Lendernder, is aware that the endorser lacks authority.  These presumptions are found in section 313.  These provisions state:

313 Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share Certificate, initial transaction statement or wStatementatement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any Corporation and any other person, when signed by the chairman of the boarCorporationident or any vice President andCorporationary, any assistant Secretary, the chief financial officer or any assistant treasurer of suCorporationion, is not invalidated as to tCorporationion by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.

So, if you have one of the following: Chairman of the Board, President, Vice-President, and one of the following: Secretary, Assistant Secretary, Chief Financial Officer (or Treasurer), or Assistant Chief Financial Officer (or Assistant Treasurer), you will have the benefit of the presumption of authority.  This is a good thing.  You can get two signatures, one from each group, and you have done an outstanding job securing the authority to sign.

  • Could you confirm who has authority as assumed under section 313?
  • To confirm the authority of the authorized signatories under the Code, you should review the documents below after ensuring that the records are accurate and current to the best of your ability.

Review the Articles of Incorporation, the Bylaws, and the Statement of Information (remember, the SOI is not determinative of who is entitled to sign).  The current organizational documents (Bylaws and Articles of Incorporation) will tell you who has the authority to sign.

Obtain a notarized Certificate of Incumbency under the penalty of perjury, signed by all Secretaries, Directors, and Key Officers, President (CEO), Secretary, CFO (treasurer), the Corporation’s and Stock Ledger (as it may be the Secretary’s copy), in the hand of the shareholders or Secretary, certifying.

  • They are the Corporation’s only shareholders, officers, and directors.
  • TCorporation is fully and validly organized, existing, and in good standing under the laws of the State of California.
  • The laws attached to the Certificate of Incumbency are currently in effect and govern the Corporation.
  • The Bylaws have not been amended, superseded, or modified in any way.  For the Corporation, all such changes are attached to the original Bylaws and the Certificate of Incorporation.
  • There is no litigation pending or threatened against the Corporation.
  • The principal address of the Corporation.
  • The California Secretary of State issued the corporate number.
  • The telephone number and email address of all shareholders, officers, and the Corporation
  • That the officers/directors listed in the Certificate have full authority and power to encumber the real and personal property of tCorporationion without any further requirements or consents from any other party or entity (then list the parties with such authority), citing to the provisions of theBylawss that give them such authority (then, check the section of theBylawss giving them such authority and read it to make sure it says what they say it says).
  • Agreeing that the Loan Documents, when signed, will constitute valid, legally binding obligations Borrowerorrower and will be enforceable against Borrowerorrower by their respective terms.
  • How are the parties to sign?
  • When a Corporation signs, Lendernder should have the President and the Secretary (or two others, one from each group as discussed above) sign.
  • A typical corporate signature block looks like the following.  There should be little reason to deviate from this standard. Gain, there should be two signatures, not just one.

Blazing Saddles Corporation,

A California Corporation,

By:

Bart Sheriff

Its President

By:

Mongo Jerry

Its Secretary

As with all loans, a lender should prepare escrow instructions with authorization for the escrow/title company to close only when the escrow has determined that the loan documents have been appropriately signed by all required parties who are authorized to sign.

Current loan documentation for each Borrower and entity requires specialized knowledge from both the lender and the closing team.  In most cases, lenders will hire counsel specializing in real estate law.  Refrain from attempting to circumvent the best practices of hiring specialists to complete the job.