day due diligence period B u s i n e s s F i n a n c e
Each of the short-answer questions can be answered in two or three paragraphs of three to five sentences each. You may write more if you wish, but do not write an entire essay. The objective of the short-answer questions is to communicate knowledge of the subject, not writing ability
1. You are the lender making a loan to a purchaser of real estate located in New York City. The purchaser is paying $100 million and you are lending $60 million. The balance of the purchase price will be paid in cash by the purchaser. Your purchaser will give you the following documents: 1. Mortgage Note; 2. Loan Agreement; 3. Mortgage; 4. Assignment of Leases and Rents; and 5. Security Agreement. Describe three of the most important terms of the loan that should be reflected in each of the loan documents. (Hint: Two items that should be on your list are the interest rate and the maturity date. Be specific and indicate amounts, percentages and dates, where applicable.)
2. You are the escrow agent for the deposit under a contract for the sale of real estate. The purchase price for the real estate is $100 million and the deposit is $10 million. The contract features a 30-day due diligence period, at the end of which the purchaser may elect not to proceed and to terminate the contract. If the purchaser makes this election, he may give you notice to return his security deposit. In fact, the purchaser makes the election and gives you the required notice to return his security deposit. At the same time, the seller gives you notice that says that the purchaser has defaulted in his obligations under the contract and instructs you not to pay the deposit to the purchaser, but instead to pay the deposit to the seller. In no more than three paragraphs, describe how you will deal with the situation and what you will tell each of the seller and purchaser. (Hint: Your actions as escrow agent are most probably governed by some document that you signed.)
3. You and your brother, Matthew, are the owners of a commercial office building in Manhattan. Your brother’s son, John, just graduated from law school. John is not very bright and he’s having some trouble finding a job. Your brother complains every day that he wishes his son could find a good job. “If only John had some experience, he would be in a better position to find a permanent job.” You know where this is going, so you say nothing. Several weeks later, you and Matthew receive an extraordinary, unsolicited offer to sell the office building for $100 million. You tell Matthew that you are going to call Marc Shapiro to prepare the contract. “He’s expensive, but he’s good,” you tell your brother. The next moment, you see a light bulb over your brother’s head and he’s beaming. “I have a great idea,” your brother says, and you are immediately filled with dread and despair. “We can have John represent us in the sale of our office building! Think of how much money we can save if we don’t use Marc Shapiro.” A gentle debate ensues, but Matthew prevails and John is your new attorney. (Marc Shapiro is sad because this happens to him all the time.) You decide that it can’t hurt to give John a little guidance. You know that you will be required to obtain and deliver to the purchaser various documents and approvals, each as a condition to the purchaser’s obligation to close and pay the purchase price for your building. You tell Matthew that you are going to give John a list of ten (10) items that the seller should expect to deliver as conditions to closing. Matthew agrees. Write your list below. (Hint: full credit will be given for any ten correct items. Incorrect items will not earn credit, but the grader will read up to 20 items. Therefore, be sure to include as many items as you can, but not more than 20.)
