CHAPTER 15.11. Article 9 Opinions

• Jurisdiction: United States

15.11. Article 9 Opinions¹⁵⁷

[1] General

In many routine real estate finance transactions, opinions when given on security interests are limited to U.C.C. collateral that is fixtures.¹⁵⁸ The 2012 Report notes that "express opinions on security interests in personal property other than goods that ... are to become fixtures are not appropriate in real estate secured financings unless the personal property is an important part of the collateral."¹⁵⁹ However, some commercial real estate financings require opinions not only on real estate and certain real estate related collateral but also on personal property¹⁶⁰ when that is an important part of the security for the loan, including deposit accounts and investment securities (which may include entity interests in non-corporate entities pledged in mezzanine financing).

What follows is not a comprehensive guide to all U.C.C. opinions, but presents basic building blocks for such opinions typical of real estate finance transactions. It also provides references for closer review of the subject matter.¹⁶¹

When personal property is included in a real estate financing, a security agreement may be incorporated in a mortgage that is to serve as both a mortgage of real property and a security agreement not only as to fixtures but also as to personal property collateral.¹⁶² Alternatively, the security interest in personal property collateral may be covered in a separate document that is a security agreement focusing more specifically on personal property collateral. Frequently, each type of document is a separate transaction document, and counsel is sometimes asked to provide opinions as to security interests in both real estate collateral and non-real estate collateral under one or both such documents. For convenience, this section will refer to both a mortgage and a security agreement as a security agreement.

When given, opinions about creation, attachment, and perfection of U.C.C. collateral security interests are usually separately expressed in a third-party opinion letter. They are not implicit in an enforceability opinion.¹⁶³

In addition, commercially available title insurance will insure attachment, perfection, and priority of a secured party's Article 9 security interest in personal property. Title insurance may be considered in lieu of providing or requesting legal opinions and may provide more comprehensive coverage than a legal opinion.

Fixtures¹⁶⁴ are likely present in all real estate transactions involving improved real estate. As laws in most states allow for the creation of mortgage liens in fixtures as real property, the execution and delivery of a sufficient mortgage granting a lien on real property will inherently grant a real property lien on the fixtures.¹⁶⁵ If the mortgage or a separate security agreement grants a security interest in goods that are or are to become fixtures, then a U.C.C. security interest has also been created.¹⁶⁶ Subject to the U.C.C.'s choice of law rules, the parties may agree that the law chosen to govern the mortgage also governs the creation or attachment of a security interest in fixtures.¹⁶⁷ The law of the jurisdiction where fixtures are physically located¹⁶⁸ will govern perfection of a security interest in fixtures by a fixture filing.¹⁶⁹

[2] Perfection

Although sometimes the opinion recipient will request opinions on creation and attachment of the security interest in U.C.C. collateral, typically creation and attachment are assumed by the opinion giver and the focus of the opinion is on the perfection of the security interest.

The opinion recipient sometimes asks the opinion giver to opine that a proposed form of real estate security instrument or a separate U.C.C. financing statement is adequate under applicable Delaware law to serve as a fixture filing upon proper filing. Such an opinion statement does not typically state that the filing of the financing statement effects perfection, but it does say that the proposed financing statement in the form provided is sufficient and that it is being filed in the right place for that purpose. This opinion includes by implication an opinion that the financing statement contains all of the information required to serve as a fixture filing.¹⁷⁰ A separate opinion to that effect is unnecessary if the foregoing opinion is given. In this context, the sufficiency and factual accuracy of the legal description of the real property is assumed, implicitly or expressly. The foregoing equally applies to a mortgage intended to serve as a fixture filing.

Lenders sometimes request an opinion as to the effect of filing the financing statement as a fixture filing, a perfection opinion.¹⁷¹ As long as the underlying facts of creation and attachment are assumed to exist or are otherwise addressed, such an opinion can be given.¹⁷² Likewise, such an opinion includes by implication the foregoing opinion as to the form of filing. When the mortgage serves as a fixture filing, this opinion statement subsumes an opinion that the Delaware U.C.C. (if Delaware is the physical location of the fixtures) recognizes that recordation of the mortgage is effective to serve as a fixture filing. No opinion is needed on that point alone, or on the subject of a debtor's authorization to file or record the mortgage as a financing statement.¹⁷³

An opinion letter will often contain a statement that a certain office is the place to record the mortgage, and it will use a defined term to designate that office (e.g., "Recorder of Deeds"). In view of the possible need to address personal property collateral in the same opinion letter, and in order to avoid confusion, one term should...