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									                             REPORT ON ADAPTATION OF THE
                                LEGAL OPINION ACCORD
                                              of the
                                     SECTION OF BUSINESS LAW
                                              of the
                                    AMERICAN BAR ASSOCIATION
                                                for
                           REAL ESTATE SECURED TRANSACTIONS




                                       of the
                 SECTION OF REAL PROPERTY, PROBATE AND TRUST LAW
                                       of the
                             AMERICAN BAR ASSOCIATION
                                         and
                  THE AMERICAN COLLEGE OF REAL ESTATE LAWYERS
                                       (1993)




__________________________________________________________________________________



This Report has been approved by the Council of the Section of Real Property, Probate and Trust Law of the American Bar
Association and by the Board of Governors of The American College of Real Estate Lawyers. The views set forth in this
Report have not been considered by the ABA’s House of Delegates and do not constitute the position of the American Bar
Association.




                                     REPRINTED IN 29 REAL PROPERTY,
                                     PROBATE & TRUST JOURNAL 569
                                              (FALL, 1994)




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AMERICAN BAR ASSOCIATION SECTION OF REA L PROPERTY, PROBATE AND TRUST LAW
COMMITTEE ON LEGA L OPINIONS IN REA L ESTATE TRA NSA CTIONS
Chair: William B. Dunn, Detro it, MI

SUBCOMM ITTEE ON ADAPTATION OF THE LEGA L OPINION ACCORD OF THE AM ERICAN BAR
ASSOCIATION SECTION OF BUSINESS LAW
Chair: Robert A. Thompson, San Francisco, CA

AMERICAN COLLEGE OF REA L ESTATE LAW YERS ATTORNEYS ’ OPINIONS COMMITTEE
Chair: Edward J. Lev in, Baltimo re, M D

Joint Drafting Co mmittee

Edward N. Barad, Denver, CO [BC]
John E. Blyth, Rochester NY [BC]
Patricia G. Brid well, San Antonio, TX [B]
Gu rdon H. Buck, Hartford, CT [B]
Frederic W. Clark, Philadelphia, PA [B]
Scott Cooper, Los Angeles, CA [B]
William B. Dunn, Detroit, M I [* BC]
Richard R. Go ldberg, Colu mb ia, M D [BC]
Jeremy E. Go ldstein, Philadelphia, PA [B]
Gary Alan Goodman, New Yo rk, NY [B]
Ruth B. Himes, Tampa, FL [BC]
Karl B. Ho ltzschue, New Yo rk, NY [* BC]
Steven G. Horowitz, New York, NY [B]
Kenneth M. Jacobson, Chicago, IL [B]
Morris C. Kellett, Philadelphia, PA [BC]
Catherine E. Killien, Seattle, WA [B]
Robert C. Leibsle, Elkhorn, WI [B]
Edward J. Levin, Baltimo re, M D [*BC]
Benet Polikoff, Jr., New Yo rk, NY [C]
Laurence G. Preble, New York, NY [*BC]
Stephen M. Rice, Las Vegas, NV [B]
Thomas G. Roberts, Los Angeles, CA [*BC]
Alan J. Robin, Foster City, CA [BC]
David S. Sidor, Co lu mbus, OH [BC]
Mark R. Sprad ling, Houston, TX [B]
Linda A. Striefsky, Cleveland, OH [BC]
Robert A. Tho mpson, San Francisco, CA [*BC]
James H. Wallenstein, Dallas, TX [*BC]
David P. Weiner, Port land, OR [B]
Sterling S. Willis, New Orleans, LA [B]
Mark D. Yura, Chicago, IL [B]

[*] Steering Co mmittee
[B] A BA Section Co mmittee or Subco mmittee member
[C] A CREL Co mmittee member

Liaisons from A merican Bar Association Section of Business Law
Thomas L. A mbro, Wilmington, DE
Steven O. Weise, Los Angeles, CA




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                                               FOREWORD

        Third party opinion letters in business transactions have been the subject of numerous
analyses by state and local bar committees, some of which relate specifically to real estate
transactions 1 and some of which relate to business transactions generally 2 . Although these
analyses contain thoughtful and valuable guidance for opinion givers and recipients, the
establishment of a uniformly accepted national standard has been sought to advance at least two
goals of most state and local projects, i.e., efficiency and cost effectiveness in the opinion
process.

       Through the significant efforts of the Section of Business Law of the American Bar
Association, a singular contribution has been made toward the realization of a uniformly
accepted national opinion practice. The Third-Party Legal Opinion Report of the Section of
Business Law (1991) (the “Business Law Opinion Report”) 3 includes a Foreword, a Legal
Opinion Accord (the “Accord”), Commentary and Guidelines.

        The Accord expressly excludes and leaves for further analysis certain legal opinion issues
respecting liens on real property, security interests in personal property and certain other issues
inherent in secured transactions involving real estate, either by express exclusion (e.g., Accord
§19(h)) or by implication (e.g., Accord Commentary ¶11.2). In addition, the Accord provides
that certain opinions may be given by implication (see Accord §18) which by tradition have been
separately addressed in opinions given with respect to a transaction involving a lien (security
interest) in Real Property4 (referred to in this Report as a “Real Estate Secured Transaction,”
sometimes by the acronym “REST”). The need to address these subjects and to provide
guidance to the Opinion Giver and Opinion Recipient in the use of the Accord as a base for an
opinion in a Real Estate Secured Transaction resulted in the creation of a Joint Drafting
Committee (the “Joint Drafting Committee”) of the American Bar Association Section of Real
Property, Probate and Trust Law (the “Section”) and of the American College of Real Estate
Lawyers (“ACREL”). The Joint Drafting Committee has prepared this Report (the “Real Estate
Report” or this “Report”) which presents its analysis of how the Opinion Giver and Opinion
Recipient may adapt the Accord opinion in a Real Estate Secured Transaction.

        It is not the purpose of this Report to comment on the overall concept or effectiveness of
the Accord itself or to evaluate its merit as a base for a REST Opinion. This Report contains
both commentary and suggestions for additions to and deletions from the Accord and its opinion
that the Joint Drafting Committee has determined to be appropriate in a Real Estate Secured
Transaction. This Report contemplates use and understanding of the Accord as a baseline for the

    1
        See Appendix, Part 1.
    2
        See Appendix, Part 2.

    3
        47 The Business Lawyer 167 (1991).
    4
     Capitalized terms used in this Report but not otherwise defined in it have the meaning given to them in the
Accord.



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Opinion. As noted above, however, the Accord intentionally excludes significant legal issues
relating to opinions given with respect to Real Estate Secured Transactions. Accordingly, this
Report recomme nds against the use of the Accord in a REST without the adaptation
provided or recommended by this Report, or without modification or private orde ring (see
Accord §21) which takes this Report or its content into consideration.

       In addition, the scope of opinion subjects addressed by the Accord is limited to matters of
enforceability, absence of breach or default of Other Agreements and Court Orders resulting
from the Transaction, and absence of violation, of law as a result of execution, delivery and
performance of the Transaction Documents. Opinions on matters beyond the scope of the
opinions expressed or implied by the Accord may be appropriately addressed in a REST. This
Report does not purport to provide a comprehensive guide to opinion subjects and
treatments in a REST, but is limited to the opinions expressed or implied by the Accord.

        This Report is also limited to those alterations of the Accord regarded as essential for its
adaptation as a baseline for a REST Opinion. The Report does not purport to be the singular
starting and ending point for a REST Opinion. It does not suggest how private ordering should
modify the Accord (in what settings would additions or subtractions to the Assumptions be
appropriate, for example), or what the parties might view as desirable or acceptable alterations
(change in the Primary Lawyer Group definition, for example), or when it might be appropriate
to expand or limit certain of the General Qualifications. All this rema ins to be determined on a
situational basis.

        The scope of this Report is limited to transactions, or those portions of transactions,
involving a security interest in Real Property. It does not address issues raised by unsecured real
estate transactions, such as joint ventures, leases and sale-leasebacks (an unmodified Accord
opinion would address these transactions although the Accord does not provide a suitable
framework for that); or, except as expressly stated, matters concerning security interests in non-
Real Property Collateral.

        Although the Business Law Opinion Report disclaims that its Commentary is part of the
Accord, 5 the material designated as Commentary in this Report, whether independent or as an
addition to the Accord Commentary, is part of this Report and should be considered to have no
different effect than any other portion. Commentary is indicated by the ¶ symbol. 6 The
Exposition contained in Paragraph 11A of this Report, however, is included as guidance, and is
not included as a part of this Report when the Report is incorporated into an opinion letter by
reference (see Paragraph 20 of this Report).


    5
        Business Law Opin ion Report, supra, note 3, at 170.

    6
       Co mmentary contained in this Report which relates to Accord Commentary direct ly is indicated by a
subparagraph (e.g. ¶11.2.1, indicat ing that the Report Commentary addresses Accord Co mmentary ¶11.2); and
Report Co mmentary which is supplemental to Accord Commentary or which relates primarily to this Report is
designated as a principal paragraph (e.g. ¶11.7, whereas the Accord Commentary would contain only 6 paragraphs
in ¶11).


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        State real property bar associations may supplement the Accord and this Report, either
updating prior reports in the context of non- or pre-Accord practices or developing one in the
context of the Accord. Additional assumptions or qualifications may be unique to a state’s law.
A state’s real property bar may wish to recommend for use in its jurisdiction a particular form of
Generic Qualification and Assurance in a REST opinion. 7 This Report recommends, however,
that state bar associations not develop local law reports that are also to be adopted into a third-
party legal opinion by reference, as is the Accord and this Report. Many Real Estate Secured
Transactions involve parties or properties in more than one state. The Accord and this Report
should be viewed as reports national in scope with which lawyers in all jurisdictions can be
familiar. To add to an opinion in a REST a third (state level) report to be incorporated by
reference may in fact only increase transactional costs by requiring a lawyer in one state to
become familiar with another state’s report in order to close the transaction. Instead, the Joint
Drafting Committee believes that state level reports should recommend matters to appear in the
opinion itself, and not to be incorporated by reference except, perhaps, in intra-state transactions.

        The Joint Drafting Committee expresses caution about rote use of any prescribed opinion
format, regardless of its quality or of the quality of an accompanying guide to its use. An
opinion is intended to be a statement of the lawyer’s analysis and judgment regarding the legal
issues involved in a transaction. The giving of an opinion should a lways involve independent
inquiry and analysis; and undue reliance upon “model” opinions or upon broadly stated
assumptions and qualifications may mask important legal issues and thereby mislead both the
Opinion Giver and the Opinion Recipient.

        Both the Opinion Recipient and Opinion Giver should be mindful of the cost- value
relationship in determining the scope of an Opinion Letter. It may be appropriate for the parties
to agree to limit the scope of the lawyer’s inquiry and range of opinion subjects in order to
provide a basis for issuing cost-effective legal opinions which focus solely or primarily on
specified legal issues which are material to the transaction.




    7
        The Generic Qualifications to the Remed ies Opin ion is discussed at Paragraph 11 of this Report.


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                           REAL ESTATE SECURED TRANSACTIONS
                                  ACCORD ADAPTATION

       If the Opinion Giver and Opinion Recipient in a Real Estate Secured Transaction
(“REST”) adopt the Accord and this Report by reference (see Paragraph 20 below), the
modifications of this Report shall apply. Terms used herein have the meaning given to them in
the Accord unless otherwise defined in this Report.

1.       The Glossary of the Accord is supplemented and modified by the following terms
         (whether used in the singular or the plural) which shall have the meanings
         indicated:

        Collateral: collectively or individually, all Real Property described in the Security
Documents and all Personal Property described in the Security Documents, in respect of which
provision is made by the Security Documents for a lien or security interest, unless a different
meaning is given in the Transaction Documents.

      Enforceability Opinion: see definition of Remedies Opinion. In a REST Opinion, the
Remedies Opinion is typically referred to as the Enforceability Opinion.

         Generic Qualification: see Report Commentary ¶11.2.1.

       Generic Qualification Assurance (or, simply Assurance):           See Report Commentary
¶11.2.1.

       No Violation of Law Opinion: An opinion that “execution and delivery by the Client of,
and performance by the Client of its payment obligations in, [a specified Transaction Document]
do not violate applicable provisions of statutory law or regulation” or an opinion that uses
equivalent wording.

       Personal Property: property or rights and interests in property treated under Law as
personalty or otherwise not as Real Property.

        Real Estate Secured Transaction (“REST”): a transaction which involves the securing of
an obligation by Real Property and related Personal Property.

       Real Property: property or rights and interests in property treated under Law as rea l
property, including fixtures.

        Security Documents: mortgages, deeds of trust, security agreements, assignments of
leases and/or rents (regardless of whether stated as an absolute or as a security assignment) or
similar instruments which provide for the creation of a lien on or security interest in Collateral to
secure the obligations of the Client under the Transaction Documents.

        Transaction Documents: the contract documents setting forth the principal terms of the
Transaction addressed by the Opinion, including the Security Documents, and other contracts
ancillary thereto that are explicitly addressed by the Opinion. Unless otherwise included by an

                                                -4-
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express statement in an Opinion Letter, contracts of persons other than the Client (such as
guaranties and letters of credit) are not included in the term Transaction Documents.

2.       The following comme ntary pe rtains to the supplement, provided in Paragraph 1 of
         this Report, to the Glossary of the Accord:

        The definition of a Real Estate Secured Transaction includes any transaction in which a
security interest in (lien upon) Real Property is created, regardless of how dominant or incidental
that aspect of the transaction may be. The term is not intended to characterize the entirety of the
transaction, but to indicate the need to employ the adaptations of the Accord provided by this
Report with respect to that aspect of the transaction involving security in Real Property.

       The substantive changes to the Accord’s definition of Transaction Documents are (i) the
express inclusion of Security Documents and (ii) the specific refere nce to third party documents.
A contract of guaranty or indemnity by a person who is not the Client should not be included
impliedly as one of the Transaction Documents, for the reasons given in the Report Commentary
¶21.1.1. The same is true of credit enhancement documents, such as letters of credit. These
contracts should be separately identified when they are the subject of an Opinion.

3.       The following comme ntary supple ments Accord Commentary ¶1.2:

        ¶ 1.2:1 Local Law. While it may be desirable to address issues of Local Law in some
cases, it does not necessarily follow that an opinion on Local Law will be appropriate just
because a transaction involves Real Property. The use of a legal opinion to provide assurance on
subjects of Local Law should be carefully considered, particularly in the context of cost
effectiveness.

4.       The following are additional assumptions to those provided in Accord §4 :

       (q) The Security Documents have been or will be duly recorded and/or filed in all places
necessary (if and to the extent necessary) to create the lien as provided therein.

         (r) The description of the Collateral is accurate and is sufficient under Law (i) to provide
notice to third parties of the hens and security interests provided by the Security Documents and
(ii) to create an effective contractual obligation under Law.

5.       The following comme ntary is added to Accord Comme ntary ¶4:

        ¶ 4.7. Security Documents. Since an Opinion does not impliedly address perfection of a
hen or security interest, assumption §4(q) among other things exists to assure perfection in any
jurisdiction where creation of a valid mortgage or other Security Document requires filing or
recording. The word “duly” in §4(q) includes an assumption that any taxes and fees due upon
recording or filing have been or will be paid. The assumption is not intended to address
perfection requirements necessary to provide notice or priority, for the reason that an Opinion
concerning such matters is not otherwise implied, and is to be expressly stated, if at all. See
§19(h)(iv) at Paragraph 17 of this Report.


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       Assumption §4(r) is an adjunct to Accord assumption §4(b), and a companion to the
excluded opinion identified in §l9(h)(ii) and (iii) of this Report, at Paragraph 17.

6.       The following comme ntary is added to clarify Accord §7 :

        ¶ 7.2 Standard of Care; Liability. Accord §7 is not intended to alter the Law of any
Opining Jurisdiction with regard either to the standard of care expected of an attorney or to the
extent of third-party liability, i.e., the liability of an attorney to a party who is not the attorney’s
client. For example, the Accord is not to be read as inconsistent with any prerequisite of the Law
of the Opining Jurisdiction that requires the Opinion Recipient to demonstrate its reliance upon
the Opinion Letter as a prerequisite to prevailing in a cause of action based on an erroneous
Opinion contained in the Opinion Letter.

7.       The following is added to Accord § 10(a) as an additional element of the Remedies
         (Enforceability) Opinion:

         (iv) the Security Documents are in a form sufficient to create a lien on or security interest
in all right, title and interest of the Client in the Collateral, except to the extent the Collateral
includes items or types of Personal Property in which a security interest cannot be created under
Article 9 of the Uniform Commercial Code.

8.       The following comme ntary is added to Accord Comme ntary ¶10.5:

        ¶ 10.5.1 Governing Law - Choice-of-Law Rules. The assurance provided by a Remedies
Opinion under §10(b) of the Accord excludes choice-of- law rules of the Opining Jurisdiction. It
assures only that the Transaction Document is enforceable under the law of the Opining
Jurisdiction irrespective of the choice of law of an Other Jurisdiction, and does not provide an
opinion on the effectiveness of a governing law provision.

9.       The following comme ntary is added to Accord Comme ntary ¶10:

        ¶ 10.8 Governing Law - Opining Jurisdiction. Accord §10(d)(i) states that an opinion as
to the enforceability of a provision of the Transaction Documents choosing the law of the
Opining Jurisdiction is included in a Remedies (Enforceability) Opinion. In multistate real estate
secured transactions, Transaction Documents frequently specify a choice of law of an Other
Jurisdiction to govern a promissory note or guaranty (usually the law of the lender’s domicile)
whereas the choice of law governing foreclosure and other collateral protection provisions in the
mortgage or deed of trust and other security instruments is usually the law of the situs of the
Collateral. Many lawyers express concern with respect to such opinions in view of the possible
need to evaluate whether the Opining Jurisdiction has sufficient nexus to the transaction (see
Restatement, Second, Conflict of Laws §187(2)(a)) or whether (i) an Other Jurisdiction has a
closer nexus (“most significant relationship”) to the transaction and the parties; (ii) the
application of the law of the Opining Jurisdiction “would be contrary to a fundamental policy” of
such Other Jurisdiction, and (iii) such Other Jurisdiction has “a materially greater interest than




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the chosen state in the determination of the particular issue.”8 An example would be the choice
of the law of the Opining Jurisdiction for a promissory note secured by a mortgage or deed of
trust encumbering property located in an Other Jurisdiction whose laws include antideficiency
legislation.

        The Remedies Opinion is qualified to exclude any opinion implied pursuant to Accord
§l0(d)(i) that application of the Law of the Opining Jurisdiction is not contrary to a fundamental
policy of the Law of an Other Jurisdiction.

         It would not be uncommon for a REST Opinion to exclude any implication of a choice-
of- laws opinion, and for such an opinion to be specifically requested and expressly addressed, if
at all. In addition, such opinions are often given as “reasoned” opinions, and upon assumptions
of factual matters having a bearing on the opinion conclusion.

       This Report, in qualifying only one aspect of Accord §10(d)(i), would require the
Opinion Giver to address other matters required to render such an opinion. If such an
undertaking is not contemplated as a part of the REST Opinion, the Opinion Giver must
expressly exclude the opinion otherwise implied by Accord §10(d)(i).

10.         The following comme ntary is added to Accord §10:

       ¶ 10.9 Usury. An opinion that the Transaction Documents are enforceable includes an
implied opinion that the loan, as evidenced by the Transaction Documents, is not usurious. See
Accord Commentary ¶18.1 and this Report Commentary ¶18.1.1.

11.         The following comme ntary is added to Accord Comme ntary ¶11.2:

        ¶ 11.2.1 Real Estate Secured Transactions. The giving of an Accord Remedies Opinion
concerning the Transaction Documents for most Real Estate Secured Transactions, subject only
to the General Qualifications set forth in Accord §§12-14, will be inappropriate. Such an
Opinion could be given only after the Opinion Giver bad satisfied itself that each and every
agreement has a remedy or will otherwise be given effect, and that every remedy provided for
will be given effect as stated, except as that effectiveness is modified by an exception, limitation,
or qualification provided by Accord §§12-14, or to the extent that elements of the Opinion itself
are excluded under Accord §18 or §19. While this approach may be appropriate for unsecured
transactions where the typical remedy following breach is a cause of action for damages, it
presents difficulties with respect to transactions secured by Real Property. In Real Estate
Secured Transactions, the exercise of remedies following breach is more complex (e.g.,
foreclosure, enforcement of an assignment of rents, receivership, etc.) and raises issues which
may not be covered in Accord §§12-14. In most Real Estate Secured Transactions, additional
issues beyond bankruptcy and insolvency and equitable principles are either identified and
excluded from the scope of the Remedies Opinion by creation of a detailed list of exceptions (the
“laundry list”) expressly addressing each objectionable implication of the Remedies Opinion or

      8
          All references in quotation marks in this sentence are to Restatement, Second, Conflict of Laws §187(2)(b).


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subjected to broad qualification (the “Generic Qualification”) which excludes unenforceable or
ineffective provisions generally, coupled with some assurance concerning overall validity of the
Transaction Documents and the ability to realize, in some degree, certain benefits provided by
them (the “Generic Qualification Assurance”).

        The use of a Generic Qualification, in addition to the Bankruptcy and Insolvency
Exception (Accord §12), the Equitable Principles Limitation (Accord §13), and Other Common
Qualification (Accord §14) in a Real Estate Secured Transaction is strongly recommended. The
qualification is most clearly and succinctly stated as follows:

                   “Certain provisions contained in the Transaction Documents may
                   not be enforceable . . . .”

This statement should be made expressly either following the Accord formulated Remedies
Opinion, which would say:

                   “The Transaction Documents are enforceable against the Client”

or in another prominent, appropriate location in the opinion text.

       Note that the use of the Generic Qualification is not accomplished by reference to and
incorporation of this Report. It must be expressly stated in the text of the Opinion Letter.

       If a Generic Qualification is not taken, the Opinion Giver must be satisfied that it
has taken expressly stated qualifications sufficient to address the breadth of the opinion
provided by Accord § 10(a) not otherwise addressed in Accord §§12 -14 or Accord §19.

        The scope of the Generic Qualification, read literally, would eviscerate the entire
Enforceability Opinion. The addition of a Generic Qualification Assurance countering that
effect is customary and to be expected. Various forms of such Assurance have been developed
in practice and legal commentary (a number are discussed in the Exposition in Paragraph 11A o f
this Report, which is not a part of this Commentary), and the Opinion Giver and Opinion
Recipient will need to adopt a mutually satisfactory formulation of it.

11A.     Exposition for commentary added to Accord Comme ntary ¶11.2 as ¶11.2.1.

        Negotiations between Opinion Giver and Opinion Recipient regarding the scope and
wording of the exceptions and qualifications contained in a laundry list are often costly, time
consuming and counterproductive. Many have questioned whether the benefit of that effort is
worth the expense, particularly where the issues deal with subject matter which cannot be altered
by drafting changes to the document in question, are inherent in the transaction, or are of little
real importance; or because the Security Documents were drafted by counsel to the Opinion
Recipient which, in the case of in-state counsel, might itself more appropriately address those
issues.

        Attorneys and opinion projects have developed two approaches to the deficiencies in
creating an express laundry list: (1) creation of an implied laundry list and (2) use of a Generic
Qualification and Generic Qualification Assurance.
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                                             Implied Laundry List

         Generally phrased exceptions for application of equitable principles and limitations and
the effect of bankruptcy and insolvency, generally, represent early, and virtually universally
accepted, attempts to reduce the size of an express list of exceptions in an Opinion Letter. These
are contained in Accord §§12 and 13. The next approach, adopted by several state bar reports,
was to set forth a list of exceptions that were always to be implied in an opinion given pursuant
to that report. 9 This is essentially the approach taken by Accord §14, which contains a list of ten
specific matters excluded from any opinion. This Report provides additions to Accord §1410 ,
expanding the implied laundry list afforded there.

        The principal virtue of an implied (incorporated by reference) laundry list approach is the
focus it provides as to the intent, nature and scope, of the qualifications. The Opinion Recipient
has clear warning of the matters, either specific or by statement of example, not covered by the
opinion. Its principal defects are:

           (i)      The list may not be comprehensive in all cases 11

           (ii)     Many “laundry list” exceptions are broadly stated and cover overlapping issues
                    with the result that, taken as a whole, the exceptions effectively negate the
                    Remedies Opinion. This circumstance causes many Opinion Recipients to require
                    the Opinion Giver to include at the end of any such list a statement to the effect
                    that, notwithstanding such exceptions, the Transaction Documents are sufficiently
                    enforceable to provide the Opinion Recipient with the practical realization of the
                    principal benefits of the transaction.

           (iii)    Real Estate Secured Transactions are influenced by variation in state law to a
                    greater degree than unsecured transactions and even Personal Property secured
                    transactions. Accordingly, a comprehensive “national” laundry list is likely to be
                    impractical because the list will vary from state to state and, perhaps, from
                    transaction to transaction.

           (iv)     Many laundry list exceptions relate to issues of general application which are
                    inherent in most Real Estate Secured Transactions (e.g., procedural limitations
                    affecting foreclosure, rights of redemption, etc.), and because such limitations are


    9
       An example of this implied laundry list approach is set forth in the illustrative opinion in the Mary land Report,
supra, note 1, at 809, where a list of thirteen specific qualificat ions is incorporated by reference in every opinion.
The District of Co lu mbia report takes a similar approach, and the Colorado report lists five additional exceptions in
its recommended form of opinion. See, Guide to the Op inion Reports, supra, note 1.
    10
         See Paragraph 12 of th is Report.
    11
        This circumstance may create a negative inference to the effect that issues not specifically excluded are
implicitly included, with the result that both the Opinion Giver and the Opinion Recip ient may be confused
regarding the intended scope of the Opinion.


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                    not transaction specific, they are often of little practical importance or relevance
                    to the parties. Including such items in a laundry list inevitably causes the opinion
                    to become a treatise on the law of secured transactions, which increases its cost
                    without providing a corresponding benefit to the Opinion Recipient.

                                               Generic Qualification

        The Generic Qualification attempts to give a general warning to the Opinion Recipient
that certain provisions may not be enforceable in accordance with their terms, and is sometimes
used in conjunction with a limited implied laundry list, such as that provided by Accord §14.
The virtues and defects of this qualification approach are essentially the opposite of those of the
implied laundry list approach.          The Generic Qualification approach is general and
comprehensive. It avoids argument over the precise number of qualifications covered and the
wording of each, but it does not give certainty or specifics to the Opinion Recipient. A typical
Generic Qualification provides (with superfluous but customary words in brackets):

                    “Certain [rights, remedies], provisions [covenants and waivers]
                    contained in the Transaction Documents may [be limited or
                    rendered ineffective or unenforceable] not be enforceable [by
                    reason of applicable laws and judicial decisions of the Opining
                    Jurisdiction governing such provisions] . . . .”12

There is no universal agreement concerning the scope and purpose of the Generic Qualification:
does it exist only to cover “boilerplate” provisions of uncertain enforceability (e.g., provisions to
the effect that all remedies are cumulative) which may be immaterial to the specific transaction
or the parties to it, but which may otherwise be implicitly included in the Remedies Opinion; or
does it apply to specific provisions of the Transaction Documents which may be transaction- or
party-specific or of significance to the transaction, but which may be of doubtful enforceability?
The principal concern regarding the use of the Generic Qualification is the question of whether
transaction-specific provisions are included or are not.

        The California Real Property Report, for example, contemplated that additional
transaction-specific qualifications beyond its Generic Qualification formulation would be added
depending on the nature of the transaction. 13 This suggests that the Generic Qualification might
serve a limited purpose, and a further list of exclusions might be required. The dividing line
between what is included in the Generic Qualification and what is needed to be further excluded
was suggested to be a matter of the “professional judgment” of the Opinion Giver. 14 The

    12
        The foreword to the Business Law Opinion Report states that it generally excludes the technical aspects of
legal opinions dealing with secured financings. Accord Commentary ¶11.2 acknowledges the use of a “generic”
qualification to the Remedies Opinion in comp lex asset-based transactions; but states that the Accord “does not deal
with it”. Business Law Opin ion Report, supra, note 3, at 169 and at 202.

    13
         California Real Property Report, supra, note 1, at 1167.
    14
         California Real Property Report, supra, note 1, at 1168.


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California Report recommended, however, that a specific opinion should be requested on
subjects which, from the Opinion Recipient’s viewpoint, might be undesirably excluded by the
Generic Qualification; and concluded that the failure of the Opinion Giver to specifically identify
and exclude such matters expressly and separately from the Generic Qualification should not
create the inference that they have been implicitly opined about. 15

        While commentators may differ, the Generic Qualification is more likely to be viewed as
an exclusion of all matters of unenforceability, and not as applying only to “unimportant’’
boilerplate subjects. Only through this view can its objective be understood by both Giver and
Recipient identically. This effect should be carefully regarded. If a qualification (See Accord §§
11-14 and this Report, Paragraph 11) is removed from an opinion letter by Private Ordering, the
Generic Qualification may re-take it. What the Generic Qualification qualifies, only a Generic
Qualification Assurance can replace. The removal of an express qualification by Private
Ordering may not achieve the desired result if the Assurance is not sufficient to affirm that result.

        As noted above, the issuance of an opinion is not intended to be a mechanical exercise;
legal opinions should be tailored to the particular facts and issues which are relevant for each
transaction. Professional judgment is inescapable; indeed, it is the very purpose of the opinion
process and judgment must be exercised by both the Opinion Giver and the Opinion Recipient.
If an Opinion Recipient is concerned about the enforcement of specific provis ions of the
Transaction Documents or the exercise of certain remedies, it should consider requesting specific
opinions on such items. The Opinion Giver should not need to include within the opinion
numerous exceptions which may not be relevant to the parties or to the transaction. Both should
cooperate to frame the scope of the opinion in a mutually acceptable, cost-efficient manner.

                           Assurance Following the Generic Qualification

        The broad scope of the Generic Qualification creates the need for assurance t hat the
Remedies Opinion is not entirely swept away and that, at least, certain benefits of the
Transaction Documents remain. The addition of an assurance to the Generic Qualification is to
be expected. This Report does not endorse any one form of Generic Qualification Assurance,
but presents in the following material a review of several formulations of Assurance and
discussion concerning them. Those presented are not exhaustive; many variations exist and more
will evolve. The Generic Qualification Assurance is given only as to the matters covered by the
Generic Qualification itself. It provides no comfort as to matters covered by the General
Qualifications (Accord §§ 12-14 as supplemented by this Report) or express qualifications in a
“laundry list”.

       “Practical Realization”: “Principal Benefits”. The traditional phrasing of an assurance to
the Generic Qualification is:




    15
         Id.


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                    “... but such laws and judicial decisions do not make the Security
                    Documents legally inadequate for the practical realization of the
                    principal benefits and/or security intended to be provided thereby. ”

This traditional form of Assurance is commonly referred to as the “practical realization
opinion”. 16 Only the Texas Mortgage Report 17 engrafts a specific meaning to the term “practical
realization”.

        An essential element of this Assurance is the concept of the “benefits” or the “principal
benefits” of the loan documents. Unfortunately, there are no universally accepted definitions or
“benefits” or “principal benefits”, and what constitutes the “benefits” or principal benefits”
intended by the loan documents may be in the eye of the beholder. 18 In fact, the use of such
terms without definition may mask significant interpretative differences among Opinion Givers
and Opinion Recipients. The Texas Mortgage Report does not attempt to eliminate all
possibility of interpretative differences but does minimize such possibility by limiting its
“practical realization” assurance in three ways: (i) it excludes “the economic consequences of
any procedural delay”; (ii) it provides examples of specific matters for which no assurances are
being given; and (iii) it states that its intent is to assure the lender that the “essential mortgage
benefits conferred by the loan documents” are available. 19

Concluding that any “practical realization” assurance raises unacceptable interpretative concerns,
the California Real Property Report suggests the following alternative assurance which is more
limited in scope:

                    “... but such laws and judicial decisions do not render the Loan
                    Documents invalid as a whole; and there exists in the Loan
                    Documents or pursuant to applicable law, legally adequate
                    remedies for realization of the principal benefits and/or security
                    intended to be provided by the Loan Documents.”20

This statement of Assurance to the Generic Qualification provides comfort that the entirety of the
Transaction Documents opined about has not been adversely affected, even if individual
provisions thereof may not be enforceable.



    16
        Part I.A. (6) of the Business Law Op inion Report, Certain Guidelines, refers to the generic qualification and
traditional assurance, commenting that “practical realizat ion” and “principal benefits” involve a measure of
imprecision, but their use is “neither endorsed or disapproved.” Business Law Opin ion Report, supra, note 3 at 225.
    17
         Texas Mortgage Report, supra, note 1, at 27.
    18
         California Real Property Report, supra, note 1 at 1167.

    19
         Texas Mortgage Report, supra, note 1, at 27.
    20
         California Real Property Report, supra, note 1, at 1164.


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        A Statement of Policy of the American College of Real Estate Lawyers (the “ ACREL
SOP”) on mortgage loan enforceability opinions 21 considers at some length from perspectives of
custom and analysis this “traditional” Generic Qualification Assurance, and criticizes the
ambiguity of the terms of such traditional comfort. This Statement of Policy suggests 22 a
restatement of the traditional Generic Qualification Assurance along the following lines:

                    ... but such unenforceability will not render the [Transaction]
                    Documents invalid as a whole or legally inadequate for [or
                    substantially interfere with] realization of the principal benefits
                    provided by the [Transaction] Documents.

Even as so amended, however, the traditional Assurance to the Generic Qualification may
conceal a failure to reach a meeting of the minds, thus giving false comfort to both the Opinion
Giver and the Opinion Recipient.

        “Material Breach of a Material Agreement”. An alternative to both the Generic
Qualification itself and the Assurance added to it is provided in the California Real Prop erty
Report in its effort to refocus the approach to the qualification and the assurance upon the legal
threshold that must be crossed before a contract is enforceable at all. The California Real
Property Report postulates that if a valid contract has bee n created, a cause of action should exist
if a party has been damaged as a result of a material breach of a material covenant in that
contract. In doing so, the California Real Property Report suggests the following language:

                    “In giving this opinion, we advise you that a California Court may
                    not strictly enforce certain covenants contained in the Loan
                    Documents or allow acceleration of the maturity of the
                    indebtedness evidenced by the Note if it concludes that such
                    enforcement or acceleration would be unreasonable under, the then
                    existing circumstances. We do believe, however, that subject to
                    the limitations expressed elsewhere in this opinion, enforcement or
                    acceleration would be available if an event of default occurs as a
                    result of a material breach of a material covenant contained in the
                    Loan Documents.”23

      The California Real Property Report observes that even this formulation is not without
some measure of uncertainty, concluding that it is not always possible to identify which
covenants are material and which are not. 24 Nevertheless, the California Real Property Report


    21
         4 The A CREL Papers 1 (ABA, 1992).
    22
         Supra, note 21, at 7.

    23
         California Real Property Report, supra, note 1, at 1165.
    24
         California Real Property Report, supra, note 1, at 1164.


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views its emphasis on materiality as more relevant legally than the “practical realization” and
“principal benefits” terms of traditional formulation.

         The California Real Property Report formulation has, as its basic premise, the fact that
materiality will be determined independently in each case in light of the then existing
circumstances. It does not expect the Opinion Giver to opine whether at the time the opinion is
given a covenant or its breach would be material. Instead, it instructs the Opinion Giver to
advise the Opinion Recipient that if a covenant, determined by a court in some future action (or
perhaps already determined by binding precedent) to be “material” is materially breached, the
Recipient will be entitled to enforce that covenant or accelerate the secured obligation. The
giving of this assurance requires the Opinion Giver to carefully consider whether each covenant
may or may not be deemed material in the context of the transaction or in retrospect at the time
of breach or default, and to be certain that no inadvertent affirmation of enforceability has been
given through the assurance mechanism. A likely result of this process is the addition of a
limited laundry list of matters which may be material but as to which there is some reservation
about the ability to enforce or accelerate even in the case of a material breach. The usefulness of
Accord §14, as supplemented by Paragraph 12 of this Report, in supplying the maj or, if not
entire, portion of such a list should be considered.

      The “material breach of a material covenant” assurance was created in the context of the
meaning of the Remedies Opinion in California practice that

                   “some remedy is available if a party to the contract does not
                   comply with its terms generally. This does not mean that specific
                   enforcement is available as a remedy, or that every provision in the
                   agreement, such as the right to accelerate indebtedness in the event
                   of a default, will be upheld by a court.” 25

       How the “material breach of a material covenant” assurance functions with the Accord’s
approach to the Remedies Opinion is yet an unanswered question. 26


    25
         California Business Law Report, supra, note 2, at 1037-38.
    26
       In a Report on the Third-Party Legal Opin ion Report of the A BA Section of Business Law (May, 1992,
unpublished), the Business Law Sect ion of the State Bar of Californ ia reco mmends a form of Generic Qualification
and Assurance more trad itional in approach in certain “co mplex asset-based transactions”:

                   A Remedies Opinion is subject to the qualification that certain provisions of the
                   contract covered by the Opinion Letter may be unenforceable, but such
                   enforceability will not, subject to the other exceptions, qualifications, and
                   limitat ions in the Opinion Letter, render the contract invalid as a whole or
                   substantially interfere with realization of the principal benefits provided by the
                   contract. (Text, at 16).

    To harmonize the significant difference between the approach of the Accord to the Remedies Opinion (Accord
§10) and the position of the California Business Law Report that a Remedies Opinion covered on ly the “essential”
provisions of an agreement [Id.], the 1992 Report creates (text, at 4-5) a set of “Californ ia Provisions” which

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        American College of Real Estate Lawyers Statement of Policy. The ACREL SOP 27 (a)
stated a preference for use of a Generic Qualification with Assurance over the use of a laundry
list (express or implied) of exceptions to the Remedies Opinion, and recommended a revised
Generic Qualification and limited Assurance as follows (with subsequent revisions by the
ACREL Opinions Committee and with alterations to conform to Accord terminology):

                    “Certain [remedies, waivers, and other] provisions of the
                    Transaction Documents may not be enforceable; nevertheless, such
                    unenforceability will not render the Transaction Documents invalid
                    as a whole or preclude (i) the judicial enforcement of the
                    obligation of the Client to repay the principal, together with
                    interest thereon (to the extent not deemed a penalty), as provided in
                    the Note, (ii) the acceleration of the obligation of the Client to
                    repay such principal, together with such interest, upon a [material
                    (cf. Accord § 13(e))] 28 default by the Client in the payment of such
                    principal or interest, and (iii) the foreclosure in accordance with
                    applicable Law of the lien on and security interest in the Collateral
                    created by the Security Documents upon maturity or upon the
                    acceleration pursuant to (ii) above. 29

        The ACREL SOP form states succinctly the specific benefits of the Transaction
Documents about which assurance is given. The clarity of the statement is in contrast to the
general phrase “principal benefits intended thereby”, and may offer a definition of what was
meant by the term “mortgage benefits” in the Texas Mortgage Report. Discussion of the degree
(e.g., “practical”) of realization of these benefits is unnecessary, because there is a specific
statement concerning the remedies assured.

        If the Opinion Recipient desires comfort about other “benefits”, such as the appointment
of a receiver or the right to collect assigned leases or rents, where enforceability may be less
certain, the Recipient must specifically request it. In states where anti-deficiency laws, one-



includes (i) additional excluded implied opinions to those listed in accord §19 and (ii) a “California Understanding”.
This Californ ia Understanding relieves the Opinion Giver of a duty to research an agreement opined about in the
Accord approach unless the Opinion Giver believes, in applying reasonable professional judgment about that
agreement, that there is more than an insignificant degree of uncertainty about its enforceability. The California
Understanding is to be expressly incorporated into a Californ ia opinion given under the Accord.
    27
         Supra, note 21.
    28
      The materiality of conduct of a party is set forth as one of the Equitable Principles Limitations in Accord §13,
and hence, the term “material” is unnecessary as a modifier to the term “default” in an opinion to which the Accord
otherwise applies.
    29
       Supra, note 21, at 7. This statement of the A CREL SOP reflects a revision of the form in itially published,
representing a continuing analysis of every suggested solution in the effort to attain a “universally” acceptable
formulat ion of this opinion.


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form-of-action rules and similar provisions limit enforcement solely to foreclosure on security,
an exception to the ACREL SOP form clause (i) must be made.

        If there is uncertainty as to what may be characterized as interest under the Transaction
Documents or uncertainty as to the ability to accelerate on default in the payment of certain types
of interest, an appropriate transaction-specific statement (exception or assurance) must be made
in addition to the opinion resulting from the ACREL SOP form.

        Reference to foreclosure in clause (iii) does not guaranty any specific foreclosure remedy
available under State law. Accord § 10(a) (iii) assures that a remedy expressly provided for is
enforceable as stated. The generic qualification coupled with the assurance of the ACREL SOP
form does not restore the meaning of Accord §10(a)(iii). If the Opinion Recipient desires
assurance that a specific form of foreclosure provided in a Loan Document is available, that
specific assurance must be provided in addition to the assurances follo wing the generic
qualification.

        The term “foreclosure” in clause (iii) is intended to include only a proceeding by the
secured party as to both Real Property and Personal Property Collateral in accordance with its
rights and remedies in respect to Real Property as described in the Uniform Commercial Code
§9-501(4). An opinion as to a proceeding solely as to Personal Property under the Uniform
Commercial Code must be specifically requested. The subject of enforcement of Personal
Property security interests is not addressed by this Report.

         The ACREL SOP form would provide assurance to the Opinion Recipient concerning the
right to accelerate regardless of a State reinstatement law; the right to receive contingent interest,
participation interest, interest rate adjustments, negative amortization, and compounded interest
to the extent provided in the Transaction Documents; and of the ability to seek full recovery for
any deficiency after foreclosure or to sue on the debt without haying foreclosed. If the Law of a
particular State limits or restricts the specific assurances stated or implied in the opinion, the
Opinion Giver should specifically mention such limitation or restriction in the Opinion Letter, as
additional qualifications or exclusions for the transaction.

        The ACREL SOP form, as perhaps with the California Real Estate Report 30 form, gives
no assurance as to the enforceability of non- foreclosure remedies or procedures provided by the
Transaction Documents, such as those pertaining to an assignment of rents, except to the extent
enforcement of a right in rents would be considered a “foreclosure” or to the extent that
acceleration and foreclosure would be available if a borrower interfered with a lender’s exercise
of rights under an assignment of rents. Other assurances would need to be expressly provided to
address the rights and remedies afforded by an assignment of rents. The “practical realization of
principal benefits” form of assurance would more than likely address as least some of those




    30
         See, supra, note 23.


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rights and remedies. It is interesting to observe that the Texas Mortgage Report excluded pre-
foreclosure rights from the “practical realization” assurance. 31

        Broadening the ACREL SOP Form of Assurance. The Joint Drafting Committee
considered the restatement of the Generic Qualification and Assurance by blending the ACREL
SOP form and the California Real Estate Report assurance of some remedy for a material breach
of a material covenant. This formulation would add to clause (ii) of the ACREL SOP form the
phrase:

                    “. . . or upon a [material] 32 default in any other material provision
                    of the Transaction Documents .. . ”

        This expansion involves a compromise among the several alternatives which would limit
comfort, on one hand, to acceleration as to non-payment of principal and interest, and, on the
other hand, to general enforcement by acceleration with respect to breach of any obligation in the
Transaction Documents. It avoids the need to detail all of the obligations under the Transaction
Documents as to which breach will give rise to a right of acceleration. The assurance of the right
to accelerate is limited to instances of a “material default”, and except in the case of non-
payment of principal or interest, of a “material provision”. Unlike overall assurances as to
realization of “principal benefits”, the assurance in (ii) relates solely to the remedy of
acceleration of the debt. 33 An Opinion Giver has the obligation to take exceptions as to
provisions which may be material but for which the remedy of acceleration may be unavailable
even upon a material breach. The language intends to state that if a court were to refuse to
permit acceleration even in the event of a material default because the provision defaulted upon
was not materially significant, the opinion would be accurate. If a court were to view the
provision as materially significant, but refused to permit acceleration for reasons other than lack
of materiality of the default, then the Opinion Giver would need to be able to identify another
express or implied qualification or limitation in the Opinion to demonstrate that the Opinion was
accurate when given. The Opinion Giver does not provide assurance to the Opinion Recipient
that any remedy will be available for the breach of any covenant or agreement except as
expressly stated in this assurance.

         Because of the absence of a clear understanding of what is a “material provision”, an Opinion
Giver using the expanded clause (ii) may want to consider taking additional qualifications to identify
or disclaim what are material provisions. And although the expanded ACREL SOP formulation
includes important assurances (for example, the right to accelerate for a violation of a provision that
restricts sale, financing, leasing, or ownership interests [the so-called “due-on” provisions], although

    31
         Texas Mortgage Report, supra, note 1, at 23.

    32
         See, supra note 28.
    33
        It should be noted, however, that an opinion that the loan can be accelerated for breach of a provision
subsumes an opinion that the provision is not unenforceable. This “back door” enforceability opinion provides a
trap for the unwary, and the Opinion Giver should not take undue comfort that the opinion is limited merely to an
opinion on acceleration.


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it provides no assurance that a clause prohibiting the creation of a junior lien can be specifically
enforced to avoid the lien), it is not unlikely that an Opinion Recipient may request opinions on one
or more issues as to which the Generic Qualification applies but no Assurance has been given. By
way of example only, the opinion does not include assurance concerning the enforceability of
provisions such as those (i) providing for prepayment fees; (ii) providing for a collateral or absolute
assignment of rents (except as included within the concept of “foreclosure” of rents as Collateral); (iii)
providing for a determination of the rights or protections of a mortgagee in possession; or (iv)
providing for the ability to add the cost of cure of a debtor’s default to the secured indebtedness.
Whereas Accord § 10(a) would imply an opinion to be given about each one of these subjects, the
Generic Qualification and Assurance provided by the ACREL SOP and its expansion would preclude
opinions about any of them (except as to the remedy of acceleration, if applicable).

        It is not inappropriate for an Opinion Recipient to request and to receive assurances beyond
those given in the original ACREL SOP form itself. Such further assurances may either address
specific provisions of the Transaction Documents to which the Opinion Recipient has made reference
in the Opinion request or provide a statement concerning the right of acceleration for default in a
material provision as suggested by the expansion to the ACREL SOP or some other format. In the
context of the Generic Qualification and Generic Qualification Assurance formula an Opinion Giver
should be prepared to address reasonably focused requests for express opinions concerning matters of
unique or of material importance to the Transaction, or which have been the subject of extensive
negotiation by the parties, or which, based upon the experience or skill of the Opinion Giver, are
known to be matters regularly of concern to a party similarly situate to the Opinion Recipient which
would be excluded by the Qualification itself.

         Conclusion. The Report endorses use of a Generic Qualification, but does not express its
choice of a single format of an accompanying Assurance. Reference has been made to various forms
of Assurances and differing preferences about them. All forms of Assurance may be too limited or
suffer from interpretive ambiguity. No single formulation has been found to be so well stated and
understandable that a national promulgation of it for all opinions is found appropriate. It may be that,
despite interpretive concerns raised about it, variants of the “traditional” form will be preferred
merely because of widespread usage, familiarity and acceptance. Such practice should not discourage
development of new approaches or better language, such as the ACREL SOP and expanded ACREL
form, to express this difficult concept.

         The opinion should be clear, concise, articulate and most importantly, understandable. As the
use of the Accord grows and as lawyers become more familiar with its scope, format and limitations,
perhaps a consensus will be reached regarding the appropriate formulation of the Remedies Opinion
and its qualifications in the context of a REST.

12.      The following are added to the rules listed in Accord §14:

         (k)       limit or affect the enforceability of a waiver of a right of redemption;

         (l)       impose limitations on attorneys’ or trustees’ fees;



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        (m)   limit or affect the enforceability of any provision that purports to prevent any
party from becoming a mortgagee in possession notwithstanding any enforcement actions taken
under the Security Documents; and

       (n)     limit or affect the enforceability of provisions for late charges, prepayment
charges, or yield maintenance charges, acceleration of future amounts due (other than principal)
without appropriate discount to present value, liquidated damages and “penalties.”

13.      The following comme ntary is added to Accord §14:

        ¶14.2 Real Estate Secured Transactions. Accord §14(e) includes procedural rules of Law
related to foreclosures, including statutory cure provisions and rights of reinstatement, In some
jurisdictions, an Opinion Giver will need to add qualifications for rules of Law that limit or
affect deficiency judgments.

       The necessity of any of Accord §14 qualifications, and the additions of this Report to
them, is related to the scope of the Generic Qualification and Generic Qualification Assurance.
The more ambiguous the Assurance given after a Generic Qualification, the more relevant the
Accord §14 qualifications and this Report’s additions to them become.

14.      In the third line of Accord §16 the word “agreements” is replaced with the words
         “payment obligations”.

15.      The following comme ntary is added to Accord Comme ntary ¶16.2:

        ¶16.2.1 Performance. Loan documents in a REST often contain covenants to the effect
that “borrower will maintain the mortgaged property in at least as good condition as its current
condition” or other obligations to be performed by the borrower which create possible
implications of land use, environmental and other unintended opinions. The reference to
“performance by the Client of its agreements” has been altered to make clear that the only
opinion provided concerning performance in the Transaction Documents with respect to Real
Property security pertains to the payment obligations.

16.      The following comme ntary is added to Accord Comme ntary 518.1:

        ¶18.1.1 Usury. (a) The “Basic Rule” as set out in 118.1 of the Accord’s Commentary,
establishes the principle that the Remedies Opinion includes an implied opinion that violation of
usury law does not render the loan agreement or its interest provisions void or voidable by the
Client. In many jurisdictions, violation of usury law will not technically void or make voidable
the obligation but will subject the person charging or receiving usurious interest to penalties or
other unfavorable consequences. Adherence to the Basic Rule could reasonably require an
implied opinion as to void or voidable and an express opinion under Accord § 16 as to other
consequences of violation of usury law. This Report adopts the view that an imp lied usury
opinion, given through the Remedies (Enforceability) Opinion, addresses all consequences of




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violation of usury law. The Opinion Giver is cautioned that a usury opinion is implied in REST
opinions, and that silence provides the opinion rather than negates it. 34

        (b)     Regardless of whether the Opinion Giver provides an express opinio n on usury or
whether a usury opinion is implied by the Remedies (Enforceability) Opinion, Accord §4(j)
provides that the Opinion Giver may assume, without staring the assumption in the Opinion
Letter, that no fees, charges, benefits or other compensation will be paid, directly or indirectly,
to or for the benefit of the Opinion Recipient, except as specified in the Transaction Documents.

        (c)     The Opinion Giver gives an opinion only that the Transaction Documents as
executed are not usurious as of the date of the Opinion. This would include, however, an opinion
that a provision in die Transaction Documents for a change in the rate of interest, presently
contracted for but to take effect or be implemented after the date of the Opinion, would be
legally effective; and, to die extent such a contracted for change may not be enforceable, an
express exception or qualification must be made in die Opinion. An Opinion Giver may also
need to address specifically (i.e., not rely upon implied assumptions) the effect of special
features, if applicable, such as equity participations or convertibility of debt into equity interests.

17.        The following replaces subsection (h) of Accord §19:

        (h)    (i) die characterization of the Transaction as one involving the creation of a lien
on Real Property or a security interest in Personal Property except to the extent that the
enforceability of remedies against the Client set forth in the Transaction Documents is dependent
on die characterization of the Transaction expressed by the parties to it;

                   (ii)    tide to Collateral or the accuracy of its description;

                 (iii)   the sufficiency of die description of the Collateral to provide notice to
third parties of the lien or security interest provided for in die Security Documents; and

                (iv)   the creation, attachment, perfection or priority of a lien on Real Property
Collateral or a security interest in Personal Property Collateral, or enforcement of a security
interest in Personal Property Collateral separately from enforcement of the lien on Real Property
Collateral as contemplated by UCC §9-501(4).

18.        The following comme ntary supple ments Accord ¶19:

       ¶19.3 “Creation” of a Lien or Security Interest. No inconsistency between Accord
§10(a)(iv) and §19(h)(iv) exists. The former opinion is a “form of documents” opinion, and the
excluded opinion pertains to the effectiveness of, or actual, creation ( “status”) of the lien or

      34
        Opinion Givers and Opinion Recipients in a REST may expect that the subject of usury will be addressed
specifically. In such instances an Opinion Giver may include either an exp ress opinion (e.g.: “The loan, as
evidenced by the Transaction Documents, is not usurious.”) or an express negation of a usury opinion (e.g.: “The
opinions contained in this Opinion Letter do not include any opinion as to whether the Transaction is usurious.”),
depending on which alternative has been agreed upon between the Opinion Giver and the Opinion Recipient.


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security interest in the Collateral by those documents. The Remedies Opinion covers the
“contractual aspects” of any provisions of the Transaction Documents relating to the Collateral
and the lien or security interest therein, but the “status” of the lien or security interest in the
Collateral is thus excluded from the opinion. The “status” of the lien on Real Property Collateral
is customarily dealt with solely by title insurance. An opinion (if any) as to the status of the
security interest in the Personal Property Collateral should be given separately from the
Remedies Opinion. Such status opinions are often limited (as is §10(a)(iv) of this Report) to
property covered by Article 9 of the Uniform Commercial Code because of uncertainties as to
the status of other types of property.

19.      The following comme ntary supple ments Accord Commentary ¶21.1:

       ¶21.1.1 Guaranties. This Report’s revised definition of Transaction Documents would
exclude a guaranty from the scope of the Remedies Opinion if it is not given by the “Client”. If
a guaranty is included as an enumerated document as to which an opinion is to be given, it must
be identified as a Transaction Document or Security Document, and its relation to a Client about
which the opinion relates must be considered and stated.

       The Accord’s definition of “Client” should be carefully considered in connection with an
opinion on a guaranty. “Client” is defined as “the party or parties to the Transaction (including
predecessor entities where relevant) for which the Opinion Giver provides legal representation. ”

20.      The following supple ments Accord §22:

        In addition to the Accord, this Report may be adopted and made to govern the Opinion by
a declaration in the Opinion Letter substantially as follows:

       This Opinion Letter is governed by, and shall be interpreted in accordance wit h, the Legal
Opinion Accord (the “Accord”) of the ABA Section of Business Law (1991), as modified by the
Report of the ABA Section of Real Property, Probate and Trust Law and the American College
of Real Estate Lawyers (the “Report*’) as to opinions pertaining to Real Estate Secured
Transactions or to security interests in Real Property, and by Paragraphs above. As a
consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on
coverage and other limitations, more particularly described in the Accord and the Report, and
this Opinion Letter should be read in conjunction therewith. The Law covered by the opinions
expressed herein is limited to (specify jurisdictions).




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                           APPENDIX PART 1: REAL ESTATE REPORTS


       See, generally, Opinions on Loans Secured by Real Estate: A Guide to the Reports of the
Bar Associations, a Report of the Subcommittee on Comparison of Opinion Reports of the ABA
Section of Real Property, Probate & Trust Law’s Committee on Legal Opinions, (“Guide to the
Opinion Reports”), 12 ABA Real Estate Financing Newsletter 1, December 1992

       California: Report on Legal Opinions in California Real Estate Transactions, of the Joint
Committee of the Real Property Law Section of the State Bar of California and the Real Property
Section of the Los Angeles County Bar Association, (“California Real Property Report”), 42
Bus. Law. 1139 (1987) and 22 Real Prop. Prob. & Tr. J. 373 (1987), and the “unpublished”
Addendum, which has been printed in a collection of California Bar Sections’ Opinion Projects,
obtainable from the office of the State Bar of California and reprinted in PLI Real Estate
Opinions Handbook (1990)

       Chicago Bar: Chicago Bar Association’s Real Property Law Committee Report, 1992,
unpublished

       Colorado: A Proposal on Opinion Letters in Colorado Real Estate Mortgage Loan
Transactions, 18 Colo. Law. 2283 (1989) and 19 Colo. Law. 1 (1990)

       Connecticut: Opinion Letters in Connecticut Mortgage Loan Transactions: Statement of
Policy Regarding Borrowers’ Counsels’ Opinion Letters in Commercial Mortgage Loan
Transactions, 10 Conn. Real Estate L. J. No. 6, pages 89-124 (1993)

        District of Columbia: Report of the District of Columbia Bar Real Estate, Housing and
Land Use Section Project on Legal Opinions in Commercial Real Estate Transactions, 1990,
available for general distribution at the offices of the District of Columbia Bar, but not published
in a generally available source

         Hawaii: Borrower’s Counsel’s Opinions to Lenders, 20 Haw. B.J. No. 2, 129 (1987)

        Maryland: Report of the Special Joint Committee on Lawyers’ Opinions in Commercial
Transactions of the Maryland State Bar Association, Inc. and The Bar Association of Baltimore
City, dated January 18, 1989 (“Maryland Report”), 45 Bus. Law. 705 (1990)

      New York: Mortgage Loan Opinion Report, The Association of the Bar of the City of
New York Real Property Law Committee and New York State Bar Association Real Property
Law Section Attorney Opinion Letters Committee, 62 N.Y. St. B. J. 53 (July 1990)

        Oregon: Lawyers’ Opinions in Oregon Real Estate Transactions, 1991, available as a
freestanding publication from the Oregon State Bar offices and as Form 11 in Documentation of
Real Estate Transactions, Oregon CLE, 1992

        Pennsylvania: Real Property Section. Pennsylvania Legal Opinions, 1992, published by
the State Bar of Pennsylvania in a free-standing text, available through its offices


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       Texas: Preliminary Draft of a Statement of Policy Regarding Lawyers’ Opinion Letters
in Mortgage Loan Transactions, of the Committee on Lawyers’ Opinion Letters in Mortgage
Loan Transactions, (“Texas Mortgage Report”), State Bar of Texas Real Estate Probate and
Trust Section, 23 State Bar Newsletter Real Estate Probate and Trust Law No. 2 (January 1985)

       Texas: Preliminary Draft of a Statement of Policy Regarding Lawyers’ Opinion Letters
About Zoning and Subdivision Compliance in Mortgage Loan Transactions, Committee on
Opinions as to Compliance (of Property) with Laws in Mortgage Loan Transactions, State Bar of
Texas Real Estate, Probate and Trust Section, 29 State Bar Newsletter Real Estate, Probate and
Trust Law No. 2 (January 1991)

      Washington: Preliminary Draft: Legal Opinions in Washington Real Property Secured
Loan Transactions, of a committee of the Real Property, Probate and Trust Section of the
Washington State Bar Association, dated May 9, 1988, unpublished




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                           APPENDIX PART 2: BUSINESS REPORTS


       Arizona: Report of the State Bar of Arizona Corporate, Banking, and Business Law
Section Subcommittee on Rendering Legal Opinions in Business Transactions, Ariz. St. L. J. 563
(1989)

       California: Report of the Committee on Corporations of the Business Law Section of the
State Bar of California Regarding Legal Opinions in Business Transactions, 14 Pac. L. J. 1001
(1983) (“California Business Law Report”)

        California: 1989 Report of the Committee on Corporations of the Business Law Section
of the State Bar of California Regarding Legal Opinions in Business Transactions, 44 Bus. Law.
2169 (1990) (“1989 California Business Law Report”)

        California: Report Regarding Legal Opinions in Personal Property Secured Transactions
(“California UCC Report”), 44 Bus. Law. 791 (1989)

       California: Report on the Third-Party Legal Opinion Report of the ABA Section of
Business Law of the Business Law Section of the State Bar of California, unpublished, (May,
1992)

      Georgia: Report on Legal Opinions to Third Parties in Corporate Transactions ( “Georgia
Corporate Report”), unpublished, but reprinted in PLI 1992 Business Opinions Handbook

       Florida: Report on Standards for Opinions of Florida Counsel of the Special Committee
on Opinion Standards of the Florida Business Law Section (“Florida Business Report”)

        Maryland: Report of the Special Joint Committee on Lawyers’ Opinions in Commercial
Transactions of the Maryland State Bar Association, Inc. and The Bar Association of Baltimore
City, dated January 18, 1989 (“Maryland Report”), 45 Bus. Law. 705 (1990)

       Massachusetts: Omnibus Opinion for Use in Loan Transactions ( “Massachusetts
Corporate Report”) prepared by the Subcommittee on Opinion Writing of the Massachusetts Bar
Association Committee on Corporate, Banking and Business Law, 60 Mass. L. Rev. 193 (1975)

       Michigan: Report of the Ad Hoc Committee of the Business Law Section of the State
Bar of Michigan on Standardized Legal Opinions in Business Transactions (“Michigan Business
Report”), 14 Mich. Bus. Law J. 1 (1991)

       New York: Legal Opinions to Third Parties: An Easier Path, a Report by the Special
Committee on Legal Opinions in Commercial Transactions, New York County Lawye rs’
Association, in cooperation with the Corporation Law Committee, Association of the Bar of the
City of New York and the Corporation Law Committee of the Banking, Corporate and Business
Law Section, New York State Bar Association, (“TriBar Report”), 34 Bus. Law. 1891 (1979)

        New York: An Addendum - Legal Opinions to Third Parties: An Easier Path (“TriBar
First Addendum”), 36 Bus. Law. 429 (1981)

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       New York: Second Addendum to Legal Opinions to Third Parties: An Easier Path
(“TriBar Second Addendum”), 44 Bus. Law. 563 (1989)

       New York: Special Report by the TriBar Opinion Committee on the Remedies Opinion
(“TriBar Remedies Report”), 46 Bus. Law. 959 (1991)

       New York: Special Report by the TriBar Opinion Committee: Use of the ABA Legal
Opinion Accord in Specialized Financing Transactions, 47 Bus. Law. 1719 (1992)

       Texas: Report of the Legal Opinions Committee Regarding Legal Opinions in Business
Transactions, 29 Bull. Bus. L. Sect. Nos. 2 & 3 (Special Issue) September, 1992




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