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 Attorney Spotlight |
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Kimberly A. Rayer
Kim concentrates her practice in the areas of financial services, commercial contracts, real estate and corporate law. Kim has extensive experience representing banks, financial institutions, as well as companies in connection with commercial financing transactions, including acquisition financing, asset-based financing, healthcare receivable financing and other secured transactions. She has experience with intercreditor relationships, as well as creditor's rights in bankruptcy. Kim also advises small businesses on corporate governance and transactional matters.
Kim is admitted to practice before the Supreme Courts of Pennsylvania and New Jersey and the Federal District Court for the Eastern District of Pennsylvania. She is a member of the Philadelphia Bar Association and the National Association of Government Guaranteed Lenders (NAGGL).
Kim is a graduate of Drexel University where she received a Bachelor of Science Degree, cum laude, and the James E. Beasley School of Law, Temple University, where she earned a Juris Doctor degree.
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| | BEST PRACTICES:
TITLE INSURANCE - HOW MUCH IS ENOUGH? By Ethan W. Smith | |
 When closing SBA loans, lenders often wonder how much title insurance to obtain on real estate collateral. This is especially true in 7a lending, where loan amounts routinely exceed the value of the collateral being insured. How should lenders strike the balance between obtaining title insurance in an amount high enough to sufficiently protect their interests, while not overinsuring and causing their borrowers to incur unnecessary closing costs? In performing this analysis, it is helpful to keep a few basic principles in mind:
First, it is important to understand the limits of title insurance coverage. All American Land Title Association ("ALTA") policies limit the title underwriter's liability to the lesser of: (i) the face amount of the policy; (ii) the fair market value of the property insured; or (iii) the actual loss sustained by the insured claimant.
Second, SBA regulations generally require lenders to file all liens in the full loan amount. The only exception to this rule is for liens on secondary collateral in states where there are adverse tax consequences associated with the recording of lender's lien; in such cases the lien may be limited to 150% of the equity in the property. SOP 50-10 5 (B), p.181.
Third, SBA regulations only require lenders to take liens on personal residences to meet the requirement of "fully secured" when the property has equity that is equal to or greater than 25% of the fair market value of the property.
The SOP does not contain specific requirements regarding the amount of title insurance that lenders must require. Although the Loan Authorization Boilerplate contains optional language for the amount of title insurance coverage that may be required, there is no express guidance from the SBA as to when to require title insurance, and how much coverage is enough. In the absence of express direction from SBA, lenders must look to the catchall "prudent lending" standard that governs all SBA loans.
Therefore, when the loan amount exceeds the value of the property, it does not add significant value to the lender or the SBA to require title insurance in the amount of the loan. Instead, it is more appropriate to require insurance in an amount equal to the value of the real property being insured. An even more conservative approach would be to take title insurance in an amount equal to 150% of the equity in the property. This will provide protection to the lender in the event the borrower's equity in the property increases or if the property appreciates in value post-closing. Regardless of the decision lenders make as to the amount of title insurance to obtain, the decision should be well documented in the lender's file and the interests of providing adequate protection to the lender and avoiding unnecessary costs to the borrower must be balanced.
For more information on title insurance and other closing issues, contact Ethan Smith at esmith@starfieldsmith.com or 215-542-7070.
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 | Seminars and Events |
SBA Loan Guarantees:
Current Purchase Issues and Complexities Date: December 8th, 2010 Time: 1:00 pm - 2:30 pm EST Location: Webinar
In the current economy, many lenders are looking to the credit enhancement offered by the U.S. Small Business Administration's government guaranteed lending programs to keep capital flowing to America's small businesses. While the many benefits of the programs may be appealing to lenders an understanding of the guaranty purchase process and the pitfalls which lenders fall victim to, resulting in discounts and denials of these same loan guarantees, is more important now than ever. As the oversight standards of the SBA tighten, you need the knowledge to ensure their loan guarantees will be honored by the SBA.
To see a brochure for this event, click here
Register online here.
Or call 1-866-352-9539
When registering, use priority code 15800 and discount code F2716129.
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Starfield & Smith, P.C.
Pennsylvania Office
501 Office Center Drive, Suite 350 | Ft. Washington, PA 19034
phone: (215) 542-7070 | fax: (215) 542-0723
Minnesota Office
1516 West Lake Street, Suite 303 | Minneapolis, MN 55408
Loan Documentation | Closing | SBA Guaranty Repurchase
Regulatory Compliance | Franchise Eligibility
Business Consulting
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