A senior lending officer once remarked, “the best loans are those that are well-underwritten and better papered.”

Lending in our tri-jurisdiction area of DC, Maryland and Virginia is challenging today. Lenders must not only underwrite the loan and the borrower/guarantors for today, but also look forward during the term of the loan to protect the loan for default, trouble or calamity. Beyond that, it gets even trickier in our area. The lender may be organized in one state and funding loans in several; the borrower may be organized or doing business in one or more states; real property securing the loan may be in another place; other property (stock, partnership/LLC interests) may be located in another state(s), along with other security; the  guarantors are likely living in two or more states and the closing of the loan may be anticipated in one of the several states. It takes a full day to drive across the extremes of California, while it’s but a par 3 from DC to Virginia or Virginia to Maryland and only a 30 second walk from Maryland to DC.  With these twists and turns, it is essential to have retained seasoned counsel to ensure that the loans are properly papered to protect the lender. After all, all loans start with underwriting and are secured with good papers. Because the laws in all three jurisdictions are different regarding lending, collection and enforcement, consider the following:

  • “Confessed/Confession Judgment” rules are different in all three jurisdictions. DC does not permit “confessed/confession of judgment” notes and guarantees in lending by court rules. Maryland has special confession of judgment collection provisions by case law (not statute). Virginia has special confession of judgment notice and docketing provisions by statute and court rules.
  • All three jurisdictions have different thresholds for issues relating to “lender liability.”
  • All three jurisdictions have different statutes of limitations rules.
  • Usury rules are different in all three jurisdictions.
  • The three jurisdictions may differ in special disclosure and notice provisions. 
  • Homesteads (principal residences) are subject to special protection in many states and the family residence may be untouchable by most lenders.
  • All three jurisdictions have different service of process rules for suit enforcement.

Not only are the collection rules that cross jurisdictional lines complex, but they keep changing. Weiss LLP is a seasoned law firm with attorneys admitted to practice law in all three jurisdictions, representing lenders that typically loan across jurisdictional lines. At Weiss LLP, it is our bread and butter to face these issues. We recommend that loan officers consider the following:

  • Do not use form (Laser Pro) documents. These documents are great for “single-purpose jurisdiction loans” (where borrower, lender, security, guarantors, etc. are all in the same state); however, the forms are not geared for the Tri-State Conundrum. We have yet to find a single computer-generated system that allows for cross-jurisdictional lending.
  • Use only seasoned, “dual purpose” counsel.  Use only seasoned counsel that both typically papers and engages in enforcement of these loans. As  has been said, you don’t have a civilian protect you from a war – you use one who has been to battle.
  • Wisely select your “primary jurisdiction” that best fits your collection needs and that is enforceable. Make sure your loan “touches and concerns” that jurisdiction and that you have the right to do so by the law. If your borrower or guarantor or pledging party lives in another jurisdiction, state that the loan is being made in the primary jurisdiction as a fundamental purpose of the loan.
  • Include spouses in guarantees. To the extent possible, always include spouses on all guarantees. Times change, folks get divorced and full guarantees fully protect the lender. Although this is not always possible, this can mitigate or avoid the “homestead and divorce problems.”
  • Always get a pledge of LLC or company interest in the borrower and file security agreements and financing statements. Note that although the UCC publication is close to uniform, it is not uniform in all cases. Be careful when publishing financing statements in different jurisdictions without knowledge of these local laws.
  • Don’t limit yourself in the commitment letter! When preparing the commitment letter, make sure you do not limit your ability to require certain loan documentation at the closing of the loan. This means that your commitment letter will also include language stating that the Lender will “require such other security documents and other instruments necessary to protect the lender in all instances as a condition of funding of the loan.”
  • Loan documents can “continue” to be amended for enforcement. Good loan documents include what we call “ambulatory provisions.” This means that there should be a catch-all in the loan documents that allows the lender to require the borrower/ guarantor/obligor/grantor to “give, tender and execute such other documentation following the closing of the loan and at any time to further guarantee, protect, secure and provide maximum protection of the lender with respect to the security of the loan.”
  • Seasoned counsel who paper loans and who enforce loan terms are a must. Try to retain only seasoned attorneys who regularly both paper loans and enforce loans that cross jurisdictional lines – ask your counsel if they do this on a regular basis. It has been said that one does not hire a civilian to advise you to prepare for a war.

Do not hesitate to contact Weiss LLP for further information or guidance.