When it comes to drafting loan documents, even the most seasoned private lenders can find themselves searching for a simpler and cost-effective solution to draft, revise, or generate their loan documents quickly. As technology advances, loan document software has become a popular choice in the private lending industry for lenders looking to scale their business and save money. While loan document software offers easy-to-use templates that can draft DSCR, Fix and Flip, or Ground-Up Construction loans in a matter of minutes, they fail to cover the nuances of more complex transactions. A lender can quickly find themselves facing costly compliance violations that a seasoned legal professional could prevent.
A law firm specializing in private lending can not only draft loan documents and ensure compliance but also provide key insights and expertise that can help a lender scale their business. Below are three major reasons why a lender should consider working with an experienced law firm over loan document software for their loan document needs.
Loan Document Software Has Limits
At the heart of most, if not all, loan documentation software is a template feature. This feature allows lenders to dramatically increase their loan volume in a short amount of time. These templates offer customization but fail to provide the lender with the necessary knowledge needed to generate complex documents.
For example, if a lender were planning to lend to an LLC with collateral located in multiple states, the loan document software could not walk a lender through that process to ensure that all requirements are met. A law firm, however, could tailor loan documents to meet the borrower profile, lending model, and deal type, all while adhering to state regulations.
Mitigating Risk and Legal Protection
By using a law firm to generate loan documents, you have peace of mind that an experienced professional is reviewing key aspects of your loan transaction that a software platform simply cannot manage. For example, while a loan document software company may have fields to list exception items to be deleted from title before issuing a policy, or to request additional title policy endorsements, unless you have a trained professional internally reviewing the preliminary title report and transaction terms, you may not put the appropriate answers in the fields.
Some loan document platforms offer the ability to create complex signature blocks. But, without someone experienced reviewing borrower entity documents to confirm signature authority, you may not insert the right information into the interview to receive the signature block required to close the loan.
Collaborating with an experienced legal team not only helps a lender drastically reduce any legal risks through compliance and document structuring but also gives the lender access to legal counsel and defense if the relationship with the borrower goes south.
State-Specific Compliance
When it comes to compliance, no two states are alike. Each state has its unique compliance hurdles that can trip up even the most experienced lenders. While some loan document software regularly updates loan document templates to accommodate the ever-changing compliance laws that each state has, these updates can take weeks or even months to implement, leaving lenders at risk for costly compliance violations.
There are loan document systems that provide an automated warning to the user to adjust the loan terms to avoid compliance violations, but other concerns, like licensing, cannot be as easily addressed by software. Larger, more nuanced compliance concerns must be addressed by the lender early on to ensure the loan is originated properly. If a lender encounters these issues for the first time while drafting loan documents, it may be too late to properly originate the loan.
Peace of Mind is Priceless
The “DIY” nature of loan document software can lead lenders down a path of problems that cost more than the total cost of hiring a full-service law firm. A professional legal team gives lenders a second set of expert eyes, accountability, and guidance that provides peace of mind. A large lender with a trained internal compliance team might find that loan document software is better suited for their needs, but a smaller lender looking to scale their business across state lines can only stand to benefit from partnering with a law firm that understands their needs.
Geraci LLP is the nation’s largest private lending law firm, and we specialize in helping private lenders through every step of the complex loan transactional process. Our team has decades of experience, with a wide range of services that can be tailored to meet the needs of our clients. From drafting custom loan documents to compliance oversight, we are here to ensure that lenders can focus on growing their portfolios with the knowledge that they are backed by professionals. Click here to contact our team today.
