Understanding The Delaware Single Member LLC Opinion

In the world of secured lending the use of a Delaware single member LLC has become ubiquitous. There are several factors which have led secured lenders to require that the borrower be a Delaware LLC. The easiest to understand is the fact that in the years surrounding the adoption of Delaware’s first LLC Act in 1987, there were few options for Borrowers and Lenders who wanted limited liability and flow through tax treatment. A very few states had at that time adopted LLC Acts. At the same time Lenders already had a preference for their Borrowers to be a Delaware Limited Partnership. Delaware’s limited liability company act is built directly upon its Limited Partnership Act which gave lenders confidence that they had similar rights to those it had under the Limited Partnership Act. [In fact, when comparing the Delaware LP Act the LLC Act, you will find similar provisions with similar section numbers.] Borrowers wanted to continue to have the pass-through tax treatment that was afforded by limited partnership statutes but without the risk that a single person or entity must have the unlimited liability of a general partner. Delaware Limited Liability Companies met the requirements of both Lenders and Borrowers.

If you are the principal of a Borrower seeking a CMBS[1] loan secured by real property (commercial or multi-family residential), or if you are Borrower’s counsel engaged to represent the Borrower in the closing of the transaction, you will likely be faced with a loan commitment requirement that the Borrower be a Single Member Delaware LLC and that at Closing the Lender will require that a Delaware Single Member LLC Opinion be delivered. In larger loan transactions the lender will require an opinion dealing with what person or entity has the power to file a petition in bankruptcy for the Borrower. This second Opinion is referred to in the trad as the “Authority to File Opinion”. This second Opinion is a long “reasoned” Opinion which, again, is generally issued by the same Delaware Attorney who issues the CMBS Opinion. The focus of this Article will be understanding the CMBS opinion as well as the Freddie Mac and Fannie Mae forms of opinion.

I have been a Delaware Attorney for more than fifty years and have been a member of the Delaware Bar Association’s Alternative Entity Committee for more than thirty years. The Alternative entity Committee has the responsibility to keep Delaware’s LLC, LP and GP Acts current and to meet the needs of law firms throughout the country. A large portion of my practice is the delivery of these two Opinions to Lenders and to assist Borrower’s Counsel in addressing Delaware issues including the drafting to the Single Member LLC Agreement.

The preference of lenders is to have a Single Member Borrower, however we are sometimes faced with Multi-Member Agreements which have been entered into prior to our engagement. Working with such agreements takes substantial time to understand and determine whether features such as promotes, and waterfalls as written would be enforceable under Delaware contract law. These reviews increase the Borrower’s legal cost. If we are brought in early to the transaction, we recommend a single member LLC as the Borrower with a second LLC as the member, which is the multi-member LLC.

American Legal Opinion Practice is a niche practice. The American Bar Association has an Opinion Laws Section and Committee as do the Bar Associations in many of our larger States. Legal opinions are delivered by and are the expression of the Firm’s legal conclusions, legal opinions are signed in the name of the Firm and not the name of the individual attorney who is the author of the Opinion. Opinion givers and Opinion recipients expect that a Legal Opinion be issued by an attorney or law firm admitted and practicing in the same State where the laws giving rise to the opinion are situated[2]. Most legal errors and omissions policies do not provide coverage to an attorney or law firm practicing outside the state where they are admitted to practice, and, that includes giving legal opinion based upon the laws of that other state where they are not admitted. The giving of a legal opinion by an attorney is the expression of legal conclusions based upon an analysis of laws of that state and the facts giving rise to the opinion request. The form of CMBS opinion looked for by attorneys representing lenders are a mix of confirmations of fact, an analysis of Delaware LLC law and Delaware contract law. Some practitioners may not understand the “contract law” component. A Delaware (or any other state for that matter) limited liability company agreement is a contract among the members of the LLC and the LLC itself. You might have pause to think, how can a single member LLC Agreement be a contract. One of the genius provisions of the Delaware LLC Act (thank-you Martin Luberoff, Esq. the driving force and scrivener of the original1987 Act) is the concept of the “Single Member LLC”. Presently all state LLC acts now contain provisions recognizing the enforceability of single member LLC’s. However, in 1987, the thought of a person entering into a contract with themself ran contrary to every existing Anglo-American concept of contract and ran directly against the “statute of frauds” in force in every state. Section 18-101 of the LLC Act in subsection (9) provides in relevant part: “A limited liability company agreement of a limited liability company having only 1 member shall not be unenforceable by reason of there being only 1 person who is party to the limited liability company agreement. A limited liability company agreement is not subject to any statute of frauds (including § 2714 of this title).”

An opinion regarding the enforceability of a Delaware LLC Agreement involves the interpolation of Delaware statutory law as well as Delaware case law regarding contracts generally and not just the Delaware LLC Act. For these primary reasons Lenders and Lender’s counsel require that the Delaware LLC Opinion be given by an attorney admitted to practice in Delaware.

The Opinion is addressed to the Lender. In the case of a loan assumption which is often the case in CMBS lending, the Opinion is addressed the Trustee c/o the loan servicer and to the company which arranged to the consents to the assumption. The following is an example:

Wilmington Trust, National Association

As Trustee on behalf of the Registered

Holders of _________ Commercial

Mortgage Trust, Commercial Mortgage

Pass Through Certificates, Series 2016-C7

c/o Wells Fargo Bank, National Association

Commercial Mortgage Servicing

MAC D1086-32A, 520 S. Tyron Street,

23rd Floor

Charlotte, North Carolina 28202

______ Advisors, LLC

______ Blvd., Suite ____

[City, State, Zip]

Attn: _____, Managing Director

Wilmington Trust is frequently the trustee in these transactions. This has much more to do with Delaware’s protective banking laws than the Delaware LLC Act.

The next section is the reference section. Again, here is an example:

Re: $11,400,000.00 loan assumption (the “Loan”) made pursuant to that certain Note and Mortgage Assumption Agreement dated as of ________, 2022, (the “Loan Assumption Agreement”) by and between ABC, LLC, a Delaware limited liability company, (“Assumptor”), DEF, LLC, and Wilmington Trust, National Association, as Trustee, on behalf of the Registered Holders of ______ 2016-C7 Commercial Mortgage Trust, Commercial Mortgage Pass Through Certificates, Series 2016-C7, in the original principal amount of $11,400,000.00 (the “Loan Assumption”), (“Lender”).

As you can see the section specifically describes the loan being assumed. In a loan origination the reference paragraph would likely read similarly to :

RE: $65,000,000.00 loan (the “Loan”) made pursuant to that certain Loan Agreement dated as of December 19, 2022, (the “Loan Agreement”) by and between ABC, LLC, a Delaware limited liability company, (“Borrower”) and DEF, N.A., a National Banking Association, (“Lender”).

The next section of the Opinion describes Opinion Giver’s function in the transaction.

We have acted as special Delaware counsel for Borrower solely for the purpose of delivering this opinion in connection with the Loan which you are making to the Borrower on the date hereof (the “Loan”), in connection with the Loan Agreement and the other Loan Documents (defined below). This opinion letter is being furnished to you at the request of Borrower. Except as otherwise set forth below, capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

The Borrower has requested that we deliver this opinion to you, has consented to your reliance upon this opinion, as well as the reliance of the parties referenced in the final paragraph of this opinion, and has waived any privity between the Borrower and us in order to permit you to rely on this opinion. We understand, and, with the consent of the Borrower, consent to you, as well as the parties described in the final two paragraphs of this opinion, so relying on this opinion.

The first sentence specifies that we are “special Delaware counsel for Borrower”. Special counsel is understood by attorneys to mean that we have been engaged for the singular purpose of delivering the opinion and do not represent the Borrower generally in other transaction or in an other part of the subject transaction. In a state law opinion several years ago an elected state trial judge did not understand the concept of “special counsel” and decided that the term “special counsel” meant that the attorney was “special” and had inherent knowledge beyond “regular” attorneys. The decision was subsequently overruled by an appellate court.

The concept of a Legal Opinion to a third party runs against the concept of “privilege” and privileged communications between the attorney and his or he client. There is also the concept of contract between the attorney and client. For those reasons we recite that the opinion is being delivered at the request of the Borrower which we have identified as our client, thus sidestepping the issue of privilege. Additionally we recite that the client has waived privity so as to permit the opinion recipient and other persons identified in the Opinion to rely upon the Opinion. We also provide our consent for reliance upon the Opinion to the parties specified in the Opinion. The attorney should be vigilant as to who or whom may rely upon the Opinion to control the “risk group,” that is to say the universe of parties who have legal standing to sue the Opinion Giver over any miss-statement contained in Opinion.

The next section of the Opinion specifically describes the organizational document that have been reviewed in connection with the delivery of the Opinion.

We have, for purposes of delivering the opinions hereinafter set forth, examined originals or copies of the following organizational documents of Borrower (the “Organizational Documents”):

(i) The Certificate of Formation of the Borrower, dated as of __________, 2022, as filed in the office of the Secretary of State of the State of Delaware (the “Secretary”) on _______, 2022 (the “Borrower LLC Certificate”);

(ii) The Limited Liability Company Agreement of Borrower, entered into by its sole member, ____________, LLC, a Delaware limited liability company (the “Member”), [Person one] and [Person two] (collectively the “Special Members”) effective as of December 9, 2022 (the “LLC Agreement”);

(iii) A Certificate of Good Standing for the Borrower, dated as of December 7, 2022 obtained from the Secretary (the “Borrower Good Standing”), a copy of which is attached hereto as Exhibit A;

(iv) The General Certificate of the Borrower dated on or about the date hereof, a copy of which has been supplied to you (the “Borrower General Certificate”); a copy of which is attached hereto as Exhibit B;

Paragraph (i) describes the LLC Certificate of Formation. In this example the LLC Certificate of Formation was not dated the same day that it was filed in the Office of the Delaware Secretary of State. Unless a subsequent effective date is specified, the Delaware Secretary of State gives as the effective date of a filing, the date that it is received in the Office of the Secretary of State. If the document’s signature date and the date of filing were the same we would have stated: “Dated and Filed in the Office of the Secretary of State of the State of Delaware (the “Secretary”) on ___________, 202_”;

Paragraph (ii) gives the name of the LLC and states the date the LLC Agreement was adopted, names the member or members of the LLC and includes the name of the “Special Member” or “Members,” sometimes referred to as a “Springing Member” as the Special or springing Member is a member without a capital account who has no authority to act for the LLC or manage the LLC until such time as the single member or manager no longer serves in that capacity and then “springs” into a position of authority to manage the LLC. There is preference by many Delaware attorneys that the LLC Agreement be dated the date of formation. Section 18-801(4) provides that an LLC is dissolved at the time it no longer has a member. Section 18-301 provides that in connection with the formation of the LLC, a member is admitted “upon the latter to occur of: (1) The formation of the limited liability company; or (2) The time provided and upon compliance with the limited liability company agreement, or, if the limited liability company agreement does not so provide, when the person’s admission is reflected in the records of the limited liability company or as otherwise provided in the limited liability company agreement.” If the Agreement is not dated the date of Formation, the argument goes that the LLC does not have any member and dissolves if the Agreement is dated as of a subsequent date. We do not believe that such is an accurate reading of the statute, nevertheless we prefer having the Agreement dated the date of formation. We have had transaction were the LLC was formed well prior to the date of the transaction, the Client had it “on the shelf”, had not organized the LLC, the LLC never had a member and the client did not adopt an LLC Agreement, either oral or written. In those cases you are faced with a choice, we have in the past received evidence that the member had in fact been admitted as a member based upon tax returns.

In the instant example the Agreement has two “special members”. Lender’s counsel expects there to be a “springing member” when the single member is an individual and often in the case where the single member is an entity. Referring back to 18-801, if the single member dies, is adjudged bankrupt or become incapacitated or if an entity member in a single member LLCdissolves or becomes bankrupt we have the 18-801(4) situation that the LLC no longer has a member. Section 18-801(4) contains a safe harbor that allows for the continuation of the LLC, the “special members” step into membership temporarily and “automatically” upon there no longer being a member and the section permits a requirement in the LLC Agreement that the “personal representative” or its designee, within ninety days following the date of the event that caused the last remaining member to cease to be a member, to be admitted as a substitute member step into membership. There is very specific language which the Delaware Attorney looks for in the LLC Agreement to cover these situations.

Paragraph (iii) describes the “Good Standing Certificate” issued by the Delaware Secretary of State. The Certificate, as of the date specified, Certifies that the named LLC “is duly formed under the laws of the Stat of Delaware and is in good Standing and has a legal existence so far as the records of this Office show, as of _______.” “And I do hereby further certify that the said {LLC Name} was formed on the ___ day of _____, A.D. 202_.” The phrase “is in Good Standing and has a legal existence” will be significant in giving Opinion 1 discussed later. In the absence of a Good standing Certificate there is not any way for an attorney to conclude good standing, there are no public records which can be searched to make this determination.

Paragraph (iv) refers to a factual general certificate which we prepare based upon information provided to us by the client. We require the client to review the certificate for accuracy and ask that they sign the General Certificate which certifies the LLC Agreement and borrowing resolutions to us and which becomes the basis for the factual statements in our opinion and which makes certifications to us as to the accuracy of facts upon which we base some of our opinions.

In CMBS and Fannie Mae opinions the opinion giver is required to give a UCC opinion that the UCC-1 Financing Statement is in proper form for recording and that the UCC, when filed and indexed, is enforceable. No knowledgeable attorney will give a “priority” opinion, when the lender seeks assurance as to priority, many of the title insurance companies issue UCC insurance policies. Paragraph (v) describes the UCC-1 Financing Statement. The form of the UCC-1 to be filed is always an exhibit to our opinion to make it clear which document we are opinion upon and to avoid any misunderstandings if the Lender changes the UCC-1 subsequent to our Opinion but prior to filing, that we are opining upon the exhibit and not a subsequent document.

We assign the term “Organizational Documents” to mean (i) through (iv) above.

Next, we assign a meaning to terms capitalized in the Opinion: Initially capitalized terms used herein and not otherwise defined are used as defined in the Borrower LLC Agreement.

It is important for the Opinion Giver to define what documents he or she examined to give the Opinion. We use the following language to describe the universe of document we have examined and make it clear to the opinion recipient that there are no other documents reviewed. In some situations, there are negotiations as to whether other documents must be included.

For purposes of this opinion, we have not reviewed any documents other than the Organizational Documents listed in paragraph paragraphs (i) through (v), in particular, we have not reviewed any document (other than the Organizational Documents and the Borrower Delaware UCC) that is referred to in or incorporated by reference into any document reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own but rather have relied solely upon the factual representations and warranties set forth in the Organizational Documents, the factual statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete, and accurate, in all material respects.

Clarification is necessary as to the “genuineness” of documents reviewed and signatures received.

With respect to all documents examined by us, we have assumed that (i) all signatures on documents examined by us are genuine, (ii) all documents submitted to us as originals are authentic, and (iii) all documents submitted to us as copies conform to the originals of those documents.

In delivering an Opinion to the Opinion Recipient, certain information is assumed by the Opinion Giver. The following are the assumptions which we include in our Opinions. The meanings of Subsection (a) through (k) should not require further explanation to any experienced attorney, (l) through (r) may require some further explanation to a non-Delaware attorney, which we will endeavor to provide explanations.

Assumptions:

For purposes of this opinion, we have assumed:

(a) Each of the parties to the Loan Documents, other than the Borrower, have duly and validly executed and delivered each such instrument, document, and agreement to be executed in connection with the Loan to which such party is a signatory, and such party’s obligations set forth in the Loan Documents are its legal, valid, and binding obligations, enforceable in accordance with their respective terms.

(b) Other than with respect to the Borrower, each person executing the Loan Documents, whether individually or on behalf of an entity, will have the requisite power and authority to do so at the time of execution, and the obligations of any party, other than Borrower, will be its legal, valid, and binding obligations, enforceable in accordance with the terms thereof.

(c) Each natural person executing the Loan Documents will be legally competent to do so.

(d) All signatures on Loan Documents are genuine. All documents submitted to us as originals are authentic, all documents submitted to us as certified or photostatic copies conform to the original document, and all public records reviewed are accurate and complete.

(e) With respect to Borrower’s good standing, we have relied on Borrower Good Standing from the Secretary of State attached as Exhibits A and C, which we have assumed to be accurate.

(f) The parties (other than Borrower) to the Loan Documents and their successors and assigns will (i) act in good faith and in a commercially reasonable manner in the exercise of any rights or enforcement of any remedies under the Loan Documents; (ii) not engage in any conduct in the exercise of such rights or enforcement of such remedies that would constitute other than good faith and fair dealing; and (iii) comply with all requirements of applicable procedural and substantive law in exercising any rights or enforcing any remedies under the Loan Documents.

(g) The exercise of any rights or enforcement of any remedies under the Loan Documents will not be unconscionable, result in a breach of the peace or otherwise be contrary to public policy.

(h) Borrower will have title to, or other interest in, each item of real and personal property comprising the “Property”.

(i) We have assumed that there has not been any mutual mistake of fact or misunderstanding, fraud, duress, or undue influence on behalf of the Lender.

(j) We have assumed that the conduct of the Lender with respect to the Loan has complied with any requirement of good faith, fair dealing, and conscionability.

(k) We have assumed that the Loan Documents accurately reflect the complete understanding of the parties with respect to the transactions contemplated thereby and the rights and obligations of the parties thereunder and there are no agreements or understandings among the parties, written or oral, and there is no usage of trade or course of prior dealing among the parties that would, in either case, define, supplement, or qualify the terms of the Loan Documents.

(l) Borrower has at all times had at least one member.

We had explained previously that under 18-801 the LLC dissolves without one member.

(m) The Borrower Certificate of Formation has not been amended and that no amendment is pending nor has been proposed.

This is an assumption that the Certificate of Formation reviewed by us is the only Certificate of Formation and that the Borrower has not and does not intend to make any change in the Certificate of Formation which would adversely affect our Opinion.

(n) Borrower is organized solely under the laws of the State of Delaware.

Delaware does not prohibit a Delaware business entity from being organized in more than one State. This is a provision often used by public utilities which are formed in each of the states which it operates for tax a regulatory reason. If the LLC were organized also under the laws of a foreign state, that would require additional analysis of the laws of that state and a requirement of a separate opinion of counsel admitted in that state.

(o) There are no proceedings pending or contemplated for (A) the merger, consolidation, conversion, dissolution, liquidation or termination of Borrower or (B) Borrower to transfer to or domestication in any other jurisdiction.

This should be reasonably clear to any opinion giver.

(p) That Borrower does not have any employees, assets, or activities in the State of Delaware (other than activities incidental to its indirect ownership of the Property, its maintenance of a registered office and registered agent in the State of Delaware or the filing of documents with the office of the Delaware Secretary of State).

If the LLC has operations or property in Delaware, the Opinion Giver would have additional State based due diligence to perform prior to delivering the Opinion.

(q) That Borrower has not received notice from its registered agent in the State of Delaware that it intends to resign.

If the registered agent of an LLC resigns and a new registered agent is not named within prescribed time limits, the LLC is dissolved.

(r) That the Borrower Delaware UCC-1 Financing Statement will be dully and properly filed and properly indexed by the Secretary of State to the extent necessary to create the encumbrance and lien as provided therein.

This should be obvious to any experienced practitioner.

The Opinion Giver wants to limit the universe of law upon which it is opining. The following paragraph describes the laws upon which we have based our opinion. Securities laws and Bankruptcy laws are generally understood to be excluded from the Opinion. This paragraph also excludes “federal laws” from our opinion. There is often push back from lender’s counsel on this exclusion. We believe that this is a proper exclusion as we are unaware of any federal laws applicable to the commercial loan transaction. When faced with pushback my first response is to ask Lender’s Counsel to name the federal laws that they wish us to opine upon and offer to enumerate them in the Opinion. The typical response is that the exclusion is not permitted, without explanation. Sometime after the discussion the attorney representing the lender will relent. There are some who just dig in their heels. In those situations, I have developed a proprietary list of “federal laws” which we identify and then exclude. We have never had any pushback when using the list.

Opinions:

Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations, and exceptions set forth herein, we are of the opinion that:

We will address each of the Opinion paragraphs. These specific opinions are generally standard for CMBS loans. In Fannie Mae and Freddie Mac loans, each agency had its own variation on the form of the opinions generally which do not substantially vary from the language above. They each have their own opinion forms and specify the order of the paragraphs and how the paragraphs are numbered to reflect omitted opinions. (Some of the opinions are written to come from the Borrower’s general counsel and some come from the “property law” jurisdiction.)

Borrower is duly formed as a limited liability company under the laws of the State of Delaware. Based solely on the Borrower Good Standing, the Borrower validly exists and is in good standing as a limited liability company under the laws of the State of Delaware.

Circling back around to the Good Standing Certificate we discussed earlier, the Secretary of State has certified due formation, good standing and valid existence. This paragraph is a factual statement or “confirmation” and not truly an ”opinion” as it is not subject to deductive reasoning by the attorney from known facts. The only evidence of these three items comes form the Good Standing Certificate and cannot be ascertained from any other source. Consequently we use the phrase “Based solely on”. We use the term “duly formed” from the Certificate. In corporate opinions there is the concept of duly organized (i.e., officers and directors have been elected, bylaws have been adopted and corporate activities are reflected in corporate minutes). There is no corollary in LLC Opinions as there are no such requirements in the Delaware LLC Act.

2. The Borrower LLC Agreement constitutes a legal, valid, and binding agreement of its Member and its Special Member and is enforceable against its Member and Special Member in accordance with its terms.

3. The Borrower has the requisite power and authority under the LLC Act and the LLC Agreement to execute, deliver, and perform the Company’s obligations under the Loan Documents (as defined in the LLC Agreement).

4. Under the LLC Act and the LLC Agreement, the Bankruptcy or dissolution of the Member will not, by itself, cause the Company to be dissolved or its affairs to be wound up.

Paragraph 2 deals with the binding effect of the LLC Agreement upon the parties to the Agreement. Paragraph 3 is an analysis of the power and authority of the parties. Paragraph 4 is the so called “non-dissolution” opinion and involves an analysis of the specific provisions of the Agreement and Sections 18-301 and 18-501. These three opinion paragraphs involve an analysis of the LLC Agreement in the context of Delaware contract law and court decisions. These are opinions that only a Delaware admitted attorney can give.

5. If properly presented to a Delaware court, a Delaware court applying Delaware law would conclude that (i) so long as any Obligation is outstanding, in order for a Person to file a voluntary bankruptcy petition on behalf of the Company, the prior unanimous written consent of the Member and the Independent Manager, as provided for in Section 9, (j)(iii) of the LLC Agreement, is required, and (ii) such provision, contained in Section 9, (j)(iii) of the LLC Agreement, that requires, so long as any Obligation is outstanding, the prior unanimous written consent of the Members in order for a Person to file a voluntary bankruptcy petition on behalf of the Company, constitutes a legal, valid and binding agreement of the Member, the Special Members, and is enforceable against the Member and Special Members in accordance with its terms.

This opinion paragraph deals with the interpretation a paragraph in the LLC Agreement which requires the prior unanimous consent to the Member and the Special Members for the LLC to file a petition in bankruptcy. It has been held by Federal Courts that the right to access the Bankruptcy Courts is a constitutionally protected right and that a provision which would prohibit the filing of Bankruptcy would be void and unenforceable. In an effort to work around this issue, lender’s have come up with some novel workarounds. They have added “Golden Share” requirements which required that the borrower issue an interest to the lender and that the unanimous consent of all members is required to file bankruptcy. This Golden Share was intended to give the Lender blocking power, Federal courts have generally disapproved of Golden Shares. In larger loans the lender will require that a “professional” “independent manager” be included in the LLC Agreement and that the unanimous consent of all members and managers is required to file for bankruptcy. The professional independent manager is usually provided by companies such as CSC, CT or Wilmington Trust. In a case about 10 years ago a national REIT was about to file for bankruptcy, its loan documents required simply that the LLC have “independent managers” and outside the loan documents the lender had, prior to closing required independent managers be from CT. On the eve of bankruptcy, the company fired the CT managers and replaced them with friendly managers who voted in favor of the filing of the bankruptcy. The court refused to dismiss the bankruptcy. The current language used by lenders requires certain time limits and approvals before independent managers can be replaced. The following “generic” paragraph was supplied in a deal by an national lender, it is intended to by modified for the deal specific terms:

(q) The organizational documents of Borrower shall provide that the board of directors, the Committee or Sole Member (as applicable) of Borrower shall not take any action which, under the terms of any certificate of formation, limited liability company operating agreement or any voting trust agreement, requires an unanimous vote of the board of directors (or the Committee as applicable) of Borrower unless at the time of such action there shall be (A) at least one (1) member of the board of directors (or the Committee as applicable) who is an Independent Director or Independent Manager, as applicable (and such Independent Director or Independent Manager, as applicable, has participated in such vote) or (B) if there is no board of directors or Committee, then such Independent Manager shall have participated in such vote. The organizational documents of Borrower shall provide that Borrower will not and Borrower agrees that it will not, without the unanimous written consent of its board of directors, its Committee or its Sole Member (as applicable), including, or together with, the Independent Director or Independent Manager (as applicable) (i) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, (ii) seek or consent to the appointment of a receiver, liquidator or any similar official of Borrower or a substantial part of its business, (iii) take any action that might cause such entity to become insolvent, (iv) make an assignment for the benefit of creditors, (v) admit in writing its inability to pay debts generally as they become due, (vi) declare or effectuate a moratorium on the payment of any obligations, or (vii) take any action in furtherance of the foregoing. Borrower shall not take any of the foregoing actions without the unanimous written consent of its board of directors, its Committee, or its Sole Member, as applicable, including (or together with) all Independent Directors or Independent Managers, as applicable. In addition, the organizational documents of Borrower shall provide that, when voting with respect to any matters set forth in the immediately preceding sentence of this clause (q), the Independent Director or Independent Manager (as applicable) shall consider only the interests of Borrower, including its creditors. Without limiting the generality of the foregoing, such documents shall expressly provide that, to the greatest extent permitted by law, except for duties to Borrower (including duties to the members of Borrower solely to the extent of their respective economic interest in Borrower and to Borrower’s creditors as set forth in the immediately preceding sentence), such Independent Director or Independent Manager (as applicable) shall not owe any fiduciary duties to, and shall not consider, in acting or otherwise voting on any matter for which their approval is required, the interests of (i) the members of Borrower, (ii) other Affiliates of Borrower, or (iii) any group of Affiliates of which Borrower is a part); provided, however, the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing.

Opinion 6:

6. Under the LLC Act (i) the Company is a separate legal entity, and (ii) the existence of the Company as a separate legal entity shall continue until the cancellation of the LLC Certificate.

This Opinion requires an analysis by the Opinion Giver of the Certificate of Formation, the LLC Agreement and the Good Standing Certificate.

7. While under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq. (the “LLC Act”), on application to a court of competent jurisdiction, a judgment creditor of the Member may be able to charge the Member’s share of any profits and losses of the Company and the Member’s right to receive distributions of the Company’s assets (the “Member’s Interest”), to the extent so charged, the judgment creditor has only the right to receive any distribution or distributions to which the Member would otherwise have been entitled in respect of such Member’s Interest. Under the LLC Act, no creditor of the Member shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the Company. Thus, under the LLC Act, a judgment creditor of the Member may not satisfy its claims against the Member by asserting a claim against the assets of the Company.

Opinion 7 deals with an analysis by the Opinion Giver of Charging Orders under Section18-703 of the Act.

Opinion 8. (a) The Financing Statement in the form attached hereto as Exhibit C is in appropriate form for filing with the Secretary of State of the State of Delaware, UCC Division.

(b) Upon the filing of the Financing Statement with the Secretary of State of the State of Delaware, UCC Division, and payment of the customary filing fees, the security interest of Lender in the rights of Borrower in the Collateral described in the Financing Statement will be perfected under the Delaware Uniform Commercial Code to the extent such a security interest can be perfected by the filing of financing statements with respect to the Collateral under the Delaware Uniform Commercial Code.

Opinions 8(a) and (b) require an understanding of the filing process within the office of the Secretary of State, UCC Division and the requirements under the Delaware UCC for the filing of a UCC-1 financing statement to create a security interest in the Collateral.

In this Opinion, in Opinion 2 above, the lender sought an opinion as to the enforceability of the LLC Agreement as against the Company, the Member and the Special Member. The enforcement of any agreement is subject to equitable defenses. The first two Qualifications deal with equitable issues.

The opinion expressed in Paragraph 2 above is subject to the effect upon the LLC Agreement of (i) bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, moratorium, receivership, reorganization, liquidation, and other similar laws relating to or affecting the rights and remedies of creditors generally, and (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law). In rendering the opinion expressed in paragraph 2 above, we express no opinion (i) concerning the right or power of a member or manager of Borrower to apply to or petition a court to decree a dissolution of such Borrower pursuant to Section 18-802 of the LLC Act, or (ii) with respect to provisions of the LLC Agreement that apply to a person or entity that is not a party to the LLC Agreement.

The opinions expressed in Paragraph 2 above are subject to principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law).

When giving a UCC opinion there are standard exceptions which Lender’s Counsel will expect to have included and will not push back against:

The opinions expressed in Paragraphs 8(a) and (b) above are subject to the following additional assumptions, qualifications, limitations, and exceptions:

A. We have assumed that (i) the Borrower has sufficient rights in the Collateral and has received sufficient value and consideration in connection with the security interest granted under the Agreement for the security interest of the Lender to attach, and we express no opinion as to the nature or extent of the Borrower’s rights in, or title to, any portion of the Collateral, and (ii) each of the Agreement and the Financing Statement reasonably identifies the Collateral. Accordingly, we have assumed that the security interest in the Filing Collateral and the proceeds (as defined in Section 9-102(a) (64) of the Delaware UCC) thereof has been duly created and has attached. In addition, we have assumed that none of the Collateral consists of a type of collateral described in Section 9-501(a)(l) of the Delaware UCC. Further, we have assumed that the Borrower has authorized the filing of the Financing Statement with the Division.

B. The opinions set forth in paragraph 8(a) and (b) above are limited to Article 9 of the Delaware UCC, and therefore such opinions do not address (i) laws of jurisdictions other than the State of Delaware, and of the State of Delaware except for Article 9 of the Delaware UCC, (ii) collateral of a type not subject to Article 9 of the Delaware UCC, and (iii) what law governs perfection of the security interest granted in the collateral covered by this opinion.

C. We note that further filings under the Delaware UCC may be necessary to preserve and maintain (to the extent established and perfected by the filing of the Financing Statement as described herein) the perfection of the security interest of the Lender in the Filing Collateral, including, without limitation, the following:

(i) appropriate continuation filings to be made within the period of six months prior to the expiration of five-year anniversary dates from the date of the original filing of the Financing Statement;

(ii) filings required with respect to proceeds of collateral under Section 9-315(d) of the Delaware UCC;

(iii) filings required within four months of the change of name, identity or structure made by or with respect to the Borrower, to the extent set forth in Sections 9-507 and 9-508 of the Delaware UCC;

(iv) filings required within four months of a change by the Borrower of its location to another jurisdiction, to the extent set forth in Sections 9-301 and 9-316 of the Delaware UCC; and

(v) filings required within one year after the transfer of collateral to a person or entity that becomes a debtor and is located in another jurisdiction, to the extent set forth in Section 9-316 of the Delaware UCC.

D. We do not express any opinion as to the perfection of any security interest in any portion of the Collateral in which a security interest cannot be perfected by the filing of a financing statement with the Division. In addition, no opinion is expressed herein concerning (i) any collateral other than the Filing Collateral and the proceeds (as defined in Section 9-102(a)(64) of the Delaware UCC) thereof, (ii) any portion of the Filing Collateral that constitutes a “commercial tort claim” (as defined in Section 9-102(a)(13) of the Delaware UCC), (iii) any consumer transaction, or (iv) any security interest in goods covered by a certificate of title statute. Further, we do not express any opinion as to the perfection of any security interest in (i) Filing Collateral acquired by the Borrower after the date hereof, or (ii) proceeds (as defined in Section 9-102(a)(64) of the Delaware UCC) of the Filing Collateral, except to the extent that such proceeds consist of cash proceeds (as defined in Section 9-102(a)(9) of the Delaware UCC) that are identifiable cash proceeds (as contemplated by Sections 9-315(b) and (d) of the Delaware UCC), subject, however, to the limitations of Section 9-315 of the Delaware UCC.

E. We call to your attention that under the Delaware UCC, actions taken by a secured party (e.g., releasing or assigning the security interest, delivering possession of the collateral to the debtor or another person and voluntarily subordinating a security interest) may affect the validity or perfection of a security interest.

F. The opinion expressed in paragraph 8(b) above is subject to the effect of (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, and (ii) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law).

Finally, there are the concluding paragraphs which describe certain limitations on the use of the Opinion and other matters. It is important to include language that the Opinion speaks from the date stated in the Opinion and that the Opinion Giver assumes no obligation to update the Opinion as to changes in the law or subsequent events. We state at the end of the paragraph that the Opinion is given as a legal opinion only and that it is not a guarantee or warranty:

We call your attention to the fact that we are Delaware attorneys and have rendered this opinion on Applicable Law only, further that our representation of the Borrower has been limited to the delivery of this and separate opinions in connection with subject transactions and no other matters.

This opinion is limited to the matters stated herein. This opinion is rendered as of the effective date set forth above, and we express no opinion as to circumstances or events which may occur subsequent to such date. We disavow any obligation to update this opinion or advise you of any changes in our opinion in the event of changes in applicable laws or facts or if additional or newly discovered information is brought to our attention. This opinion is provided to you as a legal opinion only and not as a guaranty or warranty with respect to the matters discussed herein and the documents referred to herein. No opinion may be inferred or implied beyond the matters expressly stated herein.

Finally, we list the parties to whom we consent to receive a copy of the opinion and prohibit its delivery to any other party without our prior written consent.

We understand that you and your successors and assigns (including, without limitation, any trustee in connection with a securitization) will rely on this opinion as to matters of Delaware law as set forth in this opinion. Except as set forth below, this opinion is being furnished only to Lender in connection with the execution and delivery of the Loan Documents and is solely for Lender’s benefit and may not be relied upon by any other person, firm, or entity; provided that this opinion may be provided (i) in order to comply with any subpoena, order, regulation, ruling or request of any judicial, administrative, governmental, supervisory or legislative body or committee or any self-regulatory body (including any securities or commodities exchange or the Financial Industry Regulatory Authority, Inc.), (ii) to a court, arbitrator or similar authority in connection with the enforcement or protection of the rights or remedies of the parties to the Loan Documents and their successors and assigns and (iii) to a person as otherwise required by law. Furthermore, we hereby consent to use and reliance hereon by (i) any assignee of or participant in the Loan, (ii) any servicer of the Loan, (iii) the issuer and/or trustee in a securitization of all or any portion of the Loan, (iv) an underwriter or placement agent for any securities to be issued in a securitization of all or any portion of the Loan, (v) rating agencies rating any securities in connection with a securitization of all or any portion of the Loan and (vi) any regulator or auditor of Lender in connection with the transactions contemplated by the Loan Documents. Such use hereof may include the posting by or at the direction of Lender to an internet website required under Rule 17g-5 promulgated under the Securities Exchange Act of 1934, as amended, and maintained in connection with the ratings on any certificates related to any securitization of all or any portion of the Loan solely for the purpose of compliance with such rule, or undertakings pursuant thereto.

Subject to the forgoing, this opinion is being furnished only to you for your use solely in connection with the Loan described above and except as stated above, without our prior written consent, and except as provided in the prior paragraph this opinion may not be copied or relied upon for any other purpose or by anyone other than the persons identified above for any purpose.

[1] A loan that will or likely will be sold by the Lender into a pool of mortgages which form the basis for an underwriter to issue securities secured by the mortgage pool. There are various types of these pools and mortgage-backed securities are a large portion of Wall Street’s liquidity. You might recall that the over value and subsequent crash of these securities and securities issued by Fannie Mae and Freddie Mac largely cause the 2019 Crash.)

[2] One exception is the giving of legal opinions under the Delaware General Corporation Law (the “DGCL”). The DGCL is American’s default corporation law. Every student in their law school corporations course studies the DGCL. A Delaware corporate opinion is based upon the DGCL itself and the interpretations of the DGCL by Delaware and Federal Courts. It is widely accepted that basic opinions are accepted from non-Delaware attorneys given the national acceptance of the DGCL. Some specialized opinion under the DGCL still require a Delaware Attorney’s opinion.