Signatory Authority For Your Closings

Real estate investors must protect their assets by assuring that parties with sufficient legal authority execute purchase and sale agreements and other documents associated with their business. Failure to do so may result in voided transactions and a complete loss of title on the property. Multi-member LLCs, partnerships, and corporations are at greater risk for such oversights, but all investors who do business through asset protection entities should be aware of legal guidelines for real estate transactions in Georgia to avoid potential losses.

In general, entities must be in “good standing” in the state in which it they were created to execute real estate transactions. Basically, this means, do not forget to pay your annual registration fees to the appropriate office each year, most likely the Georgia Secretary of State’s office. Furthermore, any person signing or executing documents on behalf of the entity must have the authority to do so on behalf of the entity. In order for a person to have legal signatory authority, such authority must be reflected in the entity’s filings with the Secretary of State.

Real estate investors who are entering into agreements with artificial entities can verify the authority of persons with whom they are dealing by checking the entity’s filings on the Georgia Secretary of State web site. Recent changes in the filings that add or delete parties with authority warrant independent verification of the current parties with authority. Often, the attorney representing the entity can verify changes reflected in recent filings. Investors should also be aware that “self-dealing” real estate transactions improperly executed on behalf of an entity are void; conveyancing or mortgaging of land by or to an officer of a corporation, partner of a partnership, member of an LLC, or parties to a trust (if the land is owned in the name of a trust) will not bind the entity itself if the person executing the documents has no authority to do so.

Documents must reflect legally required procedure and identification to protect the validity of any real estate transaction. All signatures on real estate agreements and related instruments, including indemnities, and all notary or acknowledgement blocks, must properly reflect the authority or capacity of the signer. Hypothetically, a signature block that read, “ABC, LLC by Jane Smith, Manager” would be legally sound, but a signature block that simply read, “Jane Smith” would be insufficient. When directors or other entity officials are located outside of the United States, all signatures on any documents, including corporate resolutions, are to be acknowledged pursuant to foreign notarial guidelines of the United States, including terms of the Hague Convention, if applicable.

There are specific guidelines in Georgia that govern authority of parties acting on behalf of limited liability companies. A managing member is an agent of the LLC for purpose of carrying on ordinary or usual business.  An act of a managing member that is not apparently done for the purpose of carrying on ordinary or usual business will not bind the LLC unless all members authorize the act. Closing attorneys must approve any transaction not in the ordinary course of business or not specifically allowed under an LLC’s operating agreement, including, but not limited to, execution by a managing member of a deed in lieu of foreclosure without the consent of all members, including all non-managing members; execution of a mortgage involving cross-collateralization with different borrowers (even with some commonality among borrowers) without consent; execution of a mortgage where the proceeds of the loan are going to an entity other than the mortgagor LLC; and transactions where the LLC or its property is rolled up, merged, contributed, or converted to or into another entity.

A good closing attorney should be able to keep real estate investors abreast of Georgia real estate transaction requirements. If you have any questions or concerns about how to best conduct real estate transactions through your asset protection entity, or if you have concerns about the authority of persons signing on behalf of an entity with whom you do business, your closing attorney can advise you on your next steps.