Intermediaries: You Need To Understand What You have In Order To Get The Deal Done


First, Happy Easter to everyone a few days early. I know it's good friday but I wanted to make sure I covered it.


I don't care what asset class you are dealing in, each and every deal/transaction has it's share of documents that need to be dealt with.


Let me pose the following question. How are you going to be able to present a deal to the individuals and entities you need to present to, if you don't know what you have? you can't present what you do not understand and understand as if it is the back of your hand, so to speak.


As a Private Banker, I get to see deals many do not, unless you are at a certain level. I get to see business plans of all types of deals, tapes of all types of bulk asset deals and guess what else I get the luxury of seeing, I get to see documents, aka docs, of every kind, even docs that have been hand written or custom created.


First, you have to realize that if you are in California and your deal is in California, your docs need to be compliant with the laws of the State of California. Every state has it's own laws that govern transactions. If you live in California and your deal is in Oregon, your docs need to be compliant under the laws for the State of Oregon.


Want proof of this? take a look at the bottom of any legal document and you will see verbiage that says "this document was created under the laws of and can be defended in the courts within the state of".


Now I am not an attorney, so please always use the services of an attorney when you have questions about something, you know the old adage of "when in doubt check it out".


When you look at any deal document, you must understand what you are looking at. You cannot assume anything. Let me give you some examples of some specific documents.


1) NCND:  This acronym stands for Non Circumvention-Non Disclosure. This is a agreement that basically means that once you sign it, you agree not to circumvent that individual or entity.. Lets now dig a bit deeper into what it really means. It means that the individual who provided it to you has done so because they fear that you will what? go around them or circumvent them. It also means that you will not disclose that persons place in the deal or the terms of the deal. For example, if you sign the document and then you call me on the phone and say, hey Mr. Jim, I have a great deal for you to help me with and I say tell me more about the deal and they tell me the persons name who gave them the deal, guess what they just did? they violated the "ND" portion of the "NCND" agreement and at that point it is up to the principle in the deal or the individual who provided the "NCND"  to decide what they want to do and they have every right at that point to remove the person who violated the agreement from the deal. This is a very serious situation, especially if the Buyer and Seller have already been bought together and are working the deal or starting


The above is one of the reasons people get cut out of a deal. It's not the only reason, but a big reason. Lets move on.


2) POF: This acronym stands for Proof of Funds and is usually in the form of a letter but can be a copy of a bank statement. This is a very important document, because it involves the money portion of the deal. Without money, you do not have a deal. You really need to understand what you are looking at.


If the POF is not current, meaning that it is not within the last 15 to 30 days, then the POF is old and may not even be valid. For example, lets say that you have a copy of a bank statement from July of 2010 and it is from Wells Fargo Bank. Lets say that they did not blackout the bank balance, and it says $23,000,000.00. Well lets say that it is now March of 2011. Is it entirely possible that they no longer have an account at Wells Fargo? is it entirely possible that they moved their accounts to Regions Bank or another bank and their balance is only $5,000,000.00? anything is possible. You need to look and understand what your looking at.


What happens if the buyer gives you a statement from a stock brokerage house and it says they own 10,000,000 shares of XYZ Corporation valued at $80,000,000.00. Is that a good proof of funds? if you just said yes, your wrong. What happens to stocks on a daily basis? they go up and they do what? go down. When they go down, their value is lower, so this is not a good proof of funds document.


Here is where you really need to pay attention. If I am selling a portfolio of properties and the purchase price is $35,000,000.00 and you say, Mr. Jim, my buyer client has provided me with a POF letter/statement, I just got it in today, let me send it to you and I say yes, go ahead here is my fax number, and upon receipt I read it because like most sellers I don't trust just anyone and It says:


Dear Mr. Flintstone:

Mr. Barney Rubble has on deposit with our banking institution, First National Bank of Stone Wall, Twelve Million ($12,000,000.00) Dollars and has requested me to block Seven Million, Five Hundred Thousand ($7,500,000.00) Dollars in USD Denomination in anticipation of making a investment withing the next thirty days.


Signed: Mr. William Blockhead

             Senior Vice-President


What's wrong with this picture? the buyer does not have enough funds on hand in his/her bank to make a purchase of anything above the funds he/she has available.


Where is he/she going to get the remainder? from their mattress? What happens when I call you on the phone to discuss and I ask you, didn't you read the POF? your only going to have two choices of answers, either your to lie to me and say yes or your going to be hopefully honest and say no.


You need to read and understand what your reading. If I am a buyer or seller and I see that you can't even do something as important as correctly handle documents, sometimes very easy to understand documents, why am I going to want to do a deal with you? you clearly bring zero value to the deal.


My mindset in my business is very simple and I employee this across the board with everyone from the janitor who mops the office floors and takes out the trash to the broker associate who analyzes deals, and this mindset is..."If I have to do your job and mine, then I don't need you". Lets move on.


3) LOI: There are two types of LOI's and each one serves a seperate but similar purpose. The difference is in how the docs read. They are as follows:

A) Letter of Interest


B) Letter of Intent.


A) Above means that the person who has signed off on it and submitted it, has a interest in looking at the deal and deciding if they want to in fact move from point A to point B.


B) Above means that the buyer(s) have done their due diligence and have decided that they intend to move forward and make the purchase. It is after this occurs that the terms are negotiated and a contract is then drafted to reflect the terms of negotiated purchase.


You must understand the difference. You must read the document(s) and understand them. If you had to go to court, you cannot say that you thought this and that. It is how the docs read and not how you assumed the doc(s) to be.


I could go into detail on so many other documents, but I won't do that. The point of this discussion is to help get new and semi new and/or inexperienced people to realize that if you make mistakes, while not criminal, it will cost you money, either money you had to pay in legal fees and penalties or monies that you lost as a result of a deal not closing.


Questions and comments are welcome.

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Well said!


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