Introduction to Legal Opinions in Loan Transactions: Purpose, Elements, Standards and Practices, Due Diligence, Risks

A legal opinion is a formal document containing counsel's conclusions regarding various legal matters relevant to the parties and the transaction based on counsel's review of a defined set of documents and information and consideration of applicable law.

A legal opinion in a loan transaction does not guaranty that the loan will in fact be repaid, nor even that the representations made by the borrower in the loan documents are accurate. Instead, the purpose of the opinion is to provide an additional layer of assurance to the lender that the loan documents will be enforceable against the borrower and that the borrower has satisfied the legal formalities necessary to enter into the loan.

To serve the needs of the borrower and lender while also protecting the attorney against potential liability, a well-written opinion letter describes the scope and limitations on the opinions rendered, the factual (and sometimes legal) assumptions underlying the opinions, and qualifications to the opinions rendered (in the case of assumptions and qualifications, to the extent not relying on customary practice to the effect that certain assumptions and qualifications are understood to apply to the opinions even though not expressly stated). The content of an opinion letter depends largely on the legal and factual investigations and due diligence performed by the opinion giver, guided by the requirements of the parties and customary practice of attorneys engaged in the practice of giving legal opinions.

Listen as our authoritative panel discusses the purpose and elements of a legal opinion, the types of issues that typically arise, the potential risks for the opinion giver, and ways to mitigate these risks.