Designated 504 Closing Attorneys

The Small Business Administration (SBA)SOP 50-10(4), Subpart "H", Chapter 22, Section 7.

1. What is a “Designated Attorney”?

   A Designated Attorney is an attorney accepted by SBA’s General Counsel to close 504 Loans under the expedited closing procedure. Priority CDCs must use Designated Attorneys to close their 504 Loans under the expedited closing procedure.

   The designation is of an attorney, not of a law firm.

2. What Conditions Must an Attorney Meet to Become Designated?
   1. A degree from a recognized law school;

   2. Membership in the bar of the state in which the attorney’s 504 closing practice is or will be primarily located;

   3. Adequate professional liability insurance coverage (see C. below);

   4. Attendance at an an SBA-approved 504 Loan Closing course, (the National Association of Development Companies (NADCO) offers the SBA-approved 504 Loan Closing Course twice each year and the SBA-approved 504 Loan Closing Update Course at least three times each year) -- attorneys may fulfill this requirement at any time prior to designation or within 6 months after designation;

   5. Adequate experience and expertise in 504 Loan closings;

   6. Other factors:
      1. Quality of the attorney's prior 504 Loan closing packages;
         
      2. The attorney's working relationship with SBA District Office;
         
      3. The attorney's knowledge of the 504 Loan program;
         
      4. The attorney's experience and expertise in other commercial and residential loan closings; and
         
      5. The attorney's reputation in the legal community;

   7. Supporting recommendations from the SBA District Counsel and SBA District Director of the primary SBA District office and any comments from the Office of Loan Programs; and

   8. Supporting recommendations from the SBA District Counsel and SBA District Dirctor in other SBA District offices in which the attorney closes 504 Loans

3. What Are the Professional Liability Insurance Requirements?

   A Designated Attorney must carry adequate professional/malpractice liability insurance with limits of at least $1,000,000/$1,000,000 and a deductible not to exceed $10,000. The policy must provide that SBA will receive at least 20 days' prior notice of any lapse of coverage, failure to renew or cancellation.

   Applicants to become Designated Attorneys may request a hardship exemption from the Office of General Counsel with respect to either the policy limits or the deductible on a case-by-case basis. Policy limit reductions to $500,000/$1,000,000 will only be granted to sole practitioners and small firms of 3 or fewer attorneys, while deductible requirement waivers will only be granted to larger firms (more than 15 attorneys) with a demonstrated, strong financial history. Sole practitioners seeking a hardship waiver must state what their present annual premium is and what it would cost to get $1,000,000 with $10,000 deductible and $500,000/$1,000,000 with $10,000 deductible. All other relevant financial information should also be provided.

   The Designated Attorney must certify in the Opinion of CDC counsel for each 504 Loan closing that the attorney has the required insurance coverage. The attorney also must deliver annually to the Office of General Counsel, on or before July 1, a certificate from its insurance carrier confirming the existence of this coverage.

4. How Does an Attorney Become a Designated 504 Closing Attorney?

   The CDC that retains or employs the attorney must nominate the attorney as one of the CDCs Designated Attorneys. The CDC submits its nomination and the attorney's application to the SBA District Office in which the attorney’s 504 Loan closing practice is primarily located. There is no SBA form of application. Rather, an application/nomination must include:

   1. A letter from the CDC, on its letterhead, nominating the attorney;

   2. A submission from the attorney, on the attorney’s letterhead, addressing each of the conditions which an attorney must meet in order to become designated (see II. above); and

   3. A copy of the attorney’s professional liability/malpractice insurance policy, or a certificate of insurance or declarations page showing:
      1. The amount of coverage;
         
      2. The amount of the deductible; and
         
      3. The amount of the premium.

      If the attorney requests a hardship exemption with respect to the insurance policy limits, then the attorney must include that request with the nomination/application, supported by appropriate information including:
      1. The amount of the policy limits;
         
      2. The current premium;
         
      3. The quote obtained for the increased premium; and
         
      4. The size of the firm;

      If the attorney requests a hardship exemption with respect to the amount of the deductible, then the attorney must include that request with the nomination/application, supported by appropriate information including:
      1. The amount of the policy deductible;
         
      2. The current premium;
         
      3. The quote obtained for the increased premium;
         
      4. The size of the firm;
         
      5. the firm's arrangement for covering the deductible, such as a loss reserve or escrow; and
         
      6. Evidence of the firm's history and financial strength (such as current financial statements).

   The SBA District Counsel then forwards the nomination/application to the Office of General Counsel, together with the recommendations of the SBA District Director(s) and SBA District counsel(s). Those recommendations also must address each of the conditions in II above.

5. Can a Designated Attorney be an Employee of the CDC or an Employee of the CDC’s Affiliate(s)?

   No. An in-house counsel cannot be a Designated Attorney for a Priority CDC. In the expedited procedure, in-house counsel can prepare documents and otherwise work on closings. However, the Opinion of CDC Counsel must be signed by an outside Designated Attorney.

6. Can a Designated Attorney be an Officer or Director of the CDC?

   An attorney who is too closely associated with the CDC, such as an attorney who is serving on the CDC's Board of Directors or Loan Committee, serving as an officer of the CDC, or otherwise actively participating in the running of the CDC, cannot be that CDC's Designated Attorney. An attorney who is a member of the CDC, but is not an officer or involved in any way in the lending decisions, may be a CDC's Designated Attorney if SBA District Counsel concludes that the attorney is not too closely associated with the CDC. In such a case, SBA District Counsel must consider the attorney's association with the CDC including:

   1. The degree of control exerted by the attorney on the CDC’s decision-making;

   2. Any benefits accruing to the attorney through the attorney’s association with the CDC; and

   3. Any appearance of conflict of interest.

   (Note: The same analysis regarding potential conflicts of interest is applied to non-Designated Attorneys who are not closing under the expedited closing procedure. However, non-Designated Attorneys can be members of the in-house staff of the CDC.)

7. How is an Attorney be Notified That He/She is Designated?

   Upon receipt, the nominations/applications are reviewed by the Office of General Counsel. The Office of General Counsel considers the nomination of the attorney by the CDC, the qualifications and experience of the nominated attorney, the recommendations of the SBA District Office, and any comments from the Office of Loan Programs. (The Office of General Counsel also may consider the opinions of the SBA District Director and the SBA District Counsel in any other SBA districts in which the attorney has closed 504 Loans, and the views of any other person who is familiar with the attorney’s work product.) In evaluating an attorney’s qualifications, the Office of General Counsel considers the attorney’s educational background, experience in 504 Loan closings and other commercial and residential closings, quality of work in connection with prior 504 Loan closing packages, working relationship with the SBA District Office, knowledge of the 504 Loan program, other credentials, reputation in the legal community, and participation in 504 Loan closing training.

   The Office of General Counsel notifies the attorney that he/she has been accepted as a Designated Attorney.

8. Procedures for Reconsideration

   If an attorney is not accepted as a Designated Attorney, the attorney may request reconsideration by the Office General Counsel after 6 months.

9. Can an Attorney’s Designated Status be Withdrawn?

   An attorney’s Designated status may be withdrawn by the Office of General Counsel for good cause, including, but not limited to, unprofessional or unethical conduct, failure to maintain the required professional liability insurance coverage, failure to attend the required 504 Loan closing training or continuing 504 Loan closing education training, submission of unsatisfactory 504 Loan closing packages (based upon audits or other evidence), or failure to maintain a good working relationship and good communication with SBA District Office personnel.

10. May a Priority CDC Use Non-Designated Attorneys for Any 504 Closings?

    The SBA District Office must allow a Priority CDC to use a non-Designated Attorney for a reasonable time (up to 10 504 Loan closing packages or 6 months, whichever is earlier) in order (1) to develop additional Designated Attorneys or (2) to replace a Designated Attorney. In either event, SBA District Counsel will accept the 504 Loan closing package from a non-Designated Attorney and will conduct a non-expedited closing procedure review. If there is not enough time to conduct a sufficient review, SBA District Counsel may hold the 504 Loan closing package until the next month’s debenture sale.