Are title companies required to read the Operating Agreement of an LLC when they sell a property?

Question

I have never sold a property so far, are title companies required to read the Operating Agreement of an LLC when they sell a property?
When an LLC sells a property, does the Title Company ask for the Operating Agreement?
What if the signature of all members is required to sell properties in an LLC?

Callum K. · Answer

We recently sold our LLC (non-real estate business) and whenever we went after financing from a bank and even with the VC that bought us, the primary concern was the Articles of Incorporation and not the Operating Agreement.  I agree with Jon in that the OA is between members and the bylaws is the rules for the organization.  Based on our experience selling our business, Articles of Incorporation, Operating Agreement, and Bylaws were very helpful in documenting the structure, organization, and rules among members.  We worked with our lawyer to put all of these together the first time and since then I have established several other LLC's and although it was somewhat costly up front, I would highly recommend you pay the lawyer to help you get going if this is your first LLC, but also pay close attention to what/how he is doing it so that you can also treat it as education

Jon Holdman · Answer

Guillermo M., no, no lender banker, store, or anyone else is going to read the operating agreement.  That is between you and the other members.

When you create an entity, there is a record of that creating with the secretary of state.  I think this is the Michigan page for searching:

https://apps.michigan.gov/UCC/Home.aspx

You have to register to search.  I'm not going to bother, but you should.  Then search for your company.  There will be some document that was created when you did the filing.  Here in CO, you fill out an online form, pay $50, and you have an LLC.  Then you can print out an "articles of organization" (or something similar.)  Its not really a document you fill out and mail it.  Rather, it contains the information from that online form.  When I've opened accounts, I've either printed that out myself and taken it to the bank.  Or, the banker got on their computer and looked it up themselves.

Now, under some circumstances, you will need a "statement of authority".  That's a document from the company stating that you are able to do some transaction for the company.

You and your partner should consider spending a few hundred bucks to meet with an attorney in Michigan to discuss exactly how the LLC operates and how you have control over each other.  I see you list your location at Madrid.  But I assume you are flying to Michigan to see what you're buying at some point.  If not, you have bigger issues than how to sign documents.

Joe Delia · Answer

I've never had one not request them.

Account Closed · Answer

Guillermo M., good question, as a lender I’ve wondered this myself.  The quick answer is all you need is what the title company requires.  Even if something isn’t quite right, the title insurance will cover you, as covered as you can be with any type of insurance company.

Here is what I require to make a loan:

To a trust: certification of trust.  I heard a trust attorney speak once and he was very adamant that if you have a properly executed certification of trust that you as a lender were covered, even if cert is a fake.

To a Corporation: Articles of Incorporation, corporate resolution and I do an online check with secretary of state to verify corp is current with state.  Sometimes i get a copy of the most recent Statement of Information.

To a LLC: Articles of organization, operating agreement and I do an online check with secretary of state to verify LLC is current with state.  Sometimes an SI.

I understand the sensitivity of the operation agreement and would like to find another way of determining signature authority, but I don’t know how.  For a trust it is the certification of trust, for a corp it is the resolution, for a LLC other than the OA I don’t know.  It’s essential to know who has signature authority.  I’ve dealt with LLC borrowers that think they know who has signature authority but after I read their OA I find that they are wrong, not maliciously wrong, but just don’t know.

I think a lot of this has to do with knowing and trusting the people involved….it’s all about relationships, at every phase of the  transaction.

Hopefully there is a Title Officer reading this thread that can help.

Guillermo M. · Answer

In my case I'm the co-manager of the LLC and my partner is the CEO. The operating agreement says (I paste directly from my OA): "The Signature from the members whose capital interest as defined in Article 2.2 exceeds 50 percent and the signature from the Chief Executive Manager are required in order for the managers to make decisions related to (a) the sale of the Company's assets; (b) the purchase or other acquisition of title properties or other assets of all kinds".

If the title company doesn't ask for the operating agreement, how do they know that a manager can't sell the property without the authorization of the CEO and the major investor?

I'm not really sure what that is, I don't remember having filled a document called like that in Michigan.

Jon Holdman · Answer

Answered a similiar question in another post of your's Guillermo M.  The operating agreement is just between the members.  Nobody else cares about it.

Now perhaps you're referring to the "articles of incorporation" or whatever its called in your state.  I have had bankers look this up online with our secretary of state and verify its my LLC.

Are title companies required to read the Operating Agreement of an LLC when they sell a property?

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