First Lending Deal - Who Pays Legal Fees?

Question

A partner and I will be doing our first lending deal. A 12 month loan to finance a property redevelopment. We will be creating an LLC and hiring a real estate attorney to prepare all the necessary loan documents. Who typically pays the legal fees for all that? Us, the lender? Or the borrower? If the borrower, how is that typically handled in the documents?

Apologies for the elementary question. Thanks so much.

Jason Zundel · Answer

Hi John! I agree with Erik above, but wanted to break that down a little bit, and make sure you know there is flexibility available. In a loan signing, each party will generally pay their own fee, meaning both the borrower and the lender (or their respective representatives) cover their own legal expenses. Let's break that down a bit:

The general rule in the United States (unsurprisingly called the "American Rule") is that each party is responsible for their own attorney's fees, regardless of who wins or loses a case or transaction. In a loan signing, this means the borrower is the one hiring an attorney to represent their interests, create documents, form LLCs, etc. and the lender also has their own legal representation. Thus the borrower will usually be paying for said fees.

This system ensures that each party has independent legal advice and representation, protecting their interests during the complex process of securing and closing a loan. Now the fun part: while each party typically pays their own attorney's fees, it's possible to negotiate with the seller to cover some of the buyer's closing costs, which could include attorney fees, in a buyer's market OR if you are the seller, to motivate a buyer by offering to cover a portion of such fees. Carefully consider how and when to do so or request such as you dive in!

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Erik Estrada · Answer

Hey John,

Typically the borrower pays for closing and attorney fees. Some lenders may even charge a loan document preparation fee as part of their lending fees.

First Lending Deal - Who Pays Legal Fees?

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