Mastering Signature Authority: A Guide for Loans and Real Estate Transactions
When it comes to closing a loan or real estate transaction, one thing you cannot afford to overlook is signature authority. Who has the power to sign? It seems simple, but if you get it wrong, you could end up with an unenforceable agreement or a serious legal mess.
Now, if you’re dealing with an individual borrower or buyer, you’re in luck—it’s pretty straightforward. They sign, and you’re good to go. But that’s rarely the case. Most borrowers and buyers today are LLCs, corporations, trusts, or partnerships. The challenge? Ensuring the right person signs on behalf of these entities to make the transaction binding.
In this guide, we’ll break down what you need to know about signature authority for different entity types, whether you’re working on a loan, a real estate deal, or both.
Limited Liability Companies (LLCs)
LLCs are by far the most common type of entity in both lending and real estate transactions. Thankfully, determining signature authority for an LLC is typically the most straightforward. But that doesn’t mean you can let your guard down.
When an LLC is involved, the key people are usually the managing member or the manager, depending on the LLC’s structure. However, there can be complications if:
- The LLC has multiple managers.
- The managing member is another entity.
In these cases, extra diligence is required.
Documents to Review:
- Operating Agreement – This is your go-to document. The Operating Agreement outlines whether the LLC is managed by its members or by a designated manager and, most importantly, identifies the authorized signers.
- State Filings – Review the LLC’s Articles of Organization and any amendments. These documents may specify who has the authority to sign. Make sure the LLC’s legal name and management structure match the Operating Agreement.
- Secretary of State Check – Always confirm the LLC is in good standing and active. You can do this by looking up the entity on the Secretary of State’s website and, if possible, obtain a certificate of good standing.
If there are inconsistencies or missing details, it’s often possible to draft a resolution or amendment to clear things up.
Corporations
Corporations come with layers of complexity. You’re typically dealing with a president or CEO as the authorized signer, but the challenge lies in ensuring the correct hierarchy of authority is in place.
Documents to Review:
- Articles of Incorporation – These foundational documents outline the corporation’s structure.
- Bylaws – Bylaws will tell you who holds what titles and what their powers are. For example, the president will often have signature authority, but the secretary might also need to sign certain documents.
- Meeting Minutes – These show how officers were elected and can be helpful in confirming who has been granted signing authority.
- Secretary of State Status – Like with LLCs, ensure the corporation is in good standing and active with the state.
Corporations can be complicated because their officers derive authority from the board of directors, which in turn answers to shareholders. If there’s any doubt about the validity of an officer’s authority, you can prepare a corporate resolution to delegate the necessary power.
Trusts
Trusts are common in real estate transactions, and they come with their own unique challenges. Trusts can be complex, especially when there are multiple trustees or when the trust has been amended several times. Trusts also lack state filings, so the documentation you receive from the trust itself is critical.
Documents to Review:
- Trust Agreement – This document will identify the trustees and outline their powers. You need to confirm that the trustee has the power to sign loan documents or transfer property.
- Amendments – If the trust has been amended (especially if someone has passed away), you must ensure the amendments haven’t altered the trustee’s powers.
Be cautious if there’s been a death in the trust. In some cases, the trust may no longer be able to conduct business as it originally did. This is where getting an attorney involved is crucial to ensure you’re not walking into a legal quagmire.
Limited Liability Partnerships (LLPs)
LLPs are a less common entity but still pop up in real estate and loan deals. Typically, the partners manage the LLP themselves, so signature authority is usually spread across the group.
Documents to Review:
- Partnership Agreement – This will indicate who the managing partner is, if one exists. If no management section exists, state law will usually provide guidance.
- State Filings – Like other entities, make sure the LLP is in good standing with the Secretary of State, and confirm the legal names of the partners.
In most cases, you’ll want all the partners to sign. If there’s any ambiguity about who can sign, have your attorney draft a resolution or amendment.
Real Estate Transactions: A Broader Scope
Signature authority isn’t just about loans—it plays a huge role in real estate transactions. Imagine finalizing a property sale, only to realize the person who signed didn’t have the legal authority to do so. That mistake could invalidate the entire transaction, creating a financial and legal disaster.
Whether you’re buying, selling, or mortgaging real estate, ensuring the right person signs is critical. The same principles outlined for loans apply here, but with even more at stake since real estate transactions typically involve large sums and property rights.
Here’s what to pay extra attention to in real estate:
- For LLCs, confirm whether they have authority to buy or sell real estate—not just borrow money.
- In trusts, verify if the trustee can sell or mortgage property.
- For corporations, check if the board has passed a resolution allowing the sale or acquisition of property.
Why It Matters
Getting signature authority right is not just a matter of legal formality—it’s about protecting your investment. If the wrong person signs, the agreement may be unenforceable, putting your entire deal at risk. This applies to both loans and real estate transactions, where the stakes are often high.
Pro-Tips for Success
- Double-check everything. When in doubt, verify the entity’s status with the state, and compare documents for consistency.
- Get a resolution. If authority is unclear, prepare a corporate resolution, an amendment, or have the board or members explicitly delegate the power to sign.
- Consult an attorney. Anytime you’re working with a complex structure, it pays to have an attorney review the documents. They can spot issues and prevent costly mistakes.
- Don’t skip trust amendments. Trusts can be tricky, especially when someone has passed away. Make sure you have the most up-to-date documents and verify the trustee’s powers.
Conclusion
Ensuring that the right person signs on behalf of an entity is crucial in both loan and real estate transactions. The failure to confirm proper signature authority can lead to disastrous consequences, including unenforceable agreements and major financial losses.
Whether you’re dealing with an LLC, corporation, trust, or LLP, take the time to review the right documents, check with the state, and consult legal counsel when needed. This isn’t just a box to check off—it’s a vital step in securing your investment.
By staying sharp and taking the proper steps, you’ll avoid costly pitfalls and keep your deals running smoothly. You’ve got this!
