View the online version at http://us.practicallaw.com/4-575-9565 Real Estate Finance: Vermont R. PRESCOTT JAUNICH AND KANE H. SMART, DOWNS RACHLIN MARTIN PLLC, WITH PRACTICAL LAW REAL ESTATE A Q&A guide to real estate finance law for borrowers and lenders in Vermont. This Q&A addresses state laws relating to security instruments, usury laws, limitations on personal liability, recording requirements and taxes, priority issues, mechanics' liens, landlord liens, title insurance matters, and foreclosure procedures primarily impacting lending transactions in a commercial context. Federal, local or municipal law may impose additional or different requirements. Answers to questions can be compared across a number of jurisdictions (see Real Estate Finance: State Q&A Tool (us.practicallaw.com/5-517-4021)). INSTRUMENT AND EXECUTION 1. Does a mortgage or a deed of trust secure a lien on real property? If it is a deed of trust, who is typically designated as the trustee? In Vermont, a mortgage is the most common method of securing a lien on real property. Vermont is a lien theory state. The borrower holds title to and owns the property, but the mortgage note gives the lender the right to seize and sell the property for non-payment. 2. Describe any laws that would limit a borrower's or guarantor's personal liability for debt secured by real property. No Vermont laws limit a borrower's or guarantor's personal liability for debt validly and properly secured by real property. 3. Are there restrictions on interest rates charged for loans secured by real property? In Vermont, the usury rate ceiling on a loan secured by a subordinate lien against real estate is 18% per year. The lien documents must include a power of sale (Vt. Stat. Ann. tit. 9, 41a(b)(7)). For a loan secured by a first lien against real estate, the interest rate may be the same as that charged under the residential real estate seller provisions of the federal Depository Institutions Deregulation and Monetary Control Act of 1980. Interest is: Computed on the actuarial method. Prorated based on a 360-day or 365-day method. Interest cannot be paid, deducted or added to principal in advance, except for advance collection of up to 30 days of interest at origination. (Vt. Stat. Ann. tit. 9, 41a(d).) The following obligations are exempt from the interest rate limits, but not the calculation method requirements: Obligations of corporations. Obligations to finance the purchase, construction or improvements of second homes. Federally insured or guaranteed obligations. (Vt. Stat. Ann. tit. 9, 46.) 4. Are there any requirements for the execution of a mortgage or deed of trust? In particular, please consider if: Witnesses are required. Specified officers of a corporation (or members of a limited liability company) must execute the security instrument. The signatory's name and title must be specified on the signature page. A corporate seal is required. Signed resolutions must be presented with the security instrument for purposes of recording. There are any other important requirements in your state?
WITNESSES Witnesses to a mortgage are not required in Vermont. SPECIFIED OFFICERS Vermont law does not specify that particular officers must sign a mortgage. If a signatory to a mortgage is a public or private corporation, it may appoint an agent by vote to sign for the corporation (Vt. Stat. Ann. tit. 27, 346). Under Vermont Title Standard 20.1, when a corporate instrument appears in the chain of title it is presumed that: The signatory was the officer or agent they claimed to be. The signatory was authorized to execute the instrument on behalf of the corporation. The corporation was legally in existence at the time the instrument took effect. A deed identifying a corporation as the grantor that is signed by official position or includes any of the following also has the benefit of these presumptions: Agent. Duly authorized. By. For. SIGNATORY'S NAME AND TITLE In Vermont, the name and title of the officer executing the mortgage should appear in the signature and notary blocks of the mortgage. CORPORATE SEAL Vermont law does not require that a corporate seal be affixed to the mortgage, and one is not customarily used. SIGNED RESOLUTIONS Signed corporate resolutions authorizing the conveyance and confirming the signatory's authority are not required to be recorded in Vermont, but are routinely provided. OTHER REQUIREMENTS In Vermont, a mortgage must be acknowledged by the mortgagor before either: A notary public. The town clerk. Other authorized official, including a: 2 master; county clerk; or judge or register of probate. A mortgage notarized without the notary public's seal, however, is still valid. The mortgage must be recorded at length in the clerk's office of the town where the land is located. (Vt. Stat. Ann. tit. 27, 341(a).) A mortgage that includes a reference to a survey prepared or revised after July 1, 1988 must either: Be recorded with the survey. Cite the volume and page in the land records where the survey was previously recorded. (Vt. Stat. Ann. tit. 27, 341(b).) Except in significant commercial transactions, it would be very unusual for a lender to require the preparation and recording of a new survey. More often, prior existing survey references may be discovered in the Schedule A property description. 5. Provide the statutory form of acknowledgment for: An individual. A corporation. A limited liability company. A limited partnership. A trustee. Vermont has no statutory form of acknowledgment. The Vermont Secretary of State provides a customary form of acknowledgment, however, set forth below. These acknowledgment forms can be used for instruments to be recorded in Vermont whether they are signed inside or outside Vermont, so long as an out-of-state acknowledgment is certified agreeable to the laws of the state in which the acknowledgment is taken (Vt. Stat. Ann. tit. 27, 379). INDIVIDUAL form of individual acknowledgment is: [YEAR], [SIGNATORY NAME] personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed. CORPORATION form of corporate acknowledgment is: [YEAR], [SIGNATORY NAME] and being the [SIGNATORY TITLE] and duly authorized [OFFICER/AGENT] of [CORPORATION NAME] personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed and the free act and deed of [CORPORATION NAME], Inc. [NOTARY SIGNTURE]
LIMITED LIABILITY COMPANY form of limited liability company acknowledgment is: [YEAR], [SIGNATORY NAME], its Member and duly authorized agent of [COMPANY NAME], LLC, personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed, and the free act and deed of [COMPANY NAME], LLC. LIMITED PARTNERSHIP form of limited partnership acknowledgment is: [YEAR], [SIGNATORY NAME] personally appeared, being the general [PARTNER/PARTNERS] of [NAME OF LIMITED PARTNERSHIP], a [STATE OF FORMATION] limited partnership, and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed. TRUSTEE form of trustee acknowledgment is: [YEAR], [SIGNATORY NAME], as Trustee of the [NAME OF TRUST] Trust, personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed. PRIORITY 6. Describe the relevant statutes granting priority to mechanics' liens. Vermont law provides for a mechanics' lien that secures payment due under a contract (whether written or oral) to supply labor, materials or both to improve real property, at Title 9, Sections 1921 to 1928 of the Vermont Statutes Annotated. A mechanics' lien must be recorded with the clerk of the town where the property is located within 180 days after the date the payment is due (Vt. Stat. Ann. tit. 9, 1921(c) and 1923). A properly recorded mechanics' lien relates back to the date of visible commencement of the work or delivery of the materials used in the work (Vt. Stat. Ann. tit. 9, 1923). The lienholder is not required to serve notice of the mechanics' lien on any other lienholders and notice is seldom given. A properly recorded mechanics' lien takes priority over: A deed or other conveyance for consideration, paid after the mechanics' lien is recorded. A mortgage granted as security for a loan to pay for improvements to the property recorded after the mechanics' lien, as to advances made after the mortgagee receives written notice of the mechanics' lien, except for advances: actually expended in completing the improvements; or made to protect the collateral. (Vt. Stat. Ann. tit. 9, 1921(d).) 7. Are there liens which can supersede the priority of a lender's recorded lien? In Vermont, the following liens can supersede the priority of a lender's recorded lien: Property tax (Vt. Stat. Ann. tit. 32, 5061(a); see State Q&A, Real Estate Ownership: Vermont: Question 4). Sewer district and certain other taxing district liens (Vt. Stat. Ann. tit. 24 3408 and 3504). Certain mechanics' liens (see Question 6). 8. How do lenders maintain the priority of their real property liens over superseding liens, such as real property tax liens and mechanics' liens? In particular, please consider: Permanent loans. Construction loans with future advances. Credit facilities with future advances under revolving lines of credit. In Vermont, the lender runs searches to assure that all real estate taxes have been paid and there are no other intervening liens, including mechanics' liens, affecting title to the real property before funding any advances under a: Construction loan. Credit facility. 3
It is customary for lenders to require a borrower's counsel to run title update searches and to secure date down endorsements prior to making future advances that are not made pursuant to commitment or that exceed the maximum amount stated in the mortgage. PERMANENT LOANS The priority of the liens is generally established by operation of law, without regard to specific additional efforts to maintain priority. Generally, the time of recording the lien establishes the priority of the lien, subject to any liens that may relate back in time (see Question 7). CONSTRUCTION LOANS Except for advances superseded by a mechanics' lien, a future advance made under a recorded mortgage takes priority as of the date of the recording: If made "pursuant to commitment," to the extent of the outstanding future advances up to the maximum amount stated in the mortgage. If not made "pursuant to commitment," only to the extent of future advances outstanding before the mortgagee receives written notice of the intervening interest. (Vt. Stat. Ann. tit. 27, 410(b)(3).) An advance is made "pursuant to commitment" if: The mortgagee is bound at the time the mortgage is created to make the advance. The advance is made under an agreement where the debtor may borrow and reborrow money advanced. (Vt. Stat. Ann. tit. 27, 410(a)(4).) A future advance made to protect collateral is secured by a mortgage even if the mortgage does not provide for future advances (Vt. Stat. Ann. tit. 27, 410(b)(2)). Future advances made to protect collateral are: For the protection of the mortgagee's interest in the collateral, such as the payment of real property taxes or hazard insurance premiums. Under a mortgage, securing the debtor's obligation made at the time of the mortgage's execution for the purpose of making an improvement to the real estate. (Vt. Stat. Ann. tit. 27, 410(a)(3).) Future advances made to protect collateral take priority as of the date the mortgage is recorded, regardless of notice of an intervening interest (Vt. Stat. Ann. tit. 27, 410(b)(4)). CREDIT FACILITIES Credit facilities receive the same treatment as construction loans (see Construction Loans). A letter of credit, confirmation, advice, transfer, amendment or cancellation may be issued in any form that is a record and is authenticated either: By a signature. In accordance with the agreement of the parties or the standard practice described in Title 9A, Section 5-108(e) of the Vermont Statutes Annotated. (Vt. Stat. Ann. tit. 9A, 5-104.) 4 9. What are a landlord's legal rights to a tenant's personal property located in the leased premises? Are these rights governed by statute, common law or contract? Vermont has adopted Article 9 of the Uniform Commercial Code. A properly recorded mortgage may serve as a fixture filing if: The mortgage indicates the goods that it covers. The goods are or will become fixtures related to the real property described in the mortgage. The mortgage complies with the requirements for a financing statement. (Vt. Stat. Ann. tit. 9A, 9-502(c).) A financing statement form is also available on the Vermont Secretary of State website. Although Vermont does not have a general landlord lien statute, lenders may ask for a landlord lien waiver where the tenant's personal property is a significant part of the lender's collateral. MORTGAGE RECORDING TAXES 10. Is there a mortgage recording tax (or similar tax)? If so: What is the rate and how is the tax calculated? Can a loan or refinance be structured to reduce the tax? Is the tax payable on making a loan secured by real property or perfecting a lien on real property? Is there any type of real property or transaction that is exempt from a mortgage recording tax (or similar tax)? Are there any other state or local taxes or fees imposed on the grant, perfection or enforcement of a security interest in real property? Are there any exceptions? RATE AND CALCULATION STRUCTURE PAYMENT EXEMPTION OTHER TAXES OR FEES Filing a mortgage requires a recording fee of $10 per page payable to the town clerk. TITLE INSURANCE 11. Are title insurance premiums or service charges for lenders' title insurance policies regulated? Are the costs of title insurance negotiable within a specified range of rates? Are there any discounts available for reissued policies? In Vermont, title insurance charges are based on rates insurers file with the state. Title insurance rates are generally not negotiable, but
policies on amounts above $1 million may be negotiated. Title companies may offer discounts for reissued policies. A title insurance rate calculator is available on the Vermont Attorneys Title Corporation website. 12. Provide a list and brief description of the title insurance endorsements available to lenders? In Vermont, commercial lenders' requirements vary widely. In-state lenders do not typically require special endorsements except to tailor the policy to particular property or loan types (for example, as revolving credit, tie-in and last dollar endorsements). Increasingly, out-ofstate lenders have requested and obtained special endorsements including endorsements for: Usury. Doing business. Access. Contiguity. Zoning. Tax parcel. Creditor's rights. Non-imputation. Energy project. Each underwriter has a list of American Land Title Association (ALTA) endorsements it offers. The most commonly issued mortgage endorsements in Vermont are: ALTA 6 (Variable Rate Mortgage). ALTA 10 (Assignment of Mortgage). ALTA 11 (Mortgage Modification). ALTA 14 (Future Advance). ALTA 24 (Doing Business). ALTA 27 (Usury). Some newer transactional risk endorsements issued in Vermont include: ALTA 29 (Series Interest Rate Swap). ALTA 30 (Shared Appreciation). ALTA 32 (Construction Loan). ALTA 36 (Energy Project). 13. How is gap coverage (the time between closing the loan and actually recording the lien) typically handled by the title insurance companies? In Vermont, title bring-down searches after closing reduce exposure to gap risks and are commonly used. After closing, the mortgage and other documents are frequently hand-delivered to the town clerk for recording to minimize the postclosing gap period. The insured may expressly secure coverage either by: Express closing instructions that require the policy date to be the later of: the date of settlement; or recording. Gap endorsement. In Vermont, parties do not customarily request express instructions or a gap endorsement in their policy contracts, but insurers sometimes grant them. FORECLOSURE 14. Describe the foreclosure process available and the typical timing for the process. Are there any significant costs of or impediments to foreclosing a lien on real property? In Vermont, both judicial and non-judicial foreclosure processes are available. A mortgagee may bring a judicial foreclosure action in the superior court of the county where the real property is located (Vt. Stat. Ann. tit. 12, 4932(a)). Strict foreclosure or judicial sale may be used, but strict foreclosure is more common in Vermont. In strict foreclosure, title vests in the foreclosing creditor, subject to any superior interests, on recording of a foreclosure decree with a certificate of non-redemption (Vt. Stat. Ann. tit. 12, 4941(g) and 4941(h)). A decree of foreclosure will only be issued when the court finds there is no substantial value in the property in excess of the mortgage debt plus property taxes due on the property (Vt. Stat. Ann. tit. 12, 4941(c)). On a party's motion or at the court's discretion, the court may order judicial sale instead of strict foreclosure. In a judicial sale, when the redemption period expires, a court-supervised sale of the property is held. The foreclosing creditor does not retain excess sale proceeds. The amount of any deficiency claim after sale is resolved by appraisal. (Vt. Stat. Ann. tit. 12, 4945, 4946 and 4954.) Foreclosure by default or summary judgment may be ordered within 60 to 90 days. More time, however, is usually required for: Redemption periods. Certificates of non-redemption in strict foreclosure. Judicial sales. In strict foreclosure, or in a non-judicial sale, a deficiency action must be separately brought. Vermont law also allows an accelerated non-judicial foreclosure process that is started with service on the mortgagor of a notice of intention to foreclose (Vt. Stat. Ann. tit. 12, 4962). Non-judicial foreclosure is less common in Vermont, however, because the mortgagor has a right to redeem or object to a non-judicial sale any time before the sale (Vt. Stat. Ann. tit. 12, 4966). 5
Infrastructure Investment Act: New York's Design Build Law Real Estate Finance: Vermont 15. Describe any significant costs of or impediments to foreclosing a lien on real property. There are no significant costs that impede foreclosure in Vermont, though routine costs may include: Costs of publishing the notice of sale. Attorneys' fees. Trustee and title costs. Most lenders use strict judicial foreclosure because the mortgagor has the right to redeem or object to a non-judicial sale any time before the sale (see Question 14). FOREIGN ENTITIES 16. Are there any permissions, approvals or licenses specifically required for foreign banks (or other foreign lenders) to make loans secured by real property? A foreign lender must be licensed by the state through the Nationwide Mortgage Licensing System unless exempt by law (Vt. Stat. Ann. tit. 8, 2201(a) and 2201(b)). Lending includes: Secured and unsecured consumer loans. Mortgage loans. Commercial loans. The licensing requirements apply to lenders engaging in the business of soliciting and making loans by mail, telephone or electronic means as well. Exemptions to the licensing requirement include: Banks and other financial institutions. Insurance companies. Lenders of commercial loans of $1,000,000 or more. Lenders making loans of less than $50,000 in any year at an interest rate of 12% or less per year, other than residential mortgage loans. Sellers of goods or services that finance their sale, other than residential mortgage loans. (Vt. Stat. Ann. tit. 8, 2201(d).) ABOUT PRACTICAL LAW Practical Law provides legal know-how that gives lawyers a better starting point. Our expert team of attorney editors creates and maintains thousands of up-to-date, practical resources across all major practice areas. We go beyond primary law and traditional legal research to give you the resources needed to practice more efficiently, improve client service and add more value. If you are not currently a subscriber, we invite you to take a trial of our online services at practicallaw.com. For more information or to schedule training, call 888.529.6397 or e-mail ustraining@practicallaw.com. 6 09-14 Use of Practical Law websites and services is subject to the Terms of Use (http://us.practicallaw.com/2-383-6690) and Privacy Policy (http://us.practicallaw.com/8-383-6692).