In this 45‑minute presentation, Terrence Jones – CEO of Jones Title Company and a solo transactional real‑estate attorney – walks investors through the legal and practical due‑diligence checklist that can make or break a multifamily acquisition. He begins by establishing his credibility (10 years of transactional work, litigation background, and experience on deals up to $120 M) and then outlines the five high‑impact areas every buyer must address before signing a purchase contract: 1. What you’re actually buying – defining assets beyond the land and building, including fixtures vs. personal property, equipment, service contracts, intellectual‑property assets, and transferable licenses/permits (e.g., TVA dock permits, liquor licenses). 2. How you’ll pay – cash, debt assumption (with a detailed war‑story about a $32 M Georgia multifamily deal during the March 2020 market freeze and the $3 M purchase‑price concession achieved via CMBS defeasance), owner financing, and the strategic use of earnest money as liquidated damages. 3. When the deal closes – structuring earnest‑money provisions, refundable vs. non‑refundable triggers, and alternative financing mechanisms such as 1031/1030 exchanges. 4. Due‑diligence timing and scope – setting a realistic start date (often a few days after contract execution), requiring seller‑provided materials, confidentiality provisions, and the attorney’s own focus areas (service‑contract assignability, title work, property‑condition reports, zoning, building‑code inspections, and surveys). 5. Key on‑site investigations – differentiating boundary surveys from ALTA/NSPS land‑title surveys, understanding lead times (6‑7 weeks in TN/GA), and the importance of exhaustive property‑condition reports (e.g., discovering aluminum wiring that would void insurance). Throughout, Jones emphasizes the doctrine of merger (contract terms survive the deed), the need to embed all asset categories in the purchase agreement, and practical tips to avoid “stubbing your toe” during closing. The talk is framed as non‑legal‑advice, with repeated disclaimer language, and is delivered in a conversational, instructional tone aimed at investors, brokers, and junior attorneys.
Chapters
We dropped the purchase price by $3 million. I think this one was about $32 million. Multifamily real estate in Georgia, 450 units, $43 million in value. In the title company, I have assisted with underwriting and closing on deals up to about $120 million. We've made it work at the end of the day. Thanks very much, everybody. I am Terrence Jones. I'm CEO and managing attorney for Jones Title Company in Chattanooga, Tennessee. And I am also a solo practice transactional real estate lawyer. So biggest question for you guys is, why am I happening to you today? In my role at Jones Title Company and with my background at the law firm prior to that, I've been involved in quite a few real estate transactions, up to and including, you know, hotel build and financing, multifamily real estate up to about 450 units. $43 million in value. In the title company, I have assisted with underwriting and closing on deals up to about $120 million for everything from a whole warehouse-sized freezer for an ice cream company to conservation easement financing for historical landmarks in Chattanooga, Tennessee. The Chattanooga Choo Choo, if you guys have heard of that. So I've been doing transactional work for about 10 years, which is most of my practice. And I am a recovered real estate litigator. I have litigated a lot of these things earlier in my career. I've seen how these deals fall apart, and that really informs how I draft contracts, how I advise my clients, and, and how we go about making sure that we're making informed decisions. And everything else. Um, how do you know I'm a real lawyer? I'm going to give you some disclaimers. My talk today is not legal advice, okay? I am licensed in the states of Tennessee and Georgia. I'm in inactive status in Virginia. I am not licensed to tell you or advise you about real estate in other states. Um, so I'm not soliciting work in any of those states at this point either. The contract terms that I'm going to talk about today Are not model terms, they're not blanket permanent terms, they're not the best practices. They are— the point is to give you some ideas when you're negotiating your next contract and maybe save you from stubbing your toe where I've seen this happen in the past, either through a postmortem in litigation or, you know, we've seen some deals that get sideways before they get back on the tracks. So, So with that in mind, let's see. Can work now. Okay. So when we're talking about a complex real estate contract, a lot of these things you're going to think, that's obvious, it's a waste of my time. Who are my lawyers in the room? One. I know there was at least one other that spoke last night. Okay. And my 7,000-unit guy I heard talk about, I heard some of the introductions earlier. Has anybody done fake main debt before? I've sold debt. All right, so obviously we always want to define in a contract what it is that we're buying. But when you're talking about multifamily residential real estate, you're buying not just real estate, you're really buying an ongoing business, right? You're buying— you need to think about things like what else is going to be a part of this picture, what else is going to be part of this purchase contract. Just some things to think about. There's going to be equipment and tools on the property. There's going to be maintenance. There's going to be a maintenance shed. There's going to be backup appliances that are, you know, in stock and ready to go into units. Those things all need to be included in the contract because, and I'll talk about this in a little while, there's this doctrine called merger that says that when you have a contract that's going to be performed by the delivery of another document, in this case a deed or bill of sale, then you don't get to argue about the terms of your contract after you take that deed. Okay, so it's got to be in there and it's got to, it's got to be included in your closing documents. We'll talk about closing when we get further down the line here. Um, has anybody dealt with the difference between fixtures and personal property? Is everybody familiar with that? Okay, so fixtures are coming into this. This is You know, you've got, you know, the hot water heater in the warehouse that's ready to go into a unit, that's personal property. The hot water heater that's installed is a fixture, it comes along with the real estate. Service contracts. Some of these properties are going to have third-party laundromats. Some of them are going to have self-operating laundromats. Some of them are going to have blanket telecom services for the units, for the complexes. Those service contracts, you need to get copies of them and you need to review them and you need to decide whether or not you want to keep the terms of those agreements. You want those contracts assigned to you if they can be assigned. This is all part of this, but you want to include when you write your contract and you're saying what it is that you're buying, you want to include those service contracts as a possibility for you. You want them to assign you the tenant leases. This again sounds obvious, It gets forgotten from time to time. Intellectual property. If you're buying a business that is in process already, hopefully they have a website and you're not completely starting from scratch. If you're buying from mom-and-pop, they may not. But that website is going to have— they're going to have logo art, they're going to have advertising copy, they're going to have URLs, they're going to have fax numbers or telephone numbers that are already in the market and are valuable to you. You want to make sure that you're— you are gaining the ability to acquire those. Talked about laundromats and utility facilities. Licenses and permits. This is very localized. Okay, some states require you to have permits to have multifamily residential real estate. One issue that we have in Chattanooga, we're on the Tennessee River, and the Tennessee Valley Authority controls the river very aggressively and vigorously. If you buy a piece of property that has a dock that goes into the river, You have to apply to the TVA to get a permit to keep that dock, even if it's already in place. Okay? So when you're thinking about licenses and permits, you know, and we could expand this too beyond the multifamily realm. I represent folks that buy and sell liquor stores. Well, it's really difficult to get a new liquor license for, you know, a liquor store now that drinks on site. License. License in Tennessee right now. So the main asset other than the stock, the stock in trade, when you're buying a liquor store in Tennessee is the license to operate that liquor store. You want to make sure these things are both transferable and that your contract incorporates them. Okay, so the specificity matters on these things. And again, some of these may not be obvious on first glance. You don't want to get to the closing table and realize you forgot one of these things. All right, next issue, what's being paid, right? Obviously cash is king, right? Everybody knows this. Everybody knows if you've got cash to buy property that you're in a really good spot, um, for your, uh, ROI. But there's lots of other options. Um, so you can, you can pay part of the purchase price by assuming debt. Uh, give you a little war story. Um, 2020 rolls around and I'm in a— one of the larger real estate transactions that I've done. I think this one was about $32 million multifamily real estate, uh, in Georgia. And we get to about 2 weeks before closing, everything's done, you know, we're just, we're just waiting on the date to come around at this point, finalizing selling statements, that kind of thing. And the lender calls us. We haven't— we We have not yet rate locked because we're waiting to rate lock. And the lender says, every— the whole world's shutting down, it's March 2020, and the money's dried up. We don't know what the world's going— what the world's going to do. So we backed up and punked it, and we ended up assuming the existing, uh, CMBS loan, commercially mortgage-backed security loan, that was on the property. And because we did that The downside to that is typically if you're going to keep the purchase price the same, you've got to bring more cash to closing, right? In this case, because this was a CMBS loan, there was a very large defeasance fee associated with that. Has everybody run into that? Yes. Okay. Essentially, a CMBS loan is a loan that gets lumped in with a bunch of other commercial loans and then it's sold as a bond on the market, okay? And so your loans that get lumped in have to make a certain amount of interest. Because the bondholders expect to get paid their interest. So if you pay off one of those loans early, you have to do this, this whole process called defeasance, where you essentially are purchasing a bundle of securities that are going to replace that income for the bond, for the CBS bond. Okay. And that typically costs— on a deal that size, the cost is about $3 billion. Because we assumed the loan and we were going to keep paying the interest. We dropped the purchase price by $3 million and we made it work. At the end of the day, it took about an extra 6 weeks, but the seller was motivated. They didn't want to lose the deal either. And so we were able to extend the contract, get that one done under a lot of adversity. But assumption of debt is a powerful tool, especially if you've got a loan from, you know, '21, '22, the seller does, and you can make the numbers work. Assuming the debt can help you get that bank Owner financing is another big option. Depends on what the seller's plans are, obviously. And then how and when is the payment getting made? So a word about earnest money. There's a lot of conflict between buyers and sellers about earnest money, or there should be. There should be. A lot of times earnest money gets thrown off. It's like you stick the number in, everybody's happy with it, no big deal. The sellers really should be looking at it as in terms of That's going to be their primary source of liquidated damages if the deal doesn't happen. Right. The seller's damages are really difficult to show if the deal doesn't close for some fault of the buyer. And so if a deal doesn't close, the only compensation the seller is going to get for locking the property up, losing time negotiating, you know, especially in a challenging sale environment, is going to be that earnest money. It needs to be substantial enough that it's, that it's a sufficient, uh, uh, liquidated damage and recovery for that seller. On the other hand, the buyer doesn't want to have money at risk until they're ready to close. So there's, there could be some conflict there. Um, the biggest thing is making sure it works for both parties and figuring out who holds it. Every once in a while I get a deal across my desk and there's a buyer comes to me and he's like, oh yeah, I'm going to get the money with the seller. Oh yeah. We will never ever see that money again. It will never come back. I don't care what else they say. It's going to be spent tomorrow. We're not doing that. Also, really clearly defining when that earnest money becomes refundable or how long it stays refundable and when it becomes non-refundable. It's vitally important. That is the source of a lot of conflict, especially as you're going through due diligence. And, you know, you're doing this deeper dive analysis like we were talking about earlier about market rents and everything else. You're making your final decision about whether this deal even papers, raising your last couple of dollars for the deal. If it does not happen and you've got to cancel before the date on which your money goes hard. Okay, and so having that clearly defined is vitally important for a successful closing. And also we can you know there's also other options: land swaps, 1031 exchanges, 1030 exchanges. 1030 exchanges are when the government has eminent domain; it takes your property. It's actually more permissible than 1031 exchanges. They're they're How'd that— Ruined your life for a little while. I got a lot of— the feds are taking my office right now for a new federal courthouse in Chetwynd. That's so— That sets them up. Anyway, okay, so that's what's being paid and when is it going to get paid. So now you've got your contract, you know what you're buying, you know how you're paying for it. Or at least what the contract says. You may or may not have your financing in place. You might not feel like you, you, uh, know how you pay for it. That will come. But you're going to get into due diligence. And some, some of the things that we were concerned about on due diligence— now I will say this, I get involved in due diligence on some issues and not on others, okay? The review of the T-12s, review the road rules, I don't typically get into that from my clients. My clients are skilled at that, and that's what they bring to the table. Where I'm getting into due diligence is reviewing service contracts to see what contracts are going to be transferable and which aren't. I'm reviewing the title work that gets done. We'll talk about title work on another slide. I'm reviewing things like the property condition report and the zoning and building code inspections and the survey. All those go into real legal questions. I view the T-12, rent roll, all that, those are business decisions. Right. My clients make those decisions. So when you're getting into due diligence, defining the beginning of due diligence is important. Okay, a lot of contracts that I see define due diligence as the day that you sign the contract. That can be, that could be a place where you stub your toe. The, uh, because the problem is a big chunk of what you're going to have in due diligence is going to be from the, uh, from these sellers. And if they are not prompt about giving you the due diligence materials, and your due diligence timeline started on the day you signed the contract with no caveats, then you're burning time that you are going to have a difficult time. You have to negotiate and give something up to extend that later. Okay. So I typically like to see either A due diligence period that starts, you know, 5 days out, 5 business days after we sign the contract. Or even better is we set up a requirement that the seller produce their materials and that the buyer sign or send some written notice agreeing that they have received the materials. And that's the beginning of the due diligence time for the review. Okay? So you're going to do that review. A lot of times we have a confidentiality provision because, you know, for a good exhaustive real estate contract, we're really asking the sellers to lift the skirt a little bit. They get nervous about that. We want to see tax returns. We want to see bank statements because we don't want to just trust T-12s. We want to look and see what's actually getting deposited. Right, we want to see what are they reporting to the government under penalties of perjury for the hedge fund versus what are they telling me and what are they telling their lender. And so we typically do agree to confidentiality. You know, we're not here to— we're here to have a good deal. We're here to have a successful deal. We're not necessarily in this to just expose somebody's secrets for no good reason. So, you know, we agree to some confidentiality term that goes something along the lines of We won't use this or, or, you know, share it with anyone that is not bound by confidentiality rules, like an attorney, like an accountant, um, and that we'll return it if we cancel the deal for any reason. All right, you're going to get to your on-site inspections. Some of these are lead time items. You don't want to wait forever to start to schedule your survey. For example, I don't know all markets, but I know in Tennessee and Georgia, a good Land title survey is gonna take you about 6 weeks to 7 weeks to get. Okay. That needs to be built into your due diligence timeline, or you're gonna find yourself in a position where you're gonna have to make a decision about whether to continue with the deal or without, you know, all the information, or have to negotiate some compensation for survey matters. On the survey, let me— has anybody ever looked at the difference between a boundary survey and an ALTA/NSBS land title survey? Yes. Okay, boundary surveys are great, but on a big deal, uh, a family money deal, you're going to want the land title survey. They're more expensive, and— but they're going to— they do a lot more. They're going to show you the outside boundary of the property. They're going to show you any encroachments. They're going to show you the locations of buildings so that you can look at things like zoning setback requirements. They're going to show you, um, typically the title commitment will be given to the surveyor, and the surveyor will show on the drawing the location of all the easements so we know we don't have a sewer main that runs under, you know, somebody else's sewer main running underneath your apartment building. You got to worry about, are they going to try to tear my building down and repair their sewer, right? Fannie Mae's typically gonna require a relatively recent land title survey. Boundary surveys are typically not cuttin'. And with the endorsements to the title policy that Fannie Mae's gonna require, the title company's gonna require it. But as you can imagine, with a survey of that level of detail, they take time. Consenting. Property condition report, very important. Had a deal going once for a Tennessee client that was looking at property in Florida, and we found out that the property had all aluminum wiring. The insurance company hated that. They were not fans. And we only found that out because we had a really good exhaustive property condition report where they'd actually, you know, taken some wall plates off and looked at the wiring on a spot-check basis. You want to go door-to-door? in these apartments. You know, you want to, you want to make sure that if the rent roll says that a place is occupied, it is actually occupied. That's— that could feel really bad when you find out that, yeah, the rent roll says it's occupied, but after you close 2 months later, you find out, well, they left the place 2 months ago and haven't been paying rent. Thank you.
