What Is A Legal Opinion Letter & When Do You Need One
Legal Opinion Letter Explainer Video Summary
In this video, Joseph walks you through what a legal opinion letter is and when to use them.
Watch the full playlist to learn how Tsang & Associates uses legal opinion letters for mortgage applications in real estate transactions, company IPOs, and to send to foreign banks or universities.
Full Video Transcript
A legal opinion letter is exactly what it sounds like. It is a letter written to a person, to an entity, for some particular purpose to be relied on on officially what the law says.
(0:17) Legal opinion letters are important because important people need to make important decisions and there’s no way they know all the law from all around the world. Let me give you some examples.
Maybe a company is about to go public on the stock market. Well, maybe they have subsidiaries oversea, and as the regulator, as the underwriter, they don’t know the particular subsidiary structure, whether they’re in debt or not in debt. So they put the burden on the company to provide legal opinions on all the subsidiaries all across the world, right?
So for example, we do a lot of legal opinions for California corporations for oversea companies that need to IPO. Or let’s say you’re purchasing a house and the underwriter, when they’re going through your mortgage application sees that you own several companies and they don’t know who owns these companies and what kind of liability this puts on your income to debt ratio. You try to explain, the banker that you’re working with tries to explain, and they don’t find it quite sufficient. And so they need a legal opinion letter explaining the structure of your company. They want an official and third-party, independent lawyer to look at the documents, to write an opinion that way it’s not on them if somehow something goes wrong with your application. Most of the time when somebody needs a legal opinion letter, it’s because there’s a regulatory need or they’re trying to shield risk, right? They want to put the risk somewhere else so they have someone else to blame if something goes wrong. That’s where the lawyer comes in.
(1:40) Why is legal opinions so rare, so confusing? If you’re searching it, legal opinion, you don’t really find any specific answer because every situation is different.
For example, we do a lot of legal opinions for French citizens trying to buy condos, but the bank needs legal opinions because they are somehow in California and they own companies. That’s a very, very specific niche market, and you don’t have a whole company just to service that, right? Now, traditionally, you might think, oh, if you’re going through the mortgage application process in France, then the bank should have somebody that they work with that can provide this legal opinion letter, right? Well it’s not that simple because how would the bank know every single jurisdiction and every single lawyer in every country of the world. It’s too much burden on every single entity so that’s why they just put the burden on the individual. “You go get the legal opinion. Show me the license, and then we’ll take it and then once we review it, if it’s good, then we’ll accept it.”
(2:33) In other situations, legal opinions can balloon up in cost. Why? Because maybe you are working with an IPO company that’s doing all the underwriting to help your company go public. Well, the law firm that you’re working with doesn’t specialize in the legal opinion letter so then they contract out to another law firm in that particular country and then they go hire an independent lawyer that can write this legal document. There’s like three, four middlemen. Not only is it expensive, it is extremely time consuming because the constantly passing on of the information. It’s not direct at all. So something that could take a couple hours ends up taking months and costing 10 times the amount.
(3:10) So we have a lot of stories about these legal opinion letters. We’re fortunate enough to be a little small boutique firm that does a lot of these. I personally find it very rewarding and interesting because it’s exactly like law school. In fact, it’s exactly what law school teaches. In law school we’re taught to Iraq everything, right? What is the specific issue? What is the rule? What is the analysis? And what’s the conclusion? And write that into a paper and that’s exactly what a legal opinion is. What is the particular issue at play? What do you want us to analyze? Who is relying on this opinion? What is the rule? What is the exception to that rule? Lay it out very clearly so that anyone who reads this can understand even if they don’t have a law degree.
(3:49) And then the analysis. What are the facts and how does it apply to that rule? And the conclusion. Therefore, the person who is reading this letter, they can rely on this information to make this determination x, y, and z. It could be two, three pages, or it could be 30 pages with a thousand exhibits justifying your legal opinion. It could be extremely complex or it could be extremely simple.
(4:11) Every situation is different and hopefully in the following videos when I dive into each individual situation, real estate, IPO, criminal law, you will see what the legal industry is like when we’re talking about legal opinion letters. Each one of these stories is very dear to me. It’s fun and I hope you enjoy it.
Alright. Take care. Bye-bye.