Continuing from my previous blog post where I discussed various law firm staffing models for finance transactions and their approaches to drafting loan documents, let's now delve into the intricacies of due diligence in a typical real estate loan transaction.
Due Diligence
Examples of due diligence tasks in the context of a real estate transaction are review of various items such as title commitments, surveys, entity search results, organizational documents and non-recorded agreements related to the property. These tasks are crucial in ensuring the smooth and successful completion of a real estate loan transaction.
Traditional Big Law Team
This is often a black box of billable time where associates review various documents and provide summaries to the partner, which then get cleaned up and sent to the client. This is often what junior associates spend a large amount of their time on during any given day and this is not work the partner wants to do (or can do given their rate and the length and volume of documents),
Traditional Big Law Team with Less Junior Associates
Legal Team of the Future
The legal team of the future will rely heavily on AI tools to jump start the due diligence process. Even if these tools are not perfect now, I expect they will start to get better and better over the next few years as models improve and lawyers and vendors come up with creative solutions to speed up these tasks.
Large language models are very good at reading and writing. As a result, they can be very useful in reviewing documents quickly and providing summaries but currently there are some limitations. For example, large documents need to be broken up and this can sometimes result in the model failing to connect concepts across the pieces of the documents. They also are not able to incorporate facts or reasoning into their review unless carefully guided by the user.
This all said, very soon it will be common for teams to upload a document into an AI tool that produces a really good summary that can then be further refined and checked by a lawyer. The legal team can then take those summaries, clean them up and provide insight and action items to the client. This should work well for title review, summarizing property related agreements and reviewing things like search results or organizational documents.