When a buyer in a Merger and Acquisition (M&A) transaction seeks to obtain representations and warranties insurance (RWI), one of the key steps is the underwriting call. This call is a critical part of the insurer’s diligence process, where the underwriters assess the risks involved in the deal before issuing the policy. Preparation for this call can significantly impact the coverage obtained and the efficiency of the underwriting process. Below are insights and tips to help navigate this stage effectively.

Understanding the Underwriting Call

The underwriting call typically takes place after the insurer has reviewed the buyer’s due diligence materials and before finalizing the insurance policy. The call involves representatives from the insurer, the insured party (usually the buyer), their legal counsel, and sometimes financial and tax advisors. The primary objective is to ensure that the buyer has conducted thorough due diligence and to identify any areas of heightened risk. Since RWI covers breaches of representations and warranties in the acquisition agreement, the focus is strictly on the target’s historical operations, not post-close plans or improvements.

Key Areas of Focus

Underwriters tend to concentrate on specific aspects of the deal, including:

  • Financial Due Diligence – Reviewing quality of earnings, working capital adjustments, and debt obligations.
  • Legal Due Diligence – Examining material contracts, regulatory compliance, employment matters, and litigation risks.
  • Tax Diligence – Identifying potential tax liabilities and structuring risks.
  • Operational Risks – Understanding supply chain dependencies, customer concentration, and cybersecurity vulnerabilities.
  • Underlying Insurance – Evaluating historical Errors & Omissions, cyber, and other coverage, loss history, and prior acts coverage on claims-made policies.

How to Prepare for the Call

Effective preparation can streamline the process and help secure broader coverage. Key steps include:

  • Ensuring Robust Due Diligence – Underwriters will scrutinize the depth and quality of diligence performed. A well-documented diligence process with clear issue tracking will instill confidence in the insurer. Be prepared to explain how specific risks were assessed through independent diligence efforts rather than relying on the seller’s warranties.
  • Understanding the Transaction – Participants should be able to articulate the strategic rationale for the acquisition, key financial and operational drivers, and any identified risks. Since the insurer has spent less time on diligence, patience and collaboration are essential.
  • Coordinating with Advisors and Assigning Roles – Aside from the lead legal counsel, third-party advisors should be scheduled for specific time blocks for their respective sections. Designating a lead for each topic helps avoid multiple (or different) responses to the same question.
  • Addressing Known Risks Proactively – If there are red flags (e.g., pending litigation, regulatory matters), having clear explanations for risk mitigation can be beneficial.
  • Ensuring the Latest Purchase Agreement and Disclosure Schedules Are Available – The insurer may ask specific questions about these documents, so all parties should work from the most recent versions.
  • Being Prepared to Discuss Materiality – Since RWI policies often include a materiality scrape, underwriters may ask whether the seller disclosed items without regard to materiality. Certain areas may not have been reviewed because, given the deal size and retention level, the risk was deemed immaterial.
  • Identifying the Buyer’s Deal Team – Insurers always ask for the two to three buyer representatives most involved in the transaction, as breaches known to these individuals are excluded from coverage. The insurer assumes those answering underwriting questions are the designated deal team members.
  • Providing Written Follow-Ups When Necessary – If a question cannot be answered during the call, it is best to state that a response will be provided in writing post-call rather than speculating.
  • Understanding That Open Items Will Be Tracked – The underwriter and broker will keep notes and circulate an open items list after the call.

Common Pitfalls to Avoid

  • Inconsistent Responses – If different advisors provide conflicting answers, it raises red flags for the insurer.
  • Lack of Preparation – An unorganized or vague discussion can lead to narrower coverage or higher premiums.
  • Over-Sharing Information – While transparency is key, responses to agenda topics and questions from the insurer should be short, sweet and accurate.
  • Relying on Seller Warranties – The insurer is looking for independent diligence, not reliance on seller representations.

Final Thoughts

A well-handled underwriting call can mean the difference between robust coverage and limited protections. By preparing thoroughly, aligning with advisors, and anticipating underwriters’ concerns, deal participants can help ensure a smooth and successful process.

In response to housing shortages throughout the state, Colorado legislators are proposing policy changes relating to affordable housing.  House Bill 25-1169 (“HB25-1169”) is one of the most significant bills proposed to date. Titled “Housing Developments on Faith and Educational Land,” this proposed legislation aims to allow for affordable multifamily development on properties owned by faith-based organizations, school districts, and state colleges or universities (each a “Qualified Owner”) throughout Colorado. For multifamily developers that are able to collaborate with Qualified Owners, HB25-1169 presents a potential opportunity to take advantage of historically underutilized or undeveloped land with fewer legal and administrative obstacles.

Benefits and Opportunities for Developers

HB25-1169 is designed to facilitate increased affordable and mixed-income housing development by allowing multifamily developments on land owned by a Qualified Owner (even if not zoned for such purposes). Historically, much of this land has been restricted from use for residential developments in accordance with local zoning ordinances. HB25-1169 proposes an administrative approval process that streamlines project approvals and removes significant zoning-related barriers for Qualified Owners (and, potentially, private developers).

Key benefits include:

  1. Expedited Approvals: Qualified Owners and/or developers can bypass rezoning and discretionary permitting processes, reducing project timelines and lowering development soft costs.
  2. More Density, Fewer Restrictions: Local governmental authorities are prohibited from denying proposed developments based on structure height (up to three stories or 45 feet) or unit density unless the proposed development is cause for safety or environmental concerns.
  3. Mixed-Use Opportunities: HB25-1169 allows for additional uses within multifamily developments, including childcare centers, community spaces, and educational services (such uses in some jurisdictions may be limited to 15% of the square footage of the ground floor of the project).
  4. Potential Tax Incentives: As projects will be required to incorporate affordable housing elements as set forth below, such projects may qualify for state and federal tax credits and grants from the U.S. Department of Housing and Urban Development.
  5. Land Availability: Many faith-based and educational institutions own property in prime infill locations, making them ideal for multifamily developments.

Opportunities for private developers:

As currently proposed, in order for the benefits of HB25-1169 to apply, the land in question must be owned by a Qualified Owner. Private developers may be able to benefit from HB25-1169 through long term land leases and/or joint venture agreements with Qualified Owners whereby the Qualified Owner retains the ownership interest in the land while both parties benefit from revenue generated by the development.

Affordable Housing Requirements

HB25-1169 introduces specific affordable housing requirements for residential developments on qualifying properties. As currently drafted, these requirements vary based on the presence of local inclusionary zoning ordinances and the area’s market-rate rent relative to the area median income (“AMI”):

  1. Local Inclusionary Zoning Ordinance or Affordable Housing Policy: If the local jurisdiction has an existing inclusionary zoning ordinance or affordable housing policy applicable to the qualifying property, the proposed residential development must comply with these local regulations.
  2. Absence of Local Policy and Market Rate Rent at or Below 120% AMI: In jurisdictions without an inclusionary zoning ordinance, if the market rate rent is at or below 120% of the monthly AMI (as established annually by the U.S. Department of Housing and Urban Development), the development must align with the jurisdiction’s demonstrated housing needs as determined by a housing needs assessment.
  3. Absence of Local Policy and Market Rate Rent Above 120% AMI: In jurisdictions without an inclusionary zoning ordinance, where the market-rate rent exceeds 120% of the monthly AMI, at least 20% of the dwelling units in the development must be designated for households earning no more than 80% of the AMI.

Legislative Status and Next Steps

HB25-1169 has passed through the House and is currently under review in the Senate. Below is a summary of the significant legislative approvals received to date and the next legislative steps:

  • February 4, 2025: Introduced in the House of Representatives and assigned to the Transportation, Housing & Local Government Committee.
  • March 17, 2025: Passed in the House of Representatives on Third Reading with a 40-23 vote.
  • March 27, 2025: Passed in the Senate Committee on Local Government & Housing with 4-3 vote
  • Next Steps:
    • The Senate Committee of the Whole will debate and vote on April 14, 2025.
    • If HB25-1169 passes without additional amendments, it will proceed to Governor Polis for approval. If amended, it returns to the House of Representatives for reconciliation.
  • Governor’s Decision: If signed into law, HB25-1169 will take effect on December 31, 2026.

Conclusion

If enacted, HB25-1169 could unlock thousands of acres of land for affordable multifamily developments, providing an increase to Colorado’s affordable housing supply. Developers who take early action to understand the framework of HB25-1169 and align with Qualified Owners will be well-positioned to capitalize on these future opportunities in the affordable housing landscape.

Is a business temporarily closed by order of the government entitled to compensation? Two groups of plaintiffs have petitioned the U.S. Supreme Court hoping not just for a “yes” but an overhaul of a half-century of regulatory takings doctrine. The United States Constitution prohibits the government from “taking” property without payment of compensation. That creates a question: when, exactly, has the government “taken” property? The answer is obvious when it officially initiates a condemnation proceeding for a new highway, for instance. It is less so when the government doesn’t set out to acquire the property and instead enforces a law or regulation that substantially diminishes its value.

Absent a permanent denial of all economically beneficial or productive use of land, these so-called “regulatory takings” have for nearly 50 years been governed by the rule laid down by the Supreme Court in Penn Central Transportation Co. v. New York City. Under Penn Central, to determine whether compensation is required, a court makes ad hoc factual inquiries into three factors: (i) the economic impact of the regulation on the claimant; (ii) the extent to which the regulation interferes with distinct investment-backed expectations; and (iii) the character of the government action. Under this standard, landowners have rarely convinced courts that they are entitled to payment for a regulation’s effects on their property values. 

Fast forward to 2021, when, during the COVID-19 pandemic, state governments across the country ordered businesses deemed non-essential to close their doors to stem the spread of the virus. Many of these business owners sued state authorities, arguing that the closure orders constituted a regulatory taking that required compensation. These plaintiffs, universally unsuccessful in lower courts, now have the opportunity to petition the Supreme Court to hear their claims. Two such petitions are The Gym 24/7 Fitness, LLC v. Michigan and Mount Clemens Recreational Bowl v. Hertel. The petitioners ask the Supreme Court to overturn Penn Central, on the grounds that the present test provides insufficient protection to property rights and fails to provide clear guidance to lower courts.

The fundamental challenge the petitioners face is that if the Supreme Court is to overturn or tinker with Penn Central, it would traditionally do so in a case where a different framework might be dispositive. As it stands, it is difficult to conceive a set of factors under which a six-month shutdown of a business during a pandemic would be a compensatory taking. For instance, in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, the Supreme Court held that a 32-month development moratorium did not constitute a taking, even though the landowners were, for a time, completely deprived of any economic use of their land. Moreover, the Supreme Court would likely be reluctant to tie the hands of future federal, state, and local authorities grappling with infectious diseases.

That said, both petitions were filed by the Pacific Legal Foundation (“PLF”) which has had great success in front of the Supreme Court recently, winning four cases litigated before the Court in 2023 and 2024. Moreover, as recently as Sheetz v. Cnty. of El Dorado, the Supreme Court has taken cases to address the legal takings framework without deciding, substantively, whether the new framework disposes of the case. It may very well be that PLF is simply using these cases to put the question in front of the Supreme Court, and the pending petitions may set the stage for the Court’s revision of a half-century of regulatory takings law.

On February 27, 2025, FinCEN published guidance related to the Corporate Transparency Act (the “CTA”) taking the position that it would not “issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information reports pursuant to the Corporate Transparency Act by the current deadlines [of March 21, 2025].” In that same release, FinCEN further stated that no later than March 21, 2025, it would release an interim final rule clarifying the various reporting requirements included in the CTA, and that it further intends to solicit additional public comments on this subject. On March 2, 2025, the U.S. Treasury Department issued a press release stating that it expects the final rule will narrow the scope of the CTA to apply to foreign reporting companies only.

The release comes in response to a February 18, 2025 decision by the U.S. District Court for the Eastern District of Texas reinstating the reporting requirements and FinCEN’s resulting updated filing deadline of March 21, 2025. Pursuant to this guidance, it appears that the requirements of the CTA technically remain in effect and those entities covered by the CTA are obligated to file as described in the act, however FinCEN will not be enforcing any penalties for non-compliance. The future of the CTA is uncertain, and it is therefore unclear what, if any, repercussions there may be for entities that fail to fulfil their reporting obligations. Hopefully, FinCEN’s new rule due out later this month will provide further clarity and finally put the last several months of CTA related whiplash to bed.

On March 4th, President Donald Trump imposed 25% tariffs on goods imported from Mexico and Canada, the United States’ two largest trading partners.  Two days later, those tariffs were largely lifted as President Trump signed separate executive orders granting relief to goods from Mexico and Canada covered by the United-States-Mexico-Canada Agreement (an agreement signed into law by President Trump in July 2020).  The relief granted by recent Presidential Orders presently lasts until April 2nd.  While much uncertainty remains regarding the future of tariffs on the United States’ Northern and Southern neighbors, the short period in which the tariffs were imposed already foreshadowed potential impacts in the real estate industry.

According to the National Home Builders Association, in 2023 “roughly $183 billion worth of goods were used in the construction of both new multifamily and single-family housing” with roughly 7% of those goods originating in foreign nations.  Two key materials for homebuilders, lumber and gypsum, are primarily imported from Canada and Mexico, with roughly 70% of sawmill and wood imports originating in Canada and 71% of gypsum imports originating in Mexico.  With respect to lumber and wood products imported from Canada alone, the United States already imposes a 14.5% anti-dumping and anti-subsidy tariff.  Coupled with the 25% tariffs, the overall tariff on Canadian lumber could increase to nearly 40%.

On March 4th and 5th while the tariffs were in effect, lumber costs reached $658.71/1000 board feet, an all-time high.  By March 6th, lumber costs dropped to $631.18/1000 board feet, a decrease but a stark increase from as recently as July 2024 when lumber costs were $418.54/1000 board feet.  As the National Association of Homebuilders’ Chairman, Carl Harris, notes, “Tariffs on building materials increase the cost of construction, and consumers end up paying in the form of higher home prices.” Commercial real estate builders are not immune from the impact of tariffs either, as “[s]teel and aluminum tariffs would clearly feed into higher construction costs for the commercial real estate sectors.”  In a nation already facing a nearly 4.5 million housing deficit and an industry reeling from prolonged construction input prices, real estate developers across the board are bracing for the potential impact of President Trump’s proposed tariffs.