Industrial Development Financing is a method of facilitating financing for private corporations, partnerships, and individuals through the issuance of securities by governmental entities at lower interest rates than those obtained through conventional financing. This is accomplished through the issuance of industrial development authority or other political subdivision, such as a city or a county, by industrial development revenue bonds.

At this point, the issuer of the bonds will apply the proceeds derived from the sale of the bonds to the purchase, construction, improvement, or equipment of a certain project. This project may be a manufacturing, industrial, commercial, agricultural, or any kind of facility, building, or structure used by a company in its trade or business.

In exchange, the developer will assume the obligation to make payments that are sufficient to cover those portions of the principal and interest on the bonds as they become due. The issuer's obligation is limited to the payment of the bonds only out of the revenues derived from the payments made by the developer; thus, the issuer merely acts as a conduit for the financing.

Industrial revenue bond transactions are extremely complex in nature and have numerous and extensive legal ramifications. Any issuance of industrial revenue bonds must be closely scrutinized in relation to the authorizing provisions of the respective state constitutions and statutes.

In a typical industrial revenue transaction, depending upon the statutes involved, various real estate interests can be created:

• Title to the land is conveyed to the issuing authority (city, county, or governmental body created by statute for the purpose of issuing the bonds).
• Issuing authority grants a mortgage or deed of trust on project.
• The mortgagee will be acting in one of three basic capacities:
  
  
  • In its own account, or as a lender;
  • For resale to the public, as an underwriter; or,
  • On behalf of some other lender, as a nominee.

Property is leased to the business or industrial entity which will be the actual operator of the project.

Under some state constitutions and statutes, three possible interests which may be created are as follows:

• An owner's policy to the bond issuer insuring its fee simple title.
• A loan policy to the lender insuring the lien of its mortgage or deed of trust securing the bonds.
• A leasehold owner's policy to the business or industrial entity.

Note: It is not uncommon for these transactions to deviate from this typical model.