What is a Due Diligence Lawyer and What Do They Do?
You found a small business you want to buy. The broker sent a letter of intent. The seller says the books are clean. Due diligence is how you find out if that is true before your money moves.
I do this work for buyers of Illinois small businesses, and for buyers of the buildings those businesses sit in. My job is to check what the seller tells you against the records. A title company, a lender, and a broker each do their own job. None of them does this one.
The Short Answer
A due diligence lawyer tests the seller's story against the records before you close. For a small business, that means the financials, the lease, the liens, the licenses, the employees, and the contracts. In Illinois, a buyer of business assets also files Form CBS-1 with the Illinois Department of Revenue. The buyer files it no later than 10 business days before closing. File late or not at all, and you can owe the seller's unpaid Illinois sales and income taxes. The cap is the reasonable value of the assets you bought.
Source: 35 ILCS 120/5j and 35 ILCS 5/902(d), read on ilga.gov on 2026-10-12.
What Due Diligence Covers When You Buy a Small Business
I work through the same list on every business purchase. The work starts at the letter of intent, because the LOI sets how long you have to look. Lower stakes items come first. Liens and taxes, at the bottom, can follow the assets to you.
| Area | What I check | Why it matters |
|---|---|---|
| Financials and quality of earnings | Tax returns, bank statements, and the seller's add-backs. For a larger deal, a quality of earnings review. | It tests the earnings figure behind the price. |
| Lease | Term, renewal options, assignment, and any personal guarantee. See my lease review checklist. | A lease you cannot take over can end the deal. |
| Contracts | Customer, vendor, and equipment lease contracts, and whether each one can be assigned to you. | You can inherit obligations you never signed. |
| Employees | Payroll records, unpaid wages, and unpaid Illinois unemployment contributions. | The buyer must hold back purchase money for unpaid contributions. |
| Licenses and permits | Which licenses transfer, and which ones you must apply for yourself. | Some licenses never transfer. A video gaming license is one. |
| Liens and UCC searches | UCC filings, judgments, and tax liens against the seller. | A lender's lien can stay on equipment you paid for. |
| Taxes | The Form CBS-1 bulk sales notice and the Department's reply. | Skip it, and the seller's tax bill can become yours. |
Three rows need a word more. A video gaming license does not transfer to a buyer. The buyer applies for its own (11 Ill. Adm. Code 1800.590). A lender's security interest generally stays on the collateral after a sale, unless the lender agreed otherwise (810 ILCS 5/9-315). For a seller organized in Illinois, I search UCC filings at the Illinois Secretary of State. Fixture filings sit with the county recorder (810 ILCS 5/9-501).
The Illinois Bulk Sales Step: Form CBS-1
Illinois puts this duty on the buyer, not the seller. The rule appears in two statutes. 35 ILCS 120/5j covers the Retailers' Occupation Tax, the Illinois sales tax on retailers. 35 ILCS 5/902(d) covers tax owed under the Illinois Income Tax Act.
The rule applies to a sale outside the seller's usual course of business. It reaches the major part of any one of four asset classes:
- the stock of goods the seller is in the business of selling
- the furniture or fixtures
- the machinery and equipment
- the real property of the business
Warning
File Form CBS-1 at least 10 business days before closing. "Before closing" is not enough.
The Department of Revenue calls the filing a bulk sale notice. The form is CBS-1, Notice of Sale, Purchase, or Transfer of Business Assets. Here is the sequence:
- Sign the sales contract. The seller and the buyer both sign it.
- File Form CBS-1 no later than 10 business days before closing. Attach the sales contract and the financing agreements.
- Wait for the Department. It has 10 business days after your notice to order you to withhold part of the price.
- Withhold what the order says. The Department then has 60 business days to state the actual amount due.
- Hold that money until the Department issues a certificate. The certificate shows the tax is paid, or that none is due.
If the deal terms change after you file, file an updated Form CBS-1 at once. The Department's instructions require it.
The Department can miss its own deadlines. Suppose it issues no withholding order within 10 business days. Or it misses the 60 business day deadline for the actual amount. Either way, the statute relieves you of the duty to withhold. It also relieves you of the liability for the seller's tax.
Now the other side. Skip the filing, or file late, and you are personally liable for the seller's unpaid tax. The cap is the reasonable value of the property you acquired. The Department may estimate the amount. You still owe only the actual amount once it is determined.
Filing does not cure a lien already on record. A buyer who takes property subject to a Department lien is personally liable for the tax that lien secures. That liability is also capped at the reasonable value of the property.
The decision rule
If you buy the assets, file Form CBS-1 and run the lien searches. If you buy the company itself, no CBS-1 is due, but the company's tax history comes with it.
Buying the company works differently. A purchase of an LLC's membership interests or a corporation's stock is not a transfer of those four asset classes. The company keeps its own tax history, and you now own the company. Your protection there is the purchase agreement: tax representations, an indemnity, and money held back at closing.
Unemployment contributions run under a separate statute, and Form CBS-1 does not cover them. Under 820 ILCS 405/2600, the buyer files nothing with the Illinois Department of Employment Security (IDES). The buyer withholds enough of the purchase money to cover the seller's unpaid contributions. The seller then has 10 days after the sale to report and pay. Those are plain days, not business days. A buyer who fails to withhold is personally liable, up to the reasonable value of the property acquired.
You may not need me for all of it
You can file Form CBS-1 yourself. The Department takes it by email at REV.bulksales@illinois.gov, with the signed sales contract and the financing agreement. Take a small asset purchase with no lease and no employees. There, the filing and a lien search may be most of the legal work.
Selling instead of buying? My guide to selling a business in Illinois covers the seller's side of the same deal.
The same work applies when you buy or sell residential or commercial property. Illinois does not require a due diligence lawyer. You can handle the process yourself. Some parts of a deal still need a lawyer's skill set. If the business deal includes the building, the work below applies too.
What Does a Commercial Due Diligence Lawyer Do that a Residential Due Diligence Lawyer Doesn’t?
I had a buyer who almost closed on a commercial property before I pulled the water and sanitation invoices. Those bills travel with the property, not the seller. You are crazy if you do not FOIA them. In another deal, I found $375,000 in undisclosed litigation over the building's electrical hookups. Commercial due diligence is the process of checking what a seller tells you against what the public record actually says.
The decision rule
If you are buying a single residential rental, a title company alone may be enough. If you are buying commercial property, or one with existing leases, get an attorney to review the rent roll and the CC&Rs too.
It’s like doing a deep dive to understand the company’s situation and its potential future. This process is usually less time-consuming for the company’s management because a lot of the information needed is about the broader business environment, which can be found through research​1​​ and 2​.
Examples of Commercial Due Diligence
Buyer-initiated CDD: This is when the buyer wants to understand the current and future performance of the target company. This process might look at the company’s past performance, the size of the markets it serves, and how it stands among its competitors. It can also involve looking at how the target company would fit with the buyer’s business​3​.
Vendor-initiated CDD: This is when the seller of a company wants to give an unbiased look at their company’s future prospects. This process might focus on growth forecasts, financial performance, and what sets the company apart from others. The goal here is to cater to potential buyers’ needs and answer their questions before they ask them​4​.
Red flag reporting: This is a shorter type of CDD that focuses only on key issues. It can be initiated by either the buyer or the seller and is often used for smaller transactions because it’s less costly than a full CDD​5​.
Commercial Due Diligence of Real Estate Transactions
I consider a number of factors on whether the property will make you money. The checklist below goes from the easiest problem to fix to the one that can kill the deal.
Title Review
I conduct a title search to make sure the seller has a clear and legal title to the property, meaning they actually have the right to sell it. I look for liens, encumbrances, or other issues that might affect the transfer of title to the buyer.
Commercial Survey
A commercial survey is a precise measurement of the property, including its boundaries and any structures or improvements on it. I review the survey to confirm the boundaries of the property and check for potential issues like encroachments onto neighboring properties.
Legal Description
I review the legal description of the property, a detailed way of identifying its location and boundaries in legal terms, and verify that it matches the actual property. Everyone takes this for granted until they realize someone else owns the parking lot.
Chicago Zoning Approval
If the property is in Chicago, I verify that it meets all zoning laws, which regulate what types of buildings and activities are allowed in certain areas. Realistically, I pay $300 for a certificate where the City, as a vendor, does this for us.
Declaration of Covenants, Conditions, Restrictions, Reservations and Easements (CC&Rs)
I review these documents, which outline the rules and restrictions for the property. They might limit how the property can be used or require certain maintenance obligations. Think of these as deed restrictions or rules of owning the property. They are more common in multiunit buildings than single unit ones.
Third-Party Engineering, Environmental Impact Statements, Appraisals, Soil Tests and Other Studies
These studies provide information about the physical condition and value of the property. I review them to look for potential issues like environmental hazards or structural problems.
Lease and Guarantee Review
If the property is being leased, I review the lease agreements and any guarantees to understand the terms and make sure they are legally sound. The items below are part of that same review. Lower stakes items are first; pending litigation, at the bottom, is the one that can stop a sale outright.
| Item | What I check | Why it matters |
|---|---|---|
| Security deposit review | Whether deposits were held and returned the way the law requires. | A compliance gap here is paperwork to fix, not a reason to walk. |
| Tax incentive and assessment review | Whether the property qualifies for any tax incentives, and whether the current assessment is calculated correctly. | Gets the carrying cost numbers right before you rely on them. |
| Permit and occupancy review | Whether the property has all necessary permits and meets occupancy regulations. | A missing permit can limit how you are allowed to use the building. |
| Service contract liability review | Any service contracts tied to the property, like maintenance or utilities. | You can inherit obligations and liabilities you never signed up for. |
| Insurance analysis | The property's existing insurance policies and coverage levels. | A coverage gap today becomes your uninsured loss tomorrow. |
| Rent roll and capitalization study review | The rental history and the capitalization study behind the asking price. | This is where the seller's income numbers get tested against reality. |
| Profitability analysis by quarterly profit and loss | The property's or business's financial documents, quarter by quarter. | Tells you the real return, not the return the listing promises. |
| Pending litigation analysis | Any lawsuits already filed against the property or the business tied to it. | Undisclosed litigation can sink the deal or land on your desk after closing. |
Understanding the Role of a Due Diligence Lawyer in Contract Creation
In Illinois, a due diligence lawyer plays a crucial role in the creation of contracts during the process of buying or selling real estate, whether residential or commercial. Yet, even in wholesale or subject to transactions, you’ll need someone like me to help. So, here’s a detailed breakdown of what a real estate lawyer does to help you with due diligence:
Drafting Contracts:
Only a licensed attorney can draft a legally binding contract for the purchase or sale of real estate. Importantly, this is because we understand the complexities of the law and can create a contract that protects your interests while complying with Illinois laws and regulations. Therefore, nobody but the buyer, seller, or lawyer can create a contract for purchase and sale, prepare deeds, or handle the final steps of a sale.
Also, a due diligence lawyer reviews any existing contracts and suggests amendments to ensure that the terms are fair and beneficial to their client. So, they can modify contract clauses to safeguard the client’s interests. However, during attorney review we can change anything about a contract except the price. But, unlike real estate agents, a due diligence lawyer can provide legal advice on the contractual obligations and rights of the parties involved.
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I'll flag due diligence issues within one business day.Exploring the Unique Role of a Due Diligence Lawyer in Document Preparation
The real estate transaction process is often buried in paperwork. Certain documents can only be prepared by you or your real estate attorney. These include, but are not limited to, contract addenda, deeds, notes, mortgages, powers of attorney, affidavits, possession agreements, escrow agreements, tax proration agreements, requests to extend contract contingencies, and contract termination notices.
Your due diligence lawyer will be able to:
- Modify your contract
- Submit an inspection report.
- Analyze your financing and payment structure.
- Act as your proxy at closing.
- Make the Final Settlement Statement
Accuracy in these documents and calculations is crucial. Any mistakes could result in delays, disputes, and potential legal actions. The expertise and experience of a due diligence lawyer can help prevent such issues, ensuring a more seamless and efficient process. This level of proficiency is not found in a real estate agent, whose primary role is to market your property. Meanwhile, the due diligence lawyer’s responsibility is to guarantee a successful property closure.
Why Would I Pay Money for a Due Diligence Attorney?
In the realm of law, attorneys owe their clients an unwavering allegiance. This means they are duty-bound to prioritize your interests and maintain the confidentiality of your information. However, other stakeholders in the transaction, such as lenders, inspectors, and title companies don’t share this obligation. But, numerous cases affirm that these entities are primarily business vendors, likely prioritizing their profits. Yet, an Illinois real estate attorney stands in stark contrast to this!
A title company clears title. It does not FOIA the water and sanitation invoices on a commercial property, and it will not tell you about $1,400,000 in equipment leases a seller described as owned outright. I have found both. A lender checks whether the loan gets paid back. It does not read a property's pending litigation file for a $450,000 municipal violation sitting on a warehouse. Each of these vendors does its own job well. None of them is doing mine.
Unpleasant Experience with a Previous Lawyer?
Let’s not mistake the actions of one for the entirety. First, the fundamental ethical obligation of an Illinois real estate attorney is to maintain a duty of loyalty towards their client. In summary, this means the attorney’s actions should always be in the best interest of the client, prioritizing the client’s needs above their own.
Critical Elements of Attorney Loyalty:
Avoiding Conflicts of Interest: Attorneys must steer clear of scenarios where their obligations to one client clash with those to another, or where their personal interests conflict with their professional duty. Accordingly, transparency is key if such a situation arises. Therefore, the attorney needs your informed consent to begin or continue the representation.
Safeguarding Confidentiality: Attorneys must maintain the confidentiality of their client’s information, with disclosure permitted only upon client consent or if mandated by law.
Vigorous Advocacy: Attorneys must fight tooth and nail for their clients. We must provide the best and most rigorous outcomes within the confines of the law.
Honesty: Attorneys must be truthful with their clients, ensuring the accuracy of any information and avoiding any attempts to mislead.
Communication: Attorneys must keep their clients in the loop about their transactions regularly.
Why You Need a Lawyer for Title Insurance!
Title insurance acts as a protective shield during a property purchase. It guarantees that the property you’re acquiring (or selling) is indeed yours and free from any external claims. These claims could emerge from unpaid debts of previous owners attached to the property or claims of ownership from others. Such claims are referred to as “liens” and “encumbrances.”
Title agents are the people who verify these details. We delve into public records and other relevant information to ensure the property’s history won’t come back to haunt you. As a result, many of us are investor-friendly attorneys. If they stumble upon any issues, they take steps to rectify them, allowing the property sale to proceed smoothly. This process is termed “clearing the title.”
In Illinois, there are specific regulations regarding who can serve as a title agent. Although many can take up this role, it’s generally best for Illinois real estate attorneys to take the reins. These “attorney agents” possess specialized knowledge in property law (as opposed to non-attorneys, rather than compared to other lawyers) and are adept at handling any arising complications.
What Does an Illinois Real Estate Attorney Title Agent Do?
My job is to be your home detective. We solve the mystery of how to sell this house (or what clues there are that you should buy it!)
Our role involves scrutinizing all records associated with the property. This exercise helps gets us informed about the property’s history. Similarly, it helps identify potential problems, such as open estates, ownership disputes, or legal violations. Similarly, we hunt for any liens or encumbrances. For example, these might be unpaid debts or claims from others in mechanic’s liens.
Even beyond that, as part of your closing, I’ll commission a survey to confirm the property boundaries. This is crucial to prevent boundary disputes or even demolition orders!
How does this help me buy with confidence?
Then, we report our findings to the title insurance company, which then decides on the property’s insurability. If they deny coverage, we put our detective hats on to uncover the reason. Most of the time, it’s just about more paperwork.
If and when we uncover any problems, we get to work resolving them. This involves further research, determining the appropriate course of action, and executing it. This often requires drafting hefty packets of FOIA requests and legal documents on your behalf.
As you can see, we are one of the biggest volume firms in helping people buy and sell homes, condos, and other properties in and around the Chicago area. So, when you’re ready to buy or sell, we can help you do it with confidence.
What Should I Look for in an Illinois Due Diligence Lawyer?
Make sure the title company and the due diligence lawyer give you a title policy that covers all necessary areas. There are many of these areas. Those include title defects, liens, encumbrances, occupants, and issues related to easements, covenants, and access rights. The policy should also cover any legal fees or costs associated with defending the title. This is standard everywhere, but we mention it because some title companies don’t necessarily do this!
Title insurance costs can vary based on the value of the property, the location, and the specifics of the transaction. Our rate card is online.
So, carefully review any exclusions or exceptions in the policy. These are specific situations or types of risks that the policy will not cover. If your due diligence attorney can’t explain these risks to you, find a different attorney.
Reputation and Coverage:
The insurer should have a solid reputation and a history of paying out claims. You can check the company’s rating with insurance rating companies like A.M., Best, or Demotech. First American Title, Chicago Title, Citywide Title, Stewart Title, and Fidelity Title are all great companies that we’ve worked with. Many attorneys choose Greater Illinois Title Company and Old Republic Title, but we do not work with those companies. Try to find someone local!
If you’re getting a mortgage, your lender will likely require a lender’s title insurance policy. This protects the lender’s investment, but it does not protect your equity in the property. For that, you’ll need an owner’s policy. The title insurance company is much more likely to help the lender policy out than the owner policy. This is a distinction that your due diligence attorney will explain.
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A seller once told a buyer the books were clean. Due diligence turned up litigation from employees he had not paid. That is the kind of catch a title company or a lender will not make, because it is not their job to make it. It is mine. Send me your contract before you sign it.
I represent business buyers and sellers in Illinois; see my small business attorney page for fees.
Frequently Asked Questions
I check what the seller tells you against the records. That covers the financials, the lease, liens and UCC filings, licenses, employees, and contracts. I also handle the Form CBS-1 bulk sales notice to the Illinois Department of Revenue.
The buyer files Form CBS-1 no later than 10 business days before the sale or transfer. The deadline comes from 35 ILCS 120/5j and 35 ILCS 5/902(d). Filing a few days before closing is not enough. A buyer who files late carries the same personal liability as a buyer who never files.
No. The bulk sales rule reaches four asset classes: stock of goods, furniture or fixtures, machinery and equipment, and real property. A purchase of membership interests or stock is not that kind of transfer. The tax history stays inside the company, and you now own the company.
The Department has 10 business days to order you to withhold part of the purchase price. If it does, it must state the actual amount owed within 60 business days of that order. You keep withholding until the Department issues a certificate. If the Department misses either deadline, you are relieved of the duty to withhold and of the liability.