As filed with the Securities and Exchange Commission on June 23, 1998
Registration No. 33-[______]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NATIONSLINK FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
56-1950039
(I.R.S. employer identification number)
NationsBank Corporate Center
Charlotte, North Carolina 28255
(704) 386-2400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
John T. McCarthy
NationsLink Funding Corporation
NationsBank Corporate Center, NC1-007-11-07
Charlotte, North Carolina 28255
(704) 388-1770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Robert W. Long, Jr., Esq. Karsten P. Giesecke, Esq.
Assistant General Counsel Cadwalader, Wickersham & Taft
NationsBank Corporation 100 Maiden Lane
NationsBank Corporate Center, NC1-007-20-01 New York, New York 10038
Charlotte, North Carolina 28255
================================================================================
<PAGE>
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum
Offering Proposed Maximum Amount of
Title of Securities Being Price Aggregate Offering Registration
Registered (1) Amount to be Registered Per Unit Price Fee
-------------- ----------------------- -------- ----- ---
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $1,500,000,000.00 100% $1,500,000,000.00 $442,500.00
</TABLE>
(1) This registration statement and the registration fee pertain to the
initial offering of the Mortgage Pass-Through Certificates registered hereunder
by the registrant and to offers and sales relating to market-making transactions
by NationsBanc Montgomery Securities LLC, an affiliate of the registrant. The
amount of Mortgage Pass-Through Certificates that may be initially offered
hereunder and the registration fee shall not be affected by any offers and sales
relating to any such market-making transactions.
Pursuant to Rule 429 of the Securities and Exchange Commission's Rules and
Regulations under the Securities Act of 1933, as amended, the Prospectus and
Prospectus Supplement contained in this Registration Statement also relate to
the Registrant's Registration Statement on Form S-3 (Registration Statement No.
333-43609).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file and further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED ____________ __, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 199_)
$------------------------
NATIONSLINK FUNDING CORPORATION
Depositor
--------------------------
Master Servicer
Mortgage Pass-Through Certificates, Series 199__-__
$_____________ Variable Rate Class A Certificates
$_____________ Variable Rate Class B Certificates
$ 100 Variable Rate Class R Certificates
-----------
The Series 199__-__ Mortgage Pass-Through Certificates (the "Certificates")
will consist of the following four classes (each, a "Class"): (i) the Class A
Certificates and Class R Certificates (collectively, the "Senior Certificates");
(ii) the Class B Certificates; and (iii) the Class C Certificates. Only the
Senior Certificates and the Class B Certificates (collectively, the "Offered
Certificates") are offered hereby.
It is a condition of their issuance that the Senior Certificates be rated
not lower than ____, and that the Class B Certificates be rated not lower than
______, by ___________________. -----------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS AFFILIATES, INCLUDING
NATIONSBANK CORPORATION, THE DEPOSITOR'S ULTIMATE PARENT. NEITHER
THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR
OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page S-___ herein and page 12 in the
Prospectus before purchasing any Offered Certificate.
See "Index of Principal Definitions" in the Prospectus for location of
meanings of capitalized terms used but not defined herein. See "Index of
Principal Definitions" herein for location of meanings of those other
capitalized terms used herein.
(cover continued on next page)
[UNDERWRITER(S)]
________________, 199__
<PAGE>
(cover continued)
There is currently no secondary market for the Offered Certificates.
_____________________ (the "Underwriter") intends to make a secondary market in
the Offered Certificates, but is not obligated to do so. There can be no
assurance that a secondary market for the Offered Certificates will develop or,
if it does develop, that it will continue. The Offered Certificates will not be
listed on any securities exchange.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates with respect to which the Underwriter is a principal. The
Underwriter may also act as agent in such transactions. Such sales will be made
at negotiated prices determined at the time of sale.]
The Offered Certificates will be purchased from the Depositor by the
Underwriter and will be offered by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates, before deducting expenses payable by the
Depositor estimated to be approximately $_____________, will be ______% of
the initial aggregate Certificate Balance of the Offered Certificates[, plus
accrued interest on the Offered Certificates from the Cut-off Date]. The Offered
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. It is expected that the Class A Certificates will be delivered in
book-entry form through the Same-Day Funds Settlement System of DTC and that the
Class B and Class R Certificates will be delivered at the offices of the
Underwriter, _________________________ _________________________________, on or
about _____________, 199__ (the "Delivery Date"), against payment therefor in
immediately available funds.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund"), to be established by the
Depositor, that will consist primarily of a segregated pool (the "Mortgage
Pool") of ____ conventional, fixed- and adjustable-rate, multifamily or
commercial, balloon mortgage loans (the "Mortgage Loans"). As of ____________,
199___ (the "Cut-off Date"), the Mortgage Loans had an aggregate principal
balance (the "Initial Pool Balance") of $___________________, after application
of all payments of principal due on or before such date, whether or not
received. Certain characteristics of the Mortgage Loans are described herein
under "Description of the Mortgage Pool". The rights of the holders of the Class
B and Class C Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to the rights of the holders of the Senior
Certificates, and the rights of the holders of the Class C Certificates to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the holders of the Class B Certificates, in each case to the
extent described herein and in the Prospectus.
The Class A Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC, as described herein.
The interests of the beneficial owners of the Class A Certificates will be
represented by book entries on the records of participating members of DTC.
Definitive certificates will be available for the Class A Certificates only
under the limited circumstances described herein and in the Prospectus. See
"Description of the Certificates-Book-Entry Registration of the Class A
Certificates" herein and "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the Prospectus.
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A Certificates, the Class B Certificates and the
Class C Certificates (collectively, the "REMIC Regular Certificates") will
constitute "regular interests", and the Class R Certificates will constitute the
sole class of "residual interests", in the Trust Fund. See "Certain Federal
Income Tax Consequences" herein and in the Prospectus. Transfer of the Class R
Certificates will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described herein under
"Certain Federal Income Tax Consequences-Special Tax Considerations Applicable
to REMIC Residual Certificates" and in the Prospectus under "Certain Federal
Income Tax Consequences-REMICs-Tax and Restrictions on Transfers of REMIC
Residual Certificates to Certain Organizations".
-ii-
<PAGE>
(cover continued)
Distributions on the Certificates will be made, to the extent of available
funds, on the 25th day of each month or, if any such day is not a business day,
then on the next business day, beginning in _____________ 199____ (each, a
"Distribution Date"). As described herein, interest distributions on each Class
of Offered Certificates will be made on each Distribution Date based on the
variable pass-through rate (the "Pass-Through Rate") then applicable to such
Class and the stated principal amount (the "Certificate Balance") of such Class
outstanding immediately prior to such Distribution Date. The Pass-Through Rate
for each Class of Offered Certificates applicable to the first Distribution Date
will be _________% per annum. Subsequent to the initial Distribution Date, the
Pass-Through Rate for each Class of Offered Certificates will equal from time to
time the weighted average of, subject to certain adjustments described herein,
the Net Mortgage Rates (as defined herein) on the Mortgage Loans. Principal
distributions on each Class of Offered Certificates will be made in the amounts
and in accordance with the priorities described herein. See "Description of the
Certificates-Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend on,
among other things, changes in its respective Pass-Through Rate and the rate and
timing of principal payments (including by reason of prepayments, defaults and
liquidations) on the Mortgage Loans. See "Yield and Maturity Considerations"
herein and "Yield and Maturity Considerations" and "Risk Factors-Effect of
Prepayments on Average Life of Certificates" in the Prospectus. [The following
disclosure is applicable to Stripped Interest Certificates ("Class S
Certificates"), when offered... The yield to maturity on the Class S
Certificates will be extremely sensitive to the rate and timing of principal
payments (including by reasons of prepayments, defaults and liquidations) on the
Mortgage Loans, which may fluctuate significantly from time to time. A rate of
principal payments on the Mortgage Loans that is more rapid than expected by
investors will have a material negative effect on the yield to maturity of the
Class S Certificates. Investors in the Class S Certificates should consider the
associated risks, including the risk that a rapid rate of principal payments on
the Mortgage Loans could result in the failure of investors in such Certificates
to recover fully their initial investments. See "Yield and Maturity
Considerations" herein and "Yield and Maturity Considerations" and "Risk
Factors-Effect of Prepayments on Average Life of Certificates" in the
Prospectus.]
[inside front cover]
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED ____________________, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-iii-
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms that are used in this
Summary may be defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Principal Definitions is included at the end of both
this Prospectus Supplement and the Prospectus. Terms that are used but not
defined in this Prospectus Supplement will have the meanings specified in the
Prospectus.
Title of Certificates .......... NATIONSLINK Funding Corporation Mortgage
Pass-Through Certificates, Series 199__-__.
Depositor ...................... NATIONSLINK Funding Corporation. See "The
Depositor" in the Prospectus.
Master Servicer ................ _____________________. See "Servicing of the
Mortgage Loans-The Master Servicer" herein.
Special Servicer ............... _____________________. See "Servicing of the
Mortgage Loans-The Special Servicer" herein.
Trustee ........................ _____________________. See "Description of the
Certificates-The Trustee" herein.
REMIC Administrator ............ _____________________. See "Certain Federal
Income Tax Consequences-REMICs-Reporting and
Other Administrative Matters" and "The Pooling
and Servicing Agreements-Events of Default"
and "-Rights Upon Event of Default" in the
Prospectus.
Mortgage Loan Seller ........... ________________________. See "Description of
the Mortgage Pool-The Mortgage Loan Seller"
herein.
Cut-off Date ................... ___________________, 199__.
Delivery Date .................. On or about ___________________, 199__.
Denominations .................. The Class A Certificates will be issued,
maintained and transferred on the book-entry
records of DTC and its Participants in
denominations of $25,000 and integral
multiples of $1 in excess thereof. The Class B
Certificates will be issued in fully
registered, certificated form in denominations
of
S-1
<PAGE>
$100,000 and in integral multiples of $1,000
in excess thereof, with one Class B
Certificate evidencing an additional amount
equal to the remainder of the initial
Certificate Balance of such Class. The Class R
Certificates will be issued in registered,
certificated form in minimum denominations of
20% percentage interest in such Class.
Certificate Registration ....... The Class A Certificates will be represented
by one or more global Certificates registered
in the name of Cede & Co., as nominee of DTC.
No person acquiring an interest in the Class A
Certificates (any such person, a "Class A
Certificate Owner") will be entitled to
receive a Class A Certificate in fully
registered, certificated form (a "Definitive
Class A Certificate"), except under the
limited circumstances described herein and in
the Prospectus. The Class B and Class R
Certificates will be offered in fully
registered, certificated form. See
"Description of the Certificates-Book-Entry
Registration of the Class A Certificates"
herein and "Description of the
Certificates-Book-Entry Registration and
Definitive Certificates" in the Prospectus.
The Mortgage Pool .............. The Mortgage Pool will consist of _____
conventional, balloon Mortgage Loans with an
Initial Pool Balance of $_________________. On
or prior to the Delivery Date, the Depositor
will acquire the Mortgage Loans from the
Mortgage Loan Seller pursuant to a Purchase
Agreement, dated [the date hereof], between
the Depositor and the Mortgage Loan Seller
(the "Purchase Agreement").
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple estate in a
commercial or multifamily rental property
(each, a "Mortgaged Property"). Set forth
below are the number of Mortgage Loans, and
the approximate percentage of the Initial Pool
Balance represented by such Mortgage Loans,
that are secured by Mortgaged Properties
operated for each indicated purpose:
S-2
<PAGE>
Percentage of
Number of Initial Pool
Property Type Mortgage Loans Balance
------------- -------------- -------
[Multifamily..................]
[Specify various types of commercial
properties....................]
See "Risk Factors-Risks Associated With
Multifamily Properties" and "-Risks Associated
with ___________ Properties" and "Description
of the Mortgage Pool-Additional Mortgage Loan
Information" herein.
The Mortgaged Properties are located
throughout ____ states. Set forth below are
the number of Mortgage Loans, and the
approximate percentage of the Initial Pool
Balance represented by such Mortgage Loans,
that are secured by Mortgaged Properties
located in the _____ states with the highest
concentrations:
Percentage of
Number of Initial Pool
State Mortgage Loans Balance
----- -------------- -------
[Specify all stated with a concentration
of 10% or greater.............]
___________ of the Mortgage Loans, which
___________ of the Mortgage Loans, which
represent ______% of the Initial Pool Balance,
provide for scheduled payments of principal
and/or interest ("Monthly Payments") to be due
on the first day of each month; the remainder
of the Mortgage Loans provide for Monthly
Payments to be due on the ____, _____, _____
or _____ day of each month (the date in any
month on which a Monthly Payment on a Mortgage
Loan is first due, the "Due Date"). The
annualized rate at which interest accrues (the
"Mortgage Rate") on ____ of the Mortgage Loans
(the "ARM Loans"), which represent _____% of
the Initial Pool Balance, is subject to
adjustment on specified Due Dates (each such
date of adjustment, an "Interest Rate
Adjustment Date") by adding a fixed number of
basis points (a "Gross Margin") to the value
of a base index (an "Index"), subject, in
______ cases, to lifetime maximum and/or
minimum Mortgage
S-3
<PAGE>
Rates, and in _____ cases, to periodic maximum
and/or minimum Mortgage Rates, in each case as
described herein; and the remaining Mortgage
Loans (the "Fixed Rate Loans") bear interest
at fixed Mortgage Rates. ____ of the ARM
Loans, which represent ___% of the Initial
Pool Balance, provide for Interest Rate
Adjustment Dates that occur monthly, while the
remainder of the ARM Loans provide for
adjustments of the Mortgage Rate to occur
semi-annually or annually. [Identify Mortgage
Loan Index] See "Description of the Mortgage
Pool-Certain Payment Characteristics" herein.
The amount of the Monthly Payment on all of
the ARM Loans is subject to adjustment on
specified Due Dates (each such date, a
"Payment Adjustment Date") to an amount that
would amortize the outstanding principal
balance of the Mortgage Loan over its then
remaining amortization schedule and pay
interest at the then applicable Mortgage Rate.
The ARM Loans provide for Payment Adjustment
Dates that occur on the Due Date following
each related Interest Rate Adjustment Date.
ll of the Mortgage Loans provide for monthly
payments of principal based on amortization
schedules significantly longer than the
remaining terms of such Mortgage Loans,
thereby leaving substantial principal amounts
due and payable (each such payment, together
with the corresponding interest payment, a
"Balloon Payment") on their respective
maturity dates, unless prepaid prior thereto.
Description of the
Certificates ................. The Certificates will be issued pursuant to a
Pooling and Servicing Agreement, to be dated
as of the Cut-off Date, among the Depositor,
the Master Servicer, the Special Servicer, the
Trustee and the REMIC Administrator (the
"Pooling and Servicing Agreement"), and will
represent in the aggregate the entire
beneficial ownership interest in the Trust
Fund, which will consist of the Mortgage Pool
and certain related assets.
S-4
<PAGE>
The aggregate Certificate Balance of the
Certificates as of the Delivery Date will
equal the Initial Pool Balance. Each Class of
Offered Certificates will have the initial
Certificate Balance set forth on the cover
page, and the Class C Certificates will have
an initial Certificate Balance of
$____________. See "Description of the
Certificates-General" herein.
The Pass-Through Rate applicable to each Class
of Certificates for the initial Distribution
Date will equal _____% per annum. With respect
to any Distribution Date subsequent to the
initial Distribution Date, the Pass-Through
Rate for each Class of Certificates will equal
the weighted average of the applicable
Effective Net Mortgage Rates for the Mortgage
Loans, weighted on the basis of their
respective Stated Principal Balances (as
described herein) immediately prior to such
Distribution Date. For purposes of calculating
the Pass-Through Rate for any Class of
Certificates and any Distribution Date, the
"applicable Effective Net Mortgage Rate" for
each Mortgage Loan is an annualized rate equal
to the Mortgage Rate in effect for such
Mortgage Loan as of the [second] day of the
most recently ended calendar month, (a)
reduced by ___ basis points (the Mortgage
Rate, as so reduced, the "Net Mortgage Rate"),
and (b) if the accrual of interest on such
Mortgage Loan is computed other than on the
basis of a 360-day year consisting of twelve
30-day months (which is the basis of accrual
for interest on the Certificates), then
adjusted to reflect that difference in
computation. See "Description of the
Certificates-Distributions-Pass-Through Rates"
and "-Distributions-Certain Calculations with
Respect to Individual Mortgage Loans" herein.
Interest Distributions
on the Senior Certificates ... On each Distribution Date, to the extent of
the Available Distribution Amount, holders of
each Class of Senior Certificates will be
entitled to receive distributions of interest
in an amount equal to all Distributable
Certificate Interest with respect to such
Certificates for such Distribution Date and,
S-5
to the extent not previously paid, for all
prior Distribution Dates. See "Description of
the Certificates-Distributions" herein.
The "Distributable Certificate Interest" in
respect of any Class of Certificates for any
Distribution Date will equal one month's
interest at the then-applicable Pass-Through
Rate accrued on the Certificate Balance of
such Class of Certificates immediately prior
to such Distribution Date, reduced (to not
less than zero) by such Class of Certificates'
allocable share (in each case, calculated as
described herein) of any Net Aggregate
Prepayment Interest Shortfall (also as
described herein) for such Distribution Date.
See "Description of the
Certificates-Distributions- Distributable
Certificate Interest" herein.
The "Available Distribution Amount" for any
Distribution Date is, as described herein
under "Description of the
Certificates-Distributions", the total of all
payments or other collections (or available
advances) on or in respect of the Mortgage
Loans that are available for distribution on
the Certificates on such date.
Principal Distributions on
the Senior Certificates ...... On each Distribution Date, to the extent of
the Available Distribution Amount remaining
after the distributions of interest to be made
on the Senior Certificates on such date,
holders of the Senior Certificates will be
entitled to distributions of principal (until
the Certificate Balances of such Classes of
Certificates are reduced to zero) in an
aggregate amount equal to the sum of (a) such
holders' pro rata share of the Scheduled
Principal Distribution Amount for such
Distribution Date, plus (b) the entire
Unscheduled Principal Distribution Amount for
such Distribution Date. Distributions of
principal on the Senior Certificates will be
paid first to the holders of the Class R
Certificates until the Certificate Balance of
such Certificates is reduced to zero, and then
to the holders of the Class A Certificates.
See "Description of the
S-6
<PAGE>
Certificates-Distributions-Scheduled Principal
Distribution Amount and Unscheduled Principal
Distribution Amount" herein.
Interest Distributions on
the Class B Certificates ..... On each Distribution Date, to the extent of
the Available Distribution Amount remaining
after all distributions to be made on the
Senior Certificates on such date (such
remaining portion, the "Class B Available
Distribution Amount"), holders of the Class B
Certificates will be entitled to receive
distributions of interest in an amount equal
to all Distributable Certificate Interest with
respect to such Certificates for such
Distribution Date and, to the extent not
previously paid, for all prior Distribution
Dates. See "Description of the
Certificates-Distributions" herein.
Principal Distributions on
the Class B Certificates ..... On each Distribution Date, to the extent of
the Class B Available Distribution Amount
remaining after the distributions of interest
to be made on the Class B Certificates on such
date, holders of the Class B Certificates will
be entitled to distributions of principal
(until the Certificate Balance of such Class
of Certificates is reduced to zero) in an
amount equal to the sum of (a) such holders'
pro rata share of the Scheduled Principal
Distribution Amount for such Distribution
Date, plus (b) if the Certificate Balances of
the Senior Certificates have been reduced to
zero, then to the extent not distributed in
reduction of such Certificate Balances on such
Distribution Date, the entire Unscheduled
Principal Distribution Amount for such
Distribution Date. See "Description of the
Certificates-Distributions" herein.
Certain Yield and Prepayment
Considerations ............... The yield on the Offered Certificates of any
class will depend on, among other things, the
Pass-Through Rate for such Certificates. The
yield on any Offered Certificate that is
purchased at a discount or premium will also
be affected by the rate and timing of
distributions in respect of principal on such
Certificate, which in turn will be
S-7
<PAGE>
affected by (i) the rate and timing of
principal payments (including principal
prepayments) on the Mortgage Loans and (ii)
the extent to which such principal payments
are applied on any Distribution Date in
reduction of the Certificate Balance of the
Class to which such Certificate belongs. See
"Description of the
Certificates-Distributions-Priority" and
"-Distributions-Scheduled Principal
Distribution Amount and Unscheduled Principal
Distribution Amount" herein.
An investor that purchases an Offered
Certificate at a discount should consider the
risk that a slower than anticipated rate of
principal payments on such Certificate will
result in an actual yield that is lower than
such investor's expected yield. An investor
that purchases any Offered Certificate at a
premium should consider the risk that a faster
than anticipated rate of principal payments on
such Certificate will result in an actual
yield that is lower than such investor's
expected yield. Insofar as an investor's
initial investment in any Offered Certificate
is repaid, there can be no assurance that such
amounts can be reinvested in a comparable
alternative investment with a comparable
yield.
The actual rate of prepayment of principal on
the Mortgage Loans cannot be predicted. The
Mortgage Loans may be prepaid at any time,
subject, in the case of ____ Mortgage Loans,
to payment of a Prepayment Premium. The
investment performance of the Offered
Certificates may vary materially and adversely
from the investment expectations of investors
due to prepayments on the Mortgage Loans being
higher or lower than anticipated by investors.
The actual yield to the holder of an Offered
Certificate may not be equal to the yield
anticipated at the time of purchase of the
Certificate or, notwithstanding that the
actual yield is equal to the yield anticipated
at that time, the total return on investment
expected by the investor or the expected
weighted average life of the Certificate may
not be realized. For a discussion of certain
factors affecting prepayment
S-8
<PAGE>
of the Mortgage Loans, including the effect of
Prepayment Premiums, see "Yield and Maturity
Considerations" herein. In deciding whether to
purchase any Offered Certificates, an investor
should make an independent decision as to the
appropriate prepayment assumptions to be used.
[The structure of the Offered Certificates
causes the yield of certain Classes to be
particularly sensitive to changes in the rates
of prepayment of the Mortgage Loans and other
factors, as follows:]
[Allocation to the Senior Certificates, for so
long as they are outstanding, of the entire
Unscheduled Principal Distribution Amount for
each Distribution Date will generally
accelerate the amortization of such
Certificates relative to the actual
amortization of the Mortgage Loans. Following
retirement of the Class A Certificates, the
Unscheduled Principal Distribution Amount for
each Distribution Date will be allocated to
the Class B Certificates.]
[The following disclosure is applicable to
Stripped Interest Certificates, when
offered... The Stripped Interest Certificates.
The Class S Certificates are interest-only
Certificates and are not entitled to any
distributions in respect of principal. The
yield to maturity of the Class S Certificates
will be especially sensitive to the
prepayment, repurchase and default experience
on the Mortgage Loans, which may fluctuate
significantly from time to time. A rate of
principal payments that is more rapid than
expected by investors will have a material
negative effect on the yield to maturity of
the Class S Certificates. See "Yield and
Maturity Considerations-Yield Sensitivity of
the Class S Certificates" herein.]
Class R Certificates: Holders of the Class R
Certificates are entitled to receive
distributions of principal and interest as
described herein; however, holders of such
Certificates may have tax liabilities with
respect to their Certificates during the early
years of the term of the Trust Fund that
S-9
<PAGE>
substantially exceed the principal and
interest payable thereon during such periods.
See "Yield and Maturity Considerations",
especially "-Additional Yield Considerations
Applicable Solely to the Class R
Certificates," herein and "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
Advances ....................... The Master Servicer is required to make
advances (each, an "Advance") of delinquent
principal and interest on the Mortgage Loans
or, in the case of each Mortgage Loan that is
delinquent in respect of its Balloon Payment
or as to which the related Mortgaged Property
was acquired through foreclosure, deed in lieu
of foreclosure or otherwise, only of
delinquent interest, in any event under the
circumstances and subject to the limitations
set forth herein. Advances are intended to
maintain a regular flow of scheduled interest
and principal payments to the
Certificateholders, rather than to guarantee
or insure against losses. Accordingly,
Advances which cannot be reimbursed out of
collections on or in respect of the related
Mortgage Loans ("Nonrecoverable Advances")
will represent a portion of the losses to be
borne by Certificateholders.
The Master Servicer will be entitled to
interest on any Advances made, and the Master
Servicer and the Special Servicer will each be
entitled to interest on certain servicing
expenses incurred by it or on its behalf, such
interest accruing at the rate and payable
under the circumstances described herein.
Interest accrued on outstanding Advances will
result in a reduction in amounts payable on
the Certificates. See "Description of the
Certificates-Advances" and "-Subordination;
Allocation of Collateral Support Deficit"
herein and "Description of the
Certificates-Advances in Respect of
Delinquencies" and "The Pooling and Servicing
Agreements-Certificate Account" in the
Prospectus.
Each Distribution Date Statement delivered by
the Trustee to the Certificateholders will
contain
S-10
<PAGE>
information relating to the amounts of
Advances made with respect to the related
Distribution Date. See "Description of the
Certificates-Reports to Certificateholders;
Certain Available Information" herein and
"Description of Certificates-Reports to
Certificateholders" in the Prospectus.
Subordination; Allocation of
Collateral Support Deficit ... The rights of the holders of the Class B and
Class C Certificates to receive distributions
with respect to the Mortgage Loans will be
subordinate to the rights of the holders of
the Senior Certificates, and the rights of the
holders of the Class C Certificates to receive
distributions with respect to the Mortgage
Loans will be subordinate to the rights of the
holders of the Class B Certificates, in each
case to the extent described herein and in the
Prospectus. This subordination is intended to
enhance the likelihood of timely receipt by
the holders of the Senior Certificates of the
full amount of all Distributable Certificate
Interest payable in respect of such
Certificates on each Distribution Date, and
the ultimate receipt by such holders of
principal in an amount equal to the entire
aggregate Certificate Balance of the Senior
Certificates. Similarly, but to a lesser
degree, this subordination is also intended to
enhance the likelihood of timely receipt by
the holders of the Class B Certificates of the
full amount of all Distributable Certificate
Interest payable in respect of such
Certificates on each Distribution Date, and
the ultimate receipt by such holders of
principal in an amount equal to the entire
Certificate Balance of the Class B
Certificates. Such subordination will be
accomplished by the application of the
Available Distribution Amount on each
Distribution Date to distributions on the
respective Classes of Certificates in the
order described herein under "Description of
the Certificates-Distributions-Priority". No
other form of Credit Support will be available
for the benefit of the holders of the Offered
Certificates.
Allocation to the Senior Certificates, for so
long as they are outstanding, of the entire
Unscheduled
S-11
<PAGE>
Principal Distribution Amount for each
Distribution Date will generally accelerate
the amortization of such Certificates relative
to the actual amortization of the Mortgage
Loans. To the extent that the Senior
Certificates are amortized faster than the
Mortgage Loans, the percentage interest
evidenced by the Senior Certificates in the
Trust Fund will be decreased (with a
corresponding increase in the interest in the
Trust Fund evidenced by the Class B and Class
C Certificates), thereby increasing, relative
to their respective Certificate Balances, the
subordination afforded the Senior Certificates
by the Class B and Class C Certificates.
Following retirement of the Class A
Certificates, allocation to the Class B
Certificates, for so long as they are
outstanding, of the entire Unscheduled
Principal Distribution Amount for each
Distribution Date will provide a similar
benefit to such Class of Certificates as
regards the relative amount of subordination
afforded thereto by the Class C Certificates.
As a result of losses and other shortfalls
experienced with respect to the Mortgage Loans
or otherwise with respect to the Trust Fund
(which may include shortfalls arising both
from interest accrued on Advances and from
Nonrecoverable Advances), the aggregate Stated
Principal Balance of the Mortgage Pool
expected to be outstanding immediately
following any Distribution Date may be less
than the aggregate Certificate Balance of the
Certificates immediately following the
distributions on such Distribution Date. Such
deficit (the "Collateral Support Deficit")
will be allocated first to the Class C
Certificates, then to the Class B Certificates
and last to the Class A Certificates (in
reduction of their Certificate Balances), in
each case until the related Certificate
Balance has been reduced to zero. See
"Description of the Certificates -
Subordination; Allocation of Collateral
Support Deficit" herein.
Optional Termination ........... At its option, on any Distribution Date on
which the remaining aggregate Stated Principal
Balance of the Mortgage Pool is less than 5%
of the Initial
S-12
<PAGE>
Pool Balance, the Master Servicer or the
Depositor may purchase all of the Mortgage
Loans and REO Properties, and thereby effect
termination of the Trust Fund and early
retirement of the then outstanding
Certificates. See "Description of the
Certificates-Termination; Retirement of
Certificates" herein and in the Prospectus.
Certain Federal Income
Tax Consequences ............. An election will be made to treat the Trust
Fund as a REMIC for Federal income tax
purposes. Upon the issuance of the Offered
Certificates, _______________________, counsel
to the Depositor, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the Pooling
and Servicing Agreement, for Federal income
tax purposes, the Trust Fund will qualify as a
REMIC under Sections 860A through 860G of the
Code. For Federal income tax purposes, the
Class A, Class B and Class C Certificates will
be the "regular interests" in the REMIC, and
the Class R Certificates will be the sole
class of "residual interests" in the REMIC.
Under the REMIC Regulations, the Class R
Certificates will not be regarded as having
"significant value" for purposes of applying
the rules relating to "excess inclusions." In
addition, the Class R Certificates may
constitute "noneconomic" residual interests
for purposes of the REMIC Regulations.
Transfers of the Class R Certificates will be
restricted under the Pooling and Servicing
Agreement in the case of persons other than
U.S. Persons (as defined herein) in a manner
designed to prevent a transfer of a
noneconomic residual interest from being
disregarded under the REMIC Regulations. See
"Certain Federal Income Tax
Consequences-Special Tax Considerations
Applicable to REMIC Residual Certificates"
herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess Inclusions"
S-13
<PAGE>
and "-Noneconomic REMIC Residual Certificates"
in the Prospectus.
The Class R Certificateholders may be required
to report an amount of taxable income with
respect to the early years of the Trust Fund's
term that significantly exceeds distributions
on the Class R Certificates during such years,
with corresponding tax deductions or losses
deferred until the later years of the Trust
Fund's term. Accordingly, on a present value
basis, the tax detriments occurring in the
earlier years may substantially exceed the sum
of any tax benefits in the later years. As a
result, the Class R Certificateholders'
after-tax rate of return may be zero or
negative, event if their pre-tax rate of
return is positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield Considerations
Applicable Solely to the Class R
Certificates", and "Certain Federal Income Tax
Consequences-Special Tax Considerations
Applicable to REMIC Residual Certificates"
herein.
For further information regarding the Federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
Rating ......................... It is a condition of their issuance that the
Senior Certificates be rated not lower than
"___", and that the Class B Certificates be
rated not lower than "___", by
_______________________ ([collectively,] the
"Rating Agenc[ies]"). A security rating is not
a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating
Agency. A security rating does not address the
frequency of prepayments of Mortgage Loans, or
the corresponding effect on yield to
investors. [The following disclosure is
applicable to Stripped Interest Certificates,
when offered... A security rating does not
address the frequency or likelihood of
prepayments (whether voluntary or involuntary)
S-14
<PAGE>
of Mortgage Loans, or the possibility that, as
a result of prepayments, investors in the
Class S Certificates may realize a lower than
anticipated yield or may fail to recover fully
their initial investment.] See "Rating"
herein.
ERISA Considerations ........... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual retirement
accounts, annuities, Keogh plans, and
collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested, that
are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code, should review with
their legal advisors whether the purchase or
holding of Offered Certificates could give
rise to a transaction that is prohibited or is
not otherwise permissible either under ERISA
or Section 4975 of the Code. See "ERISA
Considerations" herein and in the Prospectus.
Legal Investment ............... [The Senior Certificates will constitute
"mortgage related securities" for purposes of
SMMEA, for so long as they are rated in one of
the two highest ratings categories by one or
more nationally recognized statistical rating
organizations and, as such, are legal
investments for certain entities to the extent
provided in SMMEA. Such investments, however,
will be subject to general regulatory
considerations governing investment practices
under state and federal law. In addition,
institutions whose investment activities are
subject to review by federal or state
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage
related securities. Furthermore, certain
states have enacted legislation overriding the
legal investment provisions of SMMEA.]
[The Class B Certificates will not constitute
"mortgage related securities" within the
meaning of SMMEA. As a result, the appropriate
S-15
<PAGE>
characterization of the Class B Certificates
under various legal investment restrictions,
and thus the ability of investors subject to
these restrictions to purchase the Class B
Certificates, may be subject to significant
interpretative uncertainties.]
Investors should consult their legal advisors
to determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the Prospectus.
S-16
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among other
things, the following risk factors (as well as the risk factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein.
Potential Liability to the Trust Fund Relating to a Materially Adverse
Environmental Condition. [An environmental site assessment was performed at
[each][all but ___] of the Mortgaged Properties during the _____ month period
prior to the Cut-off Date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property[, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices].
The Pooling and Servicing Agreement requires that the Master Servicer
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgage Loan prior to acquiring title thereto or assuming its
operation. Such prohibition effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental site assessment
is obtained (or until any required remedial action is thereafter taken), but
will decrease the likelihood that the Trust Fund will become liable for a
material adverse environmental condition at the Mortgaged Property. However,
there can be no assurance that the requirements of the Pooling and Servicing
Agreement will effectively insulate the Trust Fund from potential liability for
a materially adverse environmental condition at any Mortgaged Property. See "The
Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage Loans",
"Risk Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans-Risk of Liability Arising from Environmental Conditions" and
"Certain Legal Aspects of Mortgage Loans-Environmental Considerations" in the
Prospectus.
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
Increased Risk of Loss Associated With Concentration of Mortgage Loans and
Borrowers. Several of the Mortgage Loans have Cut-off Date Balances that are
substantially higher than the average Cut-off Date Balance. In general,
concentrations in a mortgage pool of loans with larger-than-average balances can
result in losses that are more severe, relative to the size of the pool, than
would be the case if the aggregate balance of the pool were more evenly
distributed. Concentration of borrowers also poses increased risks. For
instance, if a
S-17
<PAGE>
borrower that owns several Mortgaged Properties experiences financial difficulty
at one Mortgaged Property, or at another income-producing property that it owns,
it could attempt to avert foreclosure by filing a bankruptcy petition that might
have the effect of interrupting Monthly Payments for an indefinite period on all
of the related Mortgage Loans.
Increased Risk of Default Associated with Adjustable Rate Mortgage Loans.
________ of the Mortgage Loans, which represent ____% of the Initial Pool
Balance, are ARM Loans. Increases in the required Monthly Payments on ARM Loans
in excess of those assumed in the original underwriting of such loans may result
in a default rate higher than that on mortgage loans with fixed mortgage rates.
Increased Risk of Default Associated with Balloon Payments. None of the
Mortgage Loans is fully amortizing over its term to maturity. Thus, each
Mortgage Loan will have a substantial payment (that is, a Balloon Payment) due
at its stated maturity unless prepaid prior thereto. Loans with Balloon Payments
involve a greater likelihood of default than self-amortizing loans because the
ability of a borrower to make a Balloon Payment typically will depend upon its
ability either to refinance the loan or to sell the related mortgaged property.
See "Risk Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans-Increased Risk of Default Associated With Balloon Payments"
in the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments. In order to maximize recoveries on defaulted Mortgage Loans, the
Pooling and Servicing Agreement enables the Special Servicer to extend and
modify Mortgage Loans that are in material default or as to which a payment
default (including the failure to make a Balloon Payment) is reasonably
foreseeable; subject, however, to the limitations described under "Servicing of
the Mortgage Loans-Modifications, Waivers and Amendments" herein. There can be
no assurance, however, that any such extension or modification will increase the
present value of recoveries in a given case. Any delay in collection of a
Balloon Payment that would otherwise be distributable in respect of a Class of
Offered Certificates, whether such delay is due to borrower default or to
modification of the related Mortgage Loan by the Special Servicer, will likely
extend the weighted average life of such Class of Offered Certificates. See
"Yield and Maturity Considerations" herein and in the Prospectus.
[Risks Particular to Multifamily Properties. In the case of multifamily
lending in particular, adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged and may result in a
reduction in timely rent payments or a reduction in occupancy levels. Occupancy
and rent levels may also be affected by construction of additional housing
units, local military base closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements. In
addition, the level of mortgage interest rates may encourage tenants to purchase
single-family housing. Further, the cost of operating a multifamily property may
increase, including the costs of utilities and the costs of required capital
expenditures. All of these conditions and events may increase the possibility
that a borrower may be unable to meet its obligation under its Mortgage Loan.]
S-18
<PAGE>
[Risks Particular to ______________ Properties. [Add disclosure relating to
property types with respect to which there exists a material concentration in a
particular Trust Fund.]]
Risks Relating to Lack of Certificateholder Control Over Trust Fund.
Certificateholders generally do not have a right to vote, except with respect to
required consents to certain amendments to the Pooling and Servicing Agreement.
Furthermore, Certificateholders will generally not have the right to make
decisions with respect to the administration of the Trust Fund. Such decisions
are generally made, subject to the express terms of the Pooling and Servicing
Agreement, by the Master Servicer, the Trustee, the Special Servicer or the
REMIC Administrator, as applicable. Any decision made by one of those parties in
respect of the Trust Fund, even if made in the best interests of the
Certificateholders (as determined by such party in its good faith and reasonable
judgment), may be contrary to the decision that would have been made by the
holders of any particular Class of Offered Certificates and may negatively
affect the interests of such holders.
Yield Risk Associated With Changes in Concentrations. If and as payments in
respect of principal (including any principal prepayments, liquidations and the
principal portion of the repurchase prices of any Mortgage Loans repurchased due
to breaches of representations) are received with respect to the Mortgage Loans,
the remaining Mortgage Loans as a group may exhibit increased concentration with
respect to the type of properties, property characteristics, number of
Mortgagors and affiliated Mortgagors and geographic location. Because
unscheduled collections of principal on the Mortgage Loans is payable on the
Class A, Class B and Class C Certificates in sequential order, such Classes that
have a lower sequential priority are .relatively more likely to be exposed to
any risks associated with changes in concentrations of loan or property
characteristics.
Subordination of Class B and Class C Certificates. As and to the extent
described herein, the rights of the holders of the Class B and Class C
Certificates to receive distributions of amounts collected or advanced on or in
respect of the Mortgage Loans will be subordinated to those of the holders of
the Senior Certificates and also, in the case of the holders of the Class C
Certificates, also to those of the holders of the Class B Certificates. See
"Description of the Certificates-Distributions-Priority" and "-Subordination;
Allocation of Collateral Support Deficit" herein.
DESCRIPTION OF THE MORTGAGE POOL
General
The Trust Fund will consist primarily of ___ conventional, balloon Mortgage
Loans with an Initial Pool Balance of $_______________. Each Mortgage Loan is
evidenced by a promissory note (a "Mortgage Note") and secured by a mortgage,
deed of trust or other similar security instrument (a "Mortgage") that creates a
first mortgage lien on a fee simple estate in a commercial or multifamily rental
property (a "Mortgaged Property"). All percentages of the Mortgage Loans, or of
any specified group of Mortgage Loans, referred to
S-19
<PAGE>
herein without further description are approximate percentages by aggregate
Cut-off Date Balance. The "Cut-off Date Balance" of any Mortgage Loan is the
unpaid principal balance thereof as of the Cut-off Date, after application of
all payments due on or before such date, whether or not received.
The Mortgage Loans are not insured or guaranteed by any governmental entity
or private mortgage insurer. The Depositor has not undertaken any evaluation of
the significance of the recourse provisions of any of a number of the Mortgage
Loans that provide for recourse against the related borrower or another person
in the event of a default. Accordingly, investors should consider all of the
Mortgage Loans to be nonrecourse loans as to which recourse in the case of
default will be limited to the specific property and such other assets, if any,
as were pledged to secure a Mortgage Loan.
On or prior to the Delivery Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement and will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. See "-The Mortgage Loan
Seller" herein and "The Pooling and Servicing Agreements-Assignment of Mortgage
Loans; Repurchases" in the Prospectus. For purposes of the Prospectus, the
Mortgage Loan Seller constitutes a "Mortgage Asset Seller". The Mortgage Loans
were originated between 19__ and 19__. The Mortgage Loan Seller originated ____
of the Mortgage Loans, which represent ___% of the Initial Pool Balance, and
acquired the remaining Mortgage Loans from the respective originators thereof,
generally in accordance with the underwriting criteria described below under
"-Underwriting Standards".
Certain Payment Characteristics
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the first day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
____________ of the Mortgage Loans, which represent ____% of the Initial
Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage Rates that
are subject to adjustment on periodically occurring Interest Rate Adjustment
Dates by adding the related Gross Margin to the applicable value of the related
Index, subject in ______ cases to rounding conventions and lifetime minimum
and/or maximum Mortgage Rates and, in the case of ________ Mortgage Loans, which
represent ____% of the Initial Pool Balance, to periodic minimum and/or maximum
Mortgage Rates. The remaining Mortgage Loans are Fixed Rate Loans. None of the
ARM Loans is convertible into a Fixed Rate Loan.
[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on the
ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to an Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or
S-20
<PAGE>
as of a designated date preceding an Interest Rate Adjustment Date. ____ of the
ARM Loans, which represent ___% of the Initial Pool Balance, provide for
Interest Rate Adjustment Dates that occur monthly; ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance, provide for Interest Rate Adjustment
Dates that occur semi-annually; and the remaining ARM Loans provide for Interest
Rate Adjustment Dates that occur annually.
The Monthly Payments on each ARM Loan are subject to adjustment on each
Payment Adjustment Date to an amount that would amortize fully the principal
balance of the Mortgage Loan over its then remaining amortization schedule and
pay interest at the Mortgage Rate in effect during the one month period
preceding such Payment Adjustment Date. The ARM Loans provide for Payment
Adjustment Dates that occur on the Due Date following each related Interest Rate
Adjustment Date. None of the ARM Loans provide for negative amortization.
All of the Mortgage Loans provide for monthly payments of principal based
on amortization schedules significantly longer than the remaining terms of such
Mortgage Loans. Thus, each Mortgage Loan will have a Balloon Payment due at its
stated maturity date, unless prepaid prior thereto. No Mortgage Loan currently
prohibits principal prepayments; however, [certain] of the Mortgage Loans impose
fees or penalties ("Prepayment Premiums") in connection with full or partial
prepayments. Prepayment Premiums are payable to the Master Servicer as
additional servicing compensation, to the extent not otherwise applied to offset
Prepayment Interest Shortfalls, and may be waived by the Master Servicer in
accordance with the servicing standard described under "Servicing of the
Mortgage Loans-General" herein.
[The Index]
Describe Index and include 5 year history.
[Delinquent and Nonperforming Mortgage Loans]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
S-21
<PAGE>
Mortgage Rates as of the Cut-off Date
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Range of Mortgage Rates(%) Loans Date Balance Date Balance
-------------------------- ----- ------------ ------------
----- ------------ ------------
Total .................... ===== ============ ============
Weighted Average
Mortgage Rate (All Mortgage Loans):
_____% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per annum
Gross Margins for the ARM Loans
Percent by
Number of Aggregate Cut-off Aggregate Cut-off
Range of Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Weighted Average
Gross Margin: ____%
S-22
<PAGE>
Frequency of Adjustments to Mortgage Rates
and Monthly Payments for the ARM Loans
<TABLE>
<CAPTION>
Mortgage Rate Monthly Payment Number of Percent by
Adjustment Adjustment Mortgage Aggregate Cut-off Aggregate Cut-off
Frequency Frequency Loans Date Balance Date Balance
--------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
-------- ------------ ------------
Total .......... ======== ============ ============
</TABLE>
Maximum Lifetime Mortgage Rates for the ARM Loans
Percent by
Range of Maximum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- ----------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
S-23
<PAGE>
Minimum Lifetime Mortgage Rates for the ARM Loans
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- ----------
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
Maximum Annual Mortgage Rates for the ARM Loans
Percent by
Range of Maximum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- ----------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
S-24
<PAGE>
Minimum Annual Mortgage Rates for the ARM Loans
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- ----------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
Cut-off Date Balances
Number of Percent by
Cut-off Date Mortgage Aggregate Cut-off Aggregate Cut-off
Balance Range ($) Loans Date Balance Date Balance
----------------- --------- ------------ ------------
--------- ------------ ------------
Total .................... ========= ============ ============
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate Loans): $____________
S-25
<PAGE>
Types of Mortgaged Properties
<TABLE>
<CAPTION>
Percent by Weighted
Number of Aggregate Aggregate Aggregate Average
Mortgage Cut-off Cut-off Cut-off Date Occupancy
Property Type Loans Date Balance Balance Balance Rate
------------- ----- ------------ ------- ------- ----
<S> <C> <C> <C> <C> <C>
Multifamily.........
[other property types]
Total..........
</TABLE>
Geographic Concentration of the Mortgaged Properties
<TABLE>
<CAPTION>
Number of Aggregate Cut-off Percent by Aggregate Weighted Average
State Mortgage Loans Date Balance Cut-off Date Balance DSC Ratio
----- -------------- ------------ -------------------- ---------
<S> <C> <C> <C> <C>
Total........
</TABLE>
Original Term to Stated Maturity (in Months)
<TABLE>
<CAPTION>
Number of Percent by
Range in Original Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C> <C>
----- ------------ ------------
Total....................................... ===== ============ ============
</TABLE>
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
S-26
<PAGE>
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range in Remaining Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total....................................... ===== ============ ============
</TABLE>
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ____ months
Year of Origination
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total....................................... ===== ============ ============
</TABLE>
S-27
<PAGE>
Year of Scheduled Maturity
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total....................................... ===== ============ ============
</TABLE>
S-28
<PAGE>
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the following
table for any Mortgage Loan is the ratio of (i) Net Operating Income produced by
the related Mortgaged Property for the period (annualized if the period was less
than one year) covered by the most recent operating statement available to the
Depositor to (ii) the amount of the Monthly Payment in effect as of the Cut-off
Date multiplied by 12. "Net Operating Income" is the revenue derived from the
use and operation of a Mortgaged Property (consisting primarily of rental income
and deposit forfeitures), less operating expenses (such as utilities, general
administrative expenses, management fees, advertising, repairs and maintenance),
and further less fixed expenses (such as insurance and real estate taxes). Net
Operating Income generally does not reflect capital expenditures. The following
table was prepared using operating statements obtained from the respective
mortgagors or the related property managers. In each case, the information
contained in such operating statements was unaudited, and the Depositor has made
no attempt to verify its accuracy. In the case of _____ Mortgage Loans (____ ARM
Loans and ____ Fixed Rate Loans), representing __% of the Initial Pool Balance,
operating statements could not be obtained, and accordingly, Debt Service
Coverage Ratios for those Mortgage Loans were not calculated. The last day of
the period (which may not correspond to the end of the calendar year most recent
to the Cut-off Date) covered by each operating statement from which a Debt
Service Coverage Ratio was calculated is set forth in Annex A with respect to
the related Mortgage Loan.
S-29
<PAGE>
Debt Service Coverage Ratios(A)
<TABLE>
<CAPTION>
Range of Number of Percent by
Debt Service Mortgage Aggregate Cut-off Aggregate Cut-off
Coverage Ratios Loans Date Balance Date Balance
--------------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Not Calculated (B)............................... ----- ------------ ------------
Total ===== ============ ============
</TABLE>
Weighted Average
Debt Service Coverage
Ratio (All Mortgage Loans): ______x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans): ______x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): ______(E)
- ----------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the related
property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to which
Debt Service Coverage Ratios were not calculated.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date. An "LTV Ratio" for any Mortgage Loan,
as of any date of determination, is a fraction, expressed as a percentage, the
numerator of which is the original principal balance of such Mortgage Loan or
the Cut-off Date Balance of such Mortgage Loan, as applicable, and the
denominator of which is the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable
S-30
<PAGE>
measure of the related borrower's current equity in each Mortgaged Property. In
a declining real estate market, the fair market value of a Mortgaged Property
could have decreased from the value determined at origination, and the current
actual loan-to-value ratio of a Mortgage Loan may be higher than even its LTV
Ratio at origination, notwithstanding taking into account amortization since
origination.
LTV Ratios at Origination
<TABLE>
<CAPTION>
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
LTV Ratios(%) Loans Date Balance Date Balance
------------- ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total ===== ============ ============
</TABLE>
Weighted Average Original LTV
Ratio (All Mortgage Loans):
-----%
Weighted Average Original LTV
Ratio (ARM Loans): _____%
Weighted Average Original LTV
Ratio (Fixed Rate Loans):
-----%
S-31
<PAGE>
LTV Ratios at Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range of LTV Ratios(%) Mortgage Aggregate Cut-off Aggregate Cut-off
as of Cut-off Date Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total ===== ============ ============
</TABLE>
Weighted Average LTV Ratio as
of Cut-off Date (All
Mortgage Loans): _____%
Weighted Average LTV Ratio as
of Cut-off Date (ARM
Loans): _____%
Weighted Average LTV Ratio as
of Cut-off Date (Fixed Rate
Loans): _____%
The Mortgage Loans are secured by Mortgaged Properties located in _____
different states. The following table sets forth the states in which the
Mortgaged Properties are located:
Geographic Distribution
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
State Loans Date Balance Date Balance
----- ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total ===== ============ ============
</TABLE>
S-32
<PAGE>
Occupancy Rates
<TABLE>
<CAPTION>
Number of Percent by
Range of Mortgage Aggregate Cut-off Aggregate Cut-off
Occupancy Rates(A) Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
----- ------------ ------------
Total ===== ============ ============
</TABLE>
Weighted Average Occupancy Rate (All Mortgage
Loans)(A): _____%
Weighted Average Occupancy Rate (ARM Loans)(A):
-----%
Weighted Average Occupancy Rate (Fixed Rate
Loans)(A): _____%
- ----------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Prepayment Restrictions in Effect as of the Cut-off Date
<TABLE>
<CAPTION>
Weighted Averages
% by Cum. --------------------------------------------------------------
Aggregate Aggregate % of Indicative
Cut-off Cut-off Initial Stated Remaining Cut-off
Prepayment Number Date Date Pool Mortgage Remaining Amount. Implied Date
Restrictions of Loans Balance Balance Rate Rate Term (Mo.) Term (Mo.) DSCR DSR LTV
------------ -------- ------- ------- ---- ---- ---------- ---------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out (A)
Yield Maintenance (B)
Declining Percentage
Premium
____% Premium
____% Premium
No Prepayment
Restrictions
TOTALS
</TABLE>
- ----------
(A) The weighted average term to the expiration of the lock-out periods is ___
years. _____ of the Mortgage Loans within their lock-out periods are
subject to declining percentage Prepayment Premiums after the expiration of
their lock-out periods; the remaining Mortgage Loans are subject to a yield
maintenance-type Prepayment Premium following such expiration.
(B) All Mortgage Loans subject to yield maintenance-type Prepayment Premiums
remain subject to payment of the Prepayment Premium until at least ___
months prior to maturity.
Specified in Annex A to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under
S-33
<PAGE>
"-Underwriting Standards" and "-Representations and Warranties; Repurchases" and
in the Prospectus under "Description of the Trust Funds-Mortgage Loans" and
"Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than 30
days delinquent in respect of any Monthly Payment.]
The Mortgage Loan Seller
General. [The Mortgage Loans Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. As of December 31, 199_, the Mortgage Loan Seller had a net
worth of approximately $_________________, and currently holds and services for
its own account a total residential and commercial mortgage loan portfolio of
approximately $__________________, of which approximately $__________________
constitutes multifamily mortgage loans.]
The information set forth herein concerning the Mortgage Loan Seller and
its underwriting standards has been provided by the Mortgage Loan Seller, and
neither the Depositor nor the Underwriter makes any representation or warranty
as to the accuracy or completeness of such information.
Underwriting Standards
[All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described herein.
[Description of underwriting standards.]
The Depositor believes that the Mortgage Loans selected for inclusion in
the Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected
on any basis which would have a material adverse effect on the
Certificateholders.]
Representations and Warranties; Repurchases
In the Purchase Agreement, the Mortgage Loan Seller has represented and
warranted with respect to each Mortgage Loan, as of [the Delivery Date], or as
of such other date specifically provided in the representation and warranty,
among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of 90
days following its receipt of such notice, then the Mortgage Loan Seller will be
obligated pursuant to the Purchase Agreement (the relevant rights under which
will be assigned, together with its interests in the Mortgage
S-34
<PAGE>
Loans, by the Depositor to the Trustee) to repurchase the affected Mortgage Loan
within such 90-day period at a price (the "Purchase Price") equal to the sum of
(i) the unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued
interest on such Mortgage Loan at the Mortgage Rate from the date to which
interest was last paid to the Due Date in the Due Period in which the purchase
is to occur, and (iii) certain servicing expenses that are reimbursable to the
Master Servicer and the Special Servicer.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer or any of
their affiliates [(other than the Mortgage Loan Seller)] will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of the
Mortgage Loan Seller's representations and warranties if the Mortgage Loan
Seller defaults on its obligation to do so. However, the Depositor will not
include any Mortgage Loan in the Mortgage Pool if anything has come to the
Depositor's attention prior to the Closing Date that would cause it to believe
that the representations and warranties made by the Mortgage Loan Seller
regarding such Mortgage Loan will not be correct in all material respects. See
"The Pooling and Servicing Agreements-Representations and Warranties;
Repurchases" in the Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
from or added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
S-35
<PAGE>
SERVICING OF THE MORTGAGE LOANS
General
Each of the Master Servicer and the Special Servicer will be required to
service and administer the Mortgage Loans for which it is responsible, either
directly or through sub-servicers, on behalf of the Trustee and in the best
interests of and for the benefit of the Certificateholders (as determined by the
Master Servicer or the Special Servicer, as the case may be, in its good faith
and reasonable judgment), in accordance with applicable law, the terms of the
Pooling and Servicing Agreement, the terms of the respective Mortgage Loans and,
to the extent consistent with the foregoing, in the same manner as would prudent
institutional mortgage lenders and loan servicers servicing mortgage loans
comparable to the Mortgage Loans in the jurisdictions where the Mortgaged
Properties are located, and with a view to the maximization of timely and
complete recovery of principal and interest, but without regard to: (i) any
relationship that the Master Servicer or the Special Servicer, as the case may
be, or any affiliate thereof, may have with the related mortgagor; (ii) the
ownership of any Certificate by the Master Servicer or the Special Servicer, as
the case may be, or any affiliate thereof; (iii) the Master Servicer's or the
Special Servicer's, as the case may be, obligation to make advances, whether in
respect of delinquent payments of principal and/or interest or to cover certain
servicing expenses; and (iv) the Master Servicer's or the Special Servicer's, as
the case may be, right to receive compensation for its services under the
Pooling and Servicing Agreement or with respect to any particular transaction.
Except as otherwise described under "-Inspections; Collection of Operating
Information" below, the Master Servicer initially will be responsible for the
servicing and administration of the entire Mortgage Pool. With respect to any
Mortgage Loan (i) which has a Balloon Payment which is past due or any other
payment which is more than [60] days past due, (ii) as to which the borrower has
entered into or consented to bankruptcy, appointment of a receiver or
conservator or a similar insolvency proceeding, or the borrower has become the
subject of a decree or order for such a proceeding which shall have remained in
force undischarged or unstayed for a period of [60] days, (iii) as to which the
Master Servicer shall have received notice of the foreclosure or proposed
foreclosure of any other lien on the Mortgaged Property, or (iv) as to which, in
the judgment of the Master Servicer, a payment default has occurred or is
imminent and is not likely to be cured by the borrower within [60] days, and
prior to acceleration of amounts due under the related Mortgage Note or
commencement of any foreclosure or similar proceedings, the Master Servicer will
transfer its servicing responsibilities to the Special Servicer, but will
continue to receive payments on such Mortgage Loan (including amounts collected
by the Special Servicer), to make certain calculations with respect to such
Mortgage Loan and to make remittances and prepare certain reports to the
Certificateholders with respect to such Mortgage Loan. If the related Mortgaged
Property is acquired in respect of any such Mortgage Loan (upon acquisition, an
"REO Property"), whether through foreclosure, deed-in-lieu of foreclosure or
otherwise, the Special Servicer will continue to be responsible for the
operation and management thereof. The Mortgage Loans serviced by the Special
Servicer are referred to herein as the "Specially Serviced Mortgage Loans" and,
together with any REO Properties, constitute the "Specially
S-36
<PAGE>
Serviced Mortgage Assets". The Master Servicer shall have no responsibility for
the performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for at least [90] days, the Special Servicer
will return servicing of such Mortgage Loan to the Master Servicer.
Set forth below, following the subsection captioned "-The Master Servicer",
is a description of certain pertinent provisions of the Pooling and Servicing
Agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the Prospectus, in particular to the section captioned "Pooling and
Servicing Agreements", for important information in addition to that set forth
herein regarding the terms and conditions of the Pooling and Servicing Agreement
as they relate to the rights and obligations of the Master Servicer thereunder.
The Master Servicer
[__________________________________, a ___________________, will act as
Master Servicer with respect to the Mortgage Pool. Founded in ____ as a
____________, the Master Servicer today furnishes a variety of wholesale banking
services. As of December 31, 19__, the Master Servicer had a net worth of
approximately $__________, and a total mortgage loan servicing portfolio of
approximately $___________, of which approximately $_____________ represented
multifamily mortgage loans.
The offices of the Master Servicer that will be primarily responsible for
servicing and administering the Mortgage Pool are located at
____________________________.
[If and to the extent available and relevant to an investment decision: The
following table sets forth the historical prepayment information with respect to
the Master Servicer's multifamily and commercial mortgage loan servicing
portfolio:
Prepayment Experience of Master Servicer's Multifamily and Commercial Mortgage
Loan Servicing Portfolio
[Table to include relevant information regarding the size of the Master
Servicer's multifamily and commercial mortgage loan servicing portfolio (by
number and/or balance) and the portion of such loans that was subject to
prepayment.]]
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer, and neither the Depositor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
S-37
<PAGE>
The Special Servicer
[_______________________________, a ____________________, will be
responsible for the servicing and administration of the Specially Serviced
Mortgage Assets. As of December 31, 19___, the Special Servicer had a total
mortgage loan servicing portfolio of approximately $____________, of which
approximately $_____________ represented multifamily mortgage loans.
The Special Servicer has ___ offices in ___ states with a total staff of
____ employees. Its principal executive offices are located at
_________________________.]
The information set forth herein concerning the Special Servicer has been
provided by the Special Servicer, and neither the Depositor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan, will accrue in accordance
with the terms of the related Mortgage Note at a rate equal to ________% per
annum, in the case of Mortgage Loans other than Specially Serviced Mortgage
Loans, and ____% per annum, in the case of Specially Serviced Mortgage Loans,
and will be computed on the basis of the same principal amount and for the same
period respecting which any related interest payment on the related Mortgage
Loan is computed. [As additional servicing compensation, the Master Servicer
will be entitled to retain all Prepayment Premiums, assumption and modification
fees, late charges and penalty interest and, as and to the extent described
below, Prepayment Interest Excesses collected from mortgagors. In addition, the
Master Servicer is authorized but not required to invest or direct the
investment of funds held in the Certificate Account in Permitted Investments,
and the Master Servicer will be entitled to retain any interest or other income
earned on such funds.]
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will consist of the Special Servicing Fee
(together with the Master Servicing Fee, the "Servicing Fees") and the Workout
Fee. Like the Master Servicing Fee, the "Special Servicing Fee" will be payable
monthly on a loan-by-loan basis from amounts received in respect of interest on
each Mortgage Loan, will accrue in accordance with the terms of the related
Mortgage Note at a rate equal to _____% per annum, in the case of Mortgage Loans
other than Specially Serviced Mortgage Loans, and ___% per annum, in the case of
Specially Serviced Mortgage Loans, and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on the related Mortgage Loan is computed. The "Workout Fee" will equal a
specified percentage (varying from ____% to ____% (the "Workout Fee Rate")
depending on the related unpaid principal balance) of, and will be payable from,
all collections and proceeds received in respect of principal of each Mortgage
Loan which is or has been a Specially Serviced Mortgage Loan (including those
for which servicing has been returned to the Master Servicer); provided that,
S-38
<PAGE>
in the case of Liquidation Proceeds, the otherwise fixed Workout Fee Rate will
be proportionately reduced to reflect the extent to which, if at all, the
principal portion of such Liquidation Proceeds is less than the unpaid principal
balance of the related Mortgage Loan immediately prior to the receipt thereof.
As additional servicing compensation, the Special Servicer will be entitled to
retain all assumption and modification fees received on Mortgage Loans serviced
thereby.
Although the Master Servicer and Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the general
servicing standard described under "-General" above and, accordingly, without
regard to its right to receive compensation under the Pooling and Servicing
Agreement, additional servicing compensation in the nature of assumption and
modification fees, Prepayment Premiums and Prepayment Interest Excesses may
under certain circumstances provide the Master Servicer or the Special Servicer,
as the case may be, with an economic disincentive to comply with such standard.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period (as defined herein) on a date that is prior to its Due
Date in such Due Period, a Prepayment Interest Shortfall may result. If such a
principal prepayment occurs during any Due Period after the Due Date for such
Mortgage Loan in such Due Period, the amount of interest (net of related
Servicing Fees) that accrues on the amount of such principal prepayment may
exceed (such excess, a "Prepayment Interest Excess") the corresponding amount of
interest accruing on the Certificates. As to any Due Period, to the extent
Prepayment Interest Excesses collected for all Mortgage Loans are greater than
Prepayment Interest Shortfalls incurred, such excess will be paid to the Master
Servicer as additional servicing compensation.]
[As and to the extent described herein under "Description of the
Certificates-Advances", the Master Servicer will be entitled to receive interest
on Advances, and the Master Servicer and the Special Servicer will be entitled
to receive interest on reimbursable servicing expenses, such interest to be
paid, contemporaneously with the reimbursement of the related Advance or
servicing expense, out of any other collections on the Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses incurred
by it in connection with its servicing activities under the Pooling and
Servicing Agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the Pooling and Servicing Agreement. However, the
Master Servicer will be permitted to pay certain of such expenses directly out
of the Certificate Account and at times without regard to the relationship
between the expense and the funds from which it is being paid. In connection
therewith, the Master Servicer will be responsible for all fees of any
sub-servicers, other than management fees earned in connection with the
operation of an REO Property, which management fees the Master Servicer will be
authorized to pay out of revenues received from such property (thereby reducing
the portion of such revenues that would otherwise be available for distribution
to Certificateholders). See "Description of the
Certificates-Distributions-Method, Timing
S-39
<PAGE>
and Amount" herein and "The Pooling and Servicing Agreements-Certificate
Account" and "-Servicing Compensation and Payment of Expenses" in the
Prospectus.
Modifications, Waivers and Amendments
The Master Servicer or the Special Servicer may, consistent with its normal
servicing practices, agree to modify, waive or amend any term of any Mortgage
Loan, without the consent of the Trustee or any Certificateholder, subject,
however, to each of the following limitations, conditions and restrictions:
(a) with limited exception, the Master Servicer and the Special
Servicer may not agree to any modification, waiver or amendment that will
(i) affect the amount or timing of any scheduled payments of principal or
interest on the Mortgage Loan or (ii) in its judgment, materially impair
the security for the Mortgage Loan or reduce the likelihood of timely
payment of amounts due thereon; unless, in any such case, in the Master
Servicer's or the Special Servicer's judgment, as the case may be, a
material default on the Mortgage Loan has occurred or a payment default is
reasonably foreseeable, and such modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to the
Mortgage Loan, taking into account the time value of money, than would
liquidation.
(b) [describe additional limitations to permitted modification
standards]
The Master Servicer and the Special Servicer will notify the Trustee of any
modification, waiver or amendment of any term of any Mortgage Loan, and must
deliver to the Trustee or the related Custodian, for deposit in the related
Mortgage File, an original counterpart of the agreement related to such
modification, waiver or amendment, promptly (and in any event within [10]
business days) following the execution thereof. Copies of each agreement whereby
any such modification, waiver or amendment of any term of any Mortgage Loan is
effected are to be available for review during normal business hours at the
offices of the [Trustee]. See "Description of the Certificates-Reports to
Certificateholders; Certain Available Information" herein.
Inspections; Collection of Operating Information
The Special Servicer will perform physical inspections of each Mortgaged
Property at such times and in such manner as are consistent with the Special
Servicer's normal servicing procedures, but in any event (i) at least once per
calendar year, commencing in the calendar year _______, and (ii), if any
scheduled payment becomes more than 60 days delinquent on the related Mortgage
Loan, as soon as practicable thereafter. The Special Servicer will prepare a
written report of each such inspection describing the condition of the Mortgaged
Property and specifying the existence of any material vacancies in the Mortgaged
Property, of any sale, transfer or abandonment of the Mortgaged Property, of any
material change in the condition or value of the Mortgaged Property, or of any
waste committed thereon.
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With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Special Servicer is also required to collect and review the
annual operating statements of the related Mortgaged Property. [Most] of the
Mortgages obligate the related borrower to deliver annual property operating
statements. However, there can be no assurance that any operating statements
required to be delivered will in fact be delivered, nor is the Special Servicer
likely to have any practical means of compelling such delivery in the case of an
otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to above
are to be available for review by Certificateholders during normal business
hours at the offices of the [Trustee]. See "Description of the
Certificates-Reports to Certificateholders; Certain Available Information"
herein.
Additional Obligations of the Master Servicer with Respect to ARM Loans
The Master Servicer is responsible for calculating adjustments in the
Mortgage Rate and the Monthly Payment for each ARM Loan and for notifying the
related borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable, then the Master Servicer is required to
select a comparable alternative index over which it has no direct control, that
is readily verifiable and that is acceptable under the terms of the related
Mortgage Note. If the Mortgage Rate or the Monthly Payment with respect to any
ARM Loan is not properly adjusted by the Master Servicer pursuant to the terms
of such Mortgage Loan and applicable law, the Master Servicer is required to
deposit in the Certificate Account on or prior to the Due Date of the affected
Monthly Payment, an amount equal to the excess, if any, of (i) the amount that
would have been received from the borrower if the Mortgage Rate or Monthly
Payment had been properly adjusted, over (ii) the amount of such improperly
adjusted Monthly Payment, subject to reimbursement only out of such amounts as
are recovered from the borrower in respect of such excess.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of: (i) the Mortgage Loans and all payments
under and proceeds of the Mortgage Loans received after the Cut-off Date
(exclusive of payments of principal and interest due on or before the Cut-off
Date); (ii) any REO Property; (iii) such funds or assets as from time to time
are deposited in the Certificate Account; (iv) the rights of the mortgagee under
all insurance policies with respect to the Mortgage Loans; and (v) certain
rights of the Depositor under the Purchase Agreement relating to Mortgage Loan
document delivery requirements and the representations and warranties of the
Mortgage Loan Seller regarding the Mortgage Loans.
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The Certificates will consist of the following four Classes: (i) the Class
A Certificates and the Class R Certificates (collectively, the "Senior
Certificates"); (ii) the Class B Certificates; and (iii) the Class C
Certificates. The Class A Certificates will have an initial Certificate Balance
of $____________, which represents ____% of the Initial Pool Balance; the Class
B Certificates will have an initial Certificate Balance of $____________, which
represents ____% of the Initial Pool Balance; the Class C Certificates will have
an initial Certificate Balance of $____________, which represents ___% of the
Initial Pool Balance; and the Class R Certificates will have an initial
Certificate Balance of $100. The Certificate Balance of any Class of
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust Fund.
On each Distribution Date, the Certificate Balance of each Class of Certificates
will be reduced by any distributions of principal actually made on, and any
Collateral Support Deficit actually allocated to, such Class of Certificates on
such Distribution Date.
Only the Senior Certificates and the Class B Certificates (collectively,
the "Offered Certificates") are offered hereby. The Class C Certificates have
not been registered under the Securities Act of 1933 and are not offered hereby.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of $25,000 and
integral multiples of $1 in excess thereof. The Class B Certificates will be
issued in fully registered, certificated form in denominations of $100,000 and
integral multiples of $1,000 in excess thereof, with one Class B Certificate
evidencing an additional amount equal to the remainder of the initial
Certificate Balance of such Class. The Class R Certificates will be issued in
registered, certificated form in minimum denominations of 20% Percentage
Interest in such Class. The "Percentage Interest" evidenced by any Offered
Certificate is equal to the initial denomination thereof as of the Delivery
Date, divided by the initial Certificate Balance of the Class to which it
belongs.
The Class A Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Definitive Class A Certificate
representing its interest in such Class, except as set forth below under
"-Book-Entry Registration of the Class A Certificates-Definitive Class A
Certificates". Unless and until Definitive Class A Certificates are issued, all
references to actions by holders of the Class A Certificates will refer to
actions taken by DTC upon instructions received from Class A Certificate Owners
through its Participants, and all references herein to payments, notices,
reports and statements to holders of the Class A Certificates will refer to
payments notices, reports and statements to DTC or Cede & Co., as the registered
holder of the Class A Certificates, for distribution to Class A Certificate
Owners through its Participants in accordance with DTC procedures. See
"Description of the Certificates-Book-Entry Registration and Definitive
Certificates" in the Prospectus.
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Until Definitive Class A Certificates are issued, interests in such Class
will be transferred on the book-entry records of DTC and its Participants.
Subject to certain restrictions on the transfer of such Certificates to Plans
(see "ERISA Considerations" herein), the Class B and Class R Certificates may be
transferred or exchanged at the offices of ___________________________ located
at ______________________________________________, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection therewith. ________________________ will initially serve as registrar
(in such capacity, the "Certificate Registrar") for purposes of recording and
otherwise providing for the registration of the Offered Certificates and of
transfers and exchanges of the Class B and, if issued, the Definitive Class A
Certificates.
Book-Entry Registration of the Class A Certificates
General. Class A Certificate Owners that are not Direct or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Direct and
Indirect Participants. In addition, Class A Certificate Owners will receive all
distributions of principal of and interest on the Class A Certificates from the
Trustee through DTC and its Direct and Indirect Participants. Accordingly, Class
A Certificate Owners may experience delays in their receipt of payments. Unless
and until Definitive Class A Certificates are issued, it is anticipated that the
only registered Certificateholder of the Class A Certificates will be Cede &
Co., as nominee of DTC. Class A Certificate Owners will not be recognized by the
Trustee or the Master Servicer as Certificateholders, as such term is used in
the Pooling and Servicing Agreement, and Class A Certificate Owners will be
permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC and its Direct and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Class A Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Class A Certificates. Direct
and Indirect Participants with which Class A Certificate Owners have accounts
with respect to the Class A Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Class A Certificate Owners. Accordingly, although Class A
Certificate Owners will not possess physical certificates evidencing their
interests in the Class A Certificates, the Rules provide a mechanism by which
Class A Certificate Owners, through their Direct and Indirect Participants, will
receive distributions and will be able to transfer their interests in the Class
A Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class A Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
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Definitive Class A Certificates. Definitive Class A Certificates will be
issued to Class A Certificate Owners or their nominees, respectively, rather
than to DTC or its nominee, only under the limited conditions set forth in the
Prospectus under "Description of the Certificates-Book-Entry Registration and
Definitive Certificates."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates-Book-Entry Registration and
Definitive Certificates," the Trustee is required to notify, through DTC, Direct
Participants who have ownership of Class A Certificates as indicated on the
records of DTC of the availability of Definitive Class A Certificates. Upon
surrender by DTC of the definitive certificates representing the Class A
Certificates and upon receipt of instructions from DTC for re-registration, the
Trustee will reissue the Class A Certificates as Definitive Class A Certificates
issued in the respective principal amounts owned by individual Class A
Certificate Owners, and thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Class A Certificates as
Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and Certificates maintained on the
book-entry records thereof, see "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the Prospectus.
Distributions
Method, Timing and Amount. Distributions on the Certificates will be made
by the [Trustee], to the extent of available funds, on the 25th day of each
month or, if any such 25th day is not a business day, then on the next
succeeding business day, commencing in _________ 199__ (each, a "Distribution
Date"). All such distributions (other than the final distribution on any
Certificate) will be made to the persons in whose names the Certificates are
registered at the close of business on each Record Date, which will be the last
business day of the month preceding the month in which the related Distribution
Date occurs. Each such distribution will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
will have provided the [Trustee] with wiring instructions [no less than five
business days prior to the related Record Date (which wiring instructions may be
in the form of a standing order applicable to all subsequent distributions) and
is the registered owner of Certificates with an aggregate initial principal
amount of at least $5,000,000], or otherwise by check mailed to such
Certificateholder. The final distribution on any Certificate will be made in
like manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. All distributions made with respect to a Class of Certificates
will be allocated pro rata among the outstanding Certificates of such Class
based on their respective Percentage Interests.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
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(a) the total amount of all cash received on the
Mortgage Loans and any REO Properties that is on deposit in the
Certificate Account as of the related Determination Date, exclusive of:
(i) all Monthly Payments collected but due on a
Due Date subsequent to the related Due
Period,
(ii) all principal prepayments (together with
related payments of interest thereon and
related Prepayment Premiums), Liquidation
Proceeds, Insurance and Condemnation
Proceeds and other unscheduled recoveries
received subsequent to the related Due
Period, and
(iii) all amounts in the Certificate Account that
are due or reimbursable to any person other
than the Certificateholders; and
(b) all Advances made by the Master Servicer with
respect to such Distribution Date. See "The Pooling and Servicing
Agreements-Certificate Account" in the Prospectus.
The "Due Period" for each Distribution Date will be the period that begins
on the [second] day of the month preceding the month in which such Distribution
Date occurs and ends on the [first] day of the month in which such Distribution
Date occurs. For purposes of the discussion in the Prospectus, the Due Period is
also the Prepayment Period. The "Determination Date" for each Distribution Date
is the [15th] day of the month in which such Distribution Date occurs or, if any
such [15th] day is not a business day, then the next preceding business day.
Priority. On each Distribution Date, for so long as the Certificate
Balances of the Offered Certificates have not been reduced to zero, the
[Trustee] will (except as otherwise described under "-Termination; Retirement of
Certificates" below) apply amounts on deposit in the Certificate Account, to the
extent of the Available Distribution Amount, in the following order of priority:
(1) to distributions of interest to the holders of the Senior
Certificates, pro rata among the respective Classes thereof,
in an amount equal to all Distributable Certificate Interest
in respect of the Senior Certificates for such Distribution
Date and, to the extent not previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to the holders of the Senior
Certificates in an amount equal to the sum of (a) the product
of (i) the Senior Certificates' Ownership Percentage (as
calculated immediately prior to such Distribution Date),
multiplied by (ii) the Scheduled Principal Distribution Amount
for such Distribution Date, plus (b) the entire Unscheduled
Principal Distribution Amount for such Distribution Date (but
not more than would be necessary to reduce the aggregate
Certificate Balance of the Senior Certificates to zero);
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(3) to distributions to the holders of the Class A Certificates,
until all amounts of Collateral Support Deficit previously
allocated to the Class A Certificates, but not previously
reimbursed, have been reimbursed in full;
(4) to distributions of interest to the holders of the Class B
Certificates in an amount equal to all Distributable
Certificate Interest in respect of the Class B Certificates
for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(5) to distributions of principal to the holders of the Class B
Certificates in an amount equal to the sum of (a) the product
of (i) the Class B Certificates' Ownership Percentage (as
calculated immediately prior to such Distribution Date),
multiplied by (ii) the Scheduled Principal Distribution Amount
for such Distribution Date, plus (b) if the Certificate
Balances of the Senior Certificates have been reduced to zero,
then to the extent not distributed in reduction of such
Certificate Balances on such Distribution Date, the entire
Unscheduled Principal Distribution Amount for such
Distribution Date (but not more than would be necessary to
reduce the Certificate Balance of the Class B Certificates to
zero);
(6) to distributions to the holders of the Class B Certificates ,
until all amounts of Collateral Support Deficit previously
allocated to the Class B Certificates, but not previously
reimbursed, have been reimbursed in full;
(7) to distributions of interest to the holders of the Class C
Certificates in an amount equal to all Distributable
Certificate Interest in respect of the Class C Certificates
for such Distribution Date and, to the extent not previously
distributed, for all prior Distribution Dates;
(8) to distributions of principal to the holders of the Class C
Certificates in an amount equal to the product of (a) the
Class C Certificates' Ownership Percentage (as calculated
immediately prior to such Distribution Date), multiplied by
(b) the Scheduled Principal Distribution Amount for such
Distribution Date;
(9) to distributions to the holders of the Class C Certificates,
until all amounts of Collateral Support Deficit previously
allocated to the Class C Certificates, but not previously
reimbursed, have been reimbursed in full; and
(10) to distributions to the holders of the Class R Certificates in
an amount equal to the remaining balance, if any, of the
Available Distribution Amount.
The distributions of principal to the holders of the Senior Certificates as
described in clause (2) above will be paid first to the holders of the Class R
Certificates until the Certificate Balance of such Certificates is reduced to
zero, and then to the holders of the Class A Certificates. Accordingly, it is
expected that the Certificate Balance of the Class R Certificates would be
reduced to zero on the initial Distribution Date and that no other
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distributions of interest or principal would thereafter be made on the Class R
Certificates except pursuant to subparagraph (10) immediately above.
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the Class of Certificates in
respect of which any such reimbursement is made.
Pass-Through Rates. The Pass-Through Rate applicable to each Class of
Certificates for the initial Distribution Date will equal _______% per annum.
With respect to any Distribution Date subsequent to the initial Distribution
Date, the Pass-Through Rate for each Class of Certificates will equal the
weighted average of the applicable Effective Net Mortgage Rates for the Mortgage
Loans, weighted on the basis of their respective Stated Principal Balances
immediately prior to such Distribution Date. For purposes of calculating the
Pass-Through Rate for any Class of Certificates and any Distribution Date, the
"applicable Effective Net Mortgage Rate" for each Mortgage Loan is: (a) if such
Mortgage Loan accrues interest on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 basis", which is the basis of accrual for
interest on the Certificates), the Net Mortgage Rate in effect for such Mortgage
Loan as of the commencement of the related Due Period; and (b) if such Mortgage
Loan does not accrue interest on a 30/360 basis, the annualized rate at which
interest would have to accrue during the one month period preceding the Due Date
for such Mortgage Loan during the related Due Period on a 30/360 basis in order
to produce the aggregate amount of interest (adjusted to the actual Net Mortgage
Rate) accrued during such period. The "Net Mortgage Rate" for each Mortgage Loan
is equal to the related Mortgage Rate in effect from time to time less the
Servicing Fee Rate.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of Certificates for each Distribution Date
represents that portion of the Accrued Certificate Interest in respect of such
Class of Certificates for such Distribution Date that is net of such Class's
allocable share (calculated as described below) of the aggregate of any
Prepayment Interest Shortfalls resulting from voluntary principal prepayments
made on the Mortgage Loans during the related Due Period that are not offset by
Prepayment Interest Excesses collected during the related Due Period (the
aggregate of such Prepayment Interest Shortfalls that are not so offset or
covered, as to such Distribution Date, the "Net Aggregate Prepayment Interest
Shortfall").
The "Accrued Certificate Interest" in respect of each Class of Certificates
for each Distribution Date is equal to one month's interest at the Pass-Through
Rate applicable to such Class of Certificates for such Distribution Date accrued
on the related Certificate Balance outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Certificates will equal the
product of (a) such Net Aggregate Prepayment Interest Shortfall, multiplied by
(b) a fraction, the numerator
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of which is equal to the Accrued Certificate Interest in respect of such Class
of Certificates for such Distribution Date, and the denominator of which is
equal to the Accrued Certificate Interest in respect of all the Classes of
Certificates for such Distribution Date.
Scheduled Principal Distribution Amount and Unscheduled Principal
Distribution Amount. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments, including Balloon Payments [, net of any related Workout Fees
payable therefrom to the Special Servicer], due during or, if and to the extent
not previously received or advanced and distributed to Certificateholders on a
preceding Distribution Date, prior to the related Due Period, in each case to
the extent paid by the related borrower or advanced by the Master Servicer and
included in the Available Distribution Amount for such Distribution Date. The
Scheduled Principal Distribution Amount from time to time will include all late
payments of principal made by a borrower, including late payments in respect of
a delinquent Balloon Payment, regardless of the timing of such late payments,
except to the extent such late payments are otherwise reimbursable to the Master
Servicer for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal received
on the Mortgage Loans during the related Due Period [, net of any related
Workout Fees payable therefrom to the Special Servicer]; and (b) any other
collections (exclusive of payments by borrowers) received on the Mortgage Loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance and Condemnation Proceeds, net income from REO
Property or otherwise, that were identified and applied by the Master Servicer
as recoveries of previously unadvanced principal of the related Mortgage Loan [,
net of any related Workout Fees payable therefrom to the Special Servicer].
The respective amounts which constitute the Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount for any
Distribution Date are herein collectively referred to from time to time as the
"Distributable Principal".
The "Ownership Percentage" evidenced by any Class or Classes of
Certificates as of any date of determination will equal a fraction, expressed as
a percentage, the numerator of which is the then Certificate Balance(s) of such
Class(es) of Certificates, and the denominator of which is the then aggregate
Stated Principal Balance of the Mortgage Pool.
Certain Calculations with Respect to Individual Mortgage Loans. The "Stated
Principal Balance" of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders subject to the Special Servicer's right to receive any
Workout Fee with respect to such Mortgage Loan. The Stated Principal Balance of
each Mortgage Loan will initially equal the Cut-off Date Balance thereof and, on
each Distribution Date, will be reduced by the portion of the Distributable
Principal for such date that is attributable to such Mortgage Loan. The Stated
Principal Balance of a Mortgage Loan may also be reduced in connection with any
forced reduction of the actual unpaid principal balance thereof imposed by a
court presiding over a
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bankruptcy proceeding wherein the related borrower is the debtor. See "Certain
Legal Aspects of Mortgage Loans-Foreclosure-Bankruptcy Laws" in the Prospectus.
If any Mortgage Loan is paid in full or such Mortgage Loan (or any Mortgaged
Property acquired in respect thereof) is otherwise liquidated, then, as of the
first Distribution Date that follows the end of the Due Period in which such
payment in full or liquidation occurred, and notwithstanding that a loss may
have occurred in connection with any such liquidation, the Stated Principal
Balance of such Mortgage Loan shall be zero.
For purposes of calculating distributions on, and allocations of Collateral
Support Deficit to, the Certificates, as well as for purposes of calculating the
amount of Servicing Fees payable each month, each REO Property will be treated
as if there exists with respect thereto an outstanding mortgage loan (an "REO
Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and "Mortgage
Pool" herein and in the Prospectus, when used in such context, will be deemed to
also be references to or to also include, as the case may be, any "REO Loans".
Each REO Loan will generally be deemed to have the same characteristics as its
actual predecessor Mortgage Loan, including the same adjustable or fixed
Mortgage Rate (and, accordingly, the same Net Mortgage Rate and Effective Net
Mortgage Rate) and the same unpaid principal balance and Stated Principal
Balance. Amounts due on such predecessor Mortgage Loan, including any portion
thereof payable or reimbursable to the Master Servicer, will continue to be
"due" in respect of the REO Loan; and amounts received in respect of the related
REO Property, net of payments to be made, or reimbursement to the Master
Servicer or the Special Servicer for payments previously advanced, in connection
with the operation and management of such property, generally will be applied by
the Master Servicer as if received on the predecessor Mortgage Loan. However,
notwithstanding the terms of the predecessor Mortgage Loan, the Monthly Payment
"due" on an REO Loan will in all cases, for so long as the related Mortgaged
Property is part of the Trust Fund, be deemed to equal one month's interest
thereon at the applicable Mortgage Rate.
Subordination; Allocation of Collateral Support Deficit
The rights of holders of the Class B Certificates and the Class C
Certificates to receive distributions of amounts collected or advanced on the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Senior Certificates; and the rights of holders of the
Class C Certificates to receive distributions of amounts collected or advanced
on the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of holders of the Class B Certificates. This subordination is
intended to enhance the likelihood of timely receipt by the holders of the
Senior Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
ultimate receipt by such holders of principal in an amount equal to the entire
aggregate Certificate Balance of the Senior Certificates. Similarly, but to a
lesser degree, this subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class B Certificates of the full amount of
all Distributable Certificate Interest payable in respect of such Certificates
on each Distribution Date, and the ultimate receipt by such holders of principal
in an amount equal to the entire Certificate Balance of the Class B
Certificates. This subordination will be accomplished by the application of the
Available
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Distribution Amount on each Distribution Date in accordance with the order of
priority described under "-Distributions-Priority" above. No other form of
Credit Support will be available for the benefit of the holders of the Offered
Certificates.
Allocation to the Senior Certificates, for so long as they are outstanding,
of the entire Unscheduled Principal Distribution Amount for each Distribution
Date will generally accelerate the amortization of such Certificates relative to
the actual amortization of the Mortgage Loans. To the extent that the Senior
Certificates are amortized faster than the Mortgage Loans, the percentage
interest evidenced by the Senior Certificates in the Trust Fund will be
decreased (with a corresponding increase in the interest in the Trust Fund
evidenced by the Class B and Class C Certificates), thereby increasing, relative
to their respective Certificate Balances, the subordination afforded the Senior
Certificates by the Class B and Class C Certificates. Following retirement of
the Class A Certificates, allocation to the Class B Certificates, for so long as
they are outstanding, of the entire Unscheduled Principal Distribution Amount
for each Distribution Date will provide a similar benefit to such Class of
Certificates as regards the relative amount of subordination afforded thereto by
the Class C Certificates.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on such date, the [Trustee] is to calculate the
amount, if any, by which (i) the aggregate Stated Principal Balance of the
Mortgage Pool expected to be outstanding immediately following such Distribution
Date is less than (ii) the then aggregate Certificate Balance of the REMIC
Regular Certificates (any such deficit, "Collateral Support Deficit"). The
[Trustee] will be required to allocate any such Collateral Support Deficit among
the respective Classes of Certificates as follows: first, to the Class C
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; second, to the Class B Certificates, until the
remaining Certificate Balance of such Class of Certificates is reduced to zero;
and last, to the Class A Certificates, until the remaining Certificate Balance
of such Class of Certificates has been reduced to zero. Any allocation of
Collateral Support Deficit to a Class of Certificates will be made by reducing
the Certificate Balance thereof by the amount so allocated. Any Collateral
Support Deficit allocated to a Class of REMIC Regular Certificates will be
allocated among the respective Certificates of such Class in proportion to the
Percentage Interests evidenced thereby. In general, Collateral Support Deficit
will result from the occurrence of: (i) losses and other shortfalls on or in
respect of the Mortgage Loans, including as a result of defaults and
delinquencies thereon, Nonrecoverable Advances made in respect thereof and the
payment to the Master Servicer of interest on Advances and certain servicing
expenses; and (ii) certain unanticipated, non-Mortgage Loan specific expenses of
the Trust Fund, including certain reimbursements to the Trustee as described
under "The Pooling and Servicing Agreements - Certain Matters Regarding the
Trustee" in the Prospectus, certain reimbursements to the Master Servicer and
the Depositor as described under "The Pooling and Servicing Agreements - Certain
Matters Regarding the Master Servicer and the Depositor" in the Prospectus and
certain federal, state and local taxes, and certain tax-related expenses,
payable out of the Trust Fund as described under "Certain Federal Income Tax
Consequences - REMICs - Prohibited Transactions Tax and Other Taxes "
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in the Prospectus. Accordingly, the allocation of Collateral Support Deficit as
described above will constitute an allocation of losses and other shortfalls
experienced by the Trust Fund.
Advances
[On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, an "Advance") out of
its own funds or, subject to the replacement thereof as provided in the Pooling
and Servicing Agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of: (i) all Monthly Payments (net of
the related Servicing Fee), other than Balloon Payments, which were due on the
Mortgage Loans during the related Due Period and delinquent as of the related
Determination Date; (ii) in the case of each Mortgage Loan delinquent in respect
of its Balloon Payment as of the related Determination Date, an amount equal to
one month's interest thereon at the related Mortgage Rate in effect as of the
commencement of the related Due Period (net of the related Servicing Fee), but
only to the extent that the related mortgagor has not made a payment sufficient
to cover such amount under any forbearance arrangement or otherwise that has
been included in the Available Distribution Amount for such Distribution Date;
and (iii) in the case of each REO Property, an amount equal to thirty days'
imputed interest with respect thereto at the related Mortgage Rate in effect as
of the commencement of the related Due Period (net of the related Servicing
Fee), but only to the extent that such amount is not covered by any net income
from such REO Property included in the Available Distribution Amount for such
Distribution Date. The Master Servicer's obligations to make Advances in respect
of any Mortgage Loan or REO Property will continue through liquidation of such
Mortgage Loan or disposition of such REO Property, as the case may be.
The Master Servicer will be entitled to recover any Advance made out of its
own funds from any amounts collected in respect of the Mortgage Loan as to which
such Advance was made, whether in the form of late payments, Insurance and
Condemnation Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer will not be obligated to make
any Advance that it determines in its reasonable good faith judgment would, if
made, not be recoverable out of Related Proceeds (a "Nonrecoverable Advance"),
and the Master Servicer will be entitled to recover any Advance that it so
determines to be a Nonrecoverable Advance out of general funds on deposit in the
Certificate Account. Nonrecoverable Advances will represent a portion of the
losses to be borne by the Certificateholders. See "Description of the
Certificates-Advances in Respect of Delinquencies" and "The Pooling and
Servicing Agreements-Certificate Account" in the Prospectus.
In connection with its recovery of any Advance or reimbursable servicing
expense, each of the Master Servicer and the Special Servicer will be entitled
to be paid, out of any amounts then on deposit in the Certificate Account,
interest at ____% per annum (the "Reimbursement Rate") accrued on the amount of
such Advance or expense from the date made to but not including the date of
reimbursement.
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To the extent not offset or covered by amounts otherwise payable on the
Class C Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class B Certificates; and to the extent not
offset or covered by amounts otherwise payable on the Class B and Class C
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Senior Certificates. To the extent that any
holder of an Offered Certificate must bear the cost of the Master Servicer's
and/or Special Servicer's Advances, the benefits of such Advances to such holder
will be contingent on the ability of such holder to reinvest the amounts
received as a result of such Advances at a rate of return equal to or greater
than the Reimbursement Rate.]
Each Distribution Date Statement delivered by the Trustee to the
Certificateholders will contain information relating to the amounts of Advances
made with respect to the related Distribution Date. See "Description of the
Certificates-Reports to Certificateholders; Certain Available Information"
herein and "Description of Certificates-Reports to Certificateholders" in the
Prospectus.
Reports to Certificateholders; Certain Available Information
On each Distribution Date, the [Trustee] will be required to forward by
mail to each holder of an Offered Certificate a statement (a "Distribution Date
Statement") providing various items of information relating to distributions
made on such date with respect to the relevant Class and the recent status of
the Mortgage Pool. For a more detailed discussion of the particular items of
information to be provided in each Distribution Date Statement, as well as a
discussion of certain annual information reports to be furnished by the
[Trustee] to persons who at any time during the prior calendar year were holders
of the Offered Certificates, see "Description of the Certificates-Reports to
Certificateholders" in the Prospectus.
The Pooling and Servicing Agreement requires that the [Trustee] make
available at its offices primarily responsible for [administration of the Trust
Fund], during normal business hours, for review by any holder of an Offered
Certificate, originals or copies of, among other things, the following items:
(a) the Pooling and Servicing Agreement and any amendments thereto, (b) all
Distribution Date Statements delivered to holders of the relevant Class of
Offered Certificates since the Delivery Date, (c) all officer's certificates
delivered to the Trustee since the Delivery Date as described under "The Pooling
and Servicing Agreements-Evidence as to Compliance" in the Prospectus, (d) all
accountants' reports delivered to the Trustee since the Delivery Date as
described under "The Pooling and Servicing Agreements-Evidence as to Compliance"
in the Prospectus, (e) the most recent property inspection report prepared by or
on behalf of the Special Servicer and delivered to the Trustee in respect of
each Mortgaged Property, (f) the most recent annual operating statements, if
any, collected by or on behalf of the Special Servicer and delivered to the
Trustee in respect of each Mortgaged Property, and (g) any and all
modifications, waivers and amendments of the terms of a Mortgage Loan entered
into by the Master Servicer or the Special Servicer and delivered to the
Trustee. Copies of any and all of the foregoing items will be available from the
[Trustee] upon request; however, the [Trustee] will be permitted to
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require payment of a sum sufficient to cover the reasonable costs and expenses
of providing such copies.
Until such time as Definitive Class A Certificates are issued, the
foregoing information will be available to Class A Certificate Owners only to
the extent it is forwarded by or otherwise available through DTC and its
Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Class A Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee, the Depositor, the REMIC Administrator and the
Certificate Registrar are required to recognize as Certificateholders only those
persons in whose names the Certificates are registered on the books and records
of the Certificate Registrar. The initial registered holder of the Class A
Certificates will be Cede & Co. as nominee for DTC.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, the
voting rights for the series offered hereby (the "Voting Rights") shall be
allocated among the respective Classes of Certificateholders in proportion to
the Certificate Balances of their Certificates. Voting Rights allocated to a
Class of Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer or the Depositor. Written notice of termination of the Pooling
and Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer or the Depositor of all the
Mortgage Loans and other assets in the Trust Fund is required to be made at a
price equal to (a) the sum of (i) the aggregate Purchase Price of all the
Mortgage Loans (exclusive of REO Loans) then included in the Trust Fund and (ii)
the aggregate fair market value of all REO Properties then included in the Trust
Fund (which fair market value for any REO Property may be less than the Purchase
Price for the corresponding REO Loan), as determined by an appraiser mutually
agreed upon by the Master Servicer and the Trustee, over (b) the aggregate of
amounts payable or reimbursable to the Master Servicer under the Pooling and
Servicing Agreement. Such purchase will effect early retirement of the then
outstanding Offered Certificates, but the right of the Master Servicer or the
Depositor to effect such termination is subject to the requirement that the then
aggregate Stated Principal Balance of the Mortgage Pool be less than 5% of the
Initial Pool Balance.
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On the final Distribution Date, the aggregate amount paid by the Master
Servicer or the Depositor, as the case may be, for the Mortgage Loans and other
assets in the Trust Fund (if the Trust Fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "The Pooling and Servicing
Agreements-Certificate Account" in the Prospectus), will be applied generally as
described above under "-Distributions-Priority", except that the distributions
of principal described thereunder will, in the case of each Class of
Certificates, be made, subject to available funds, in an amount equal to the
related Certificate Balance then outstanding.
The Trustee
____________, a _____________________, will act as Trustee on behalf of the
Certificateholders. [The Master Servicer will be responsible for the fees and
normal disbursements of the Trustee.] The offices of the Trustee primarily
responsible for the administration of the Trust Fund are located at
_____________________________. See "The Pooling and Servicing Agreements-the
Trustee", "-Duties of the Trustee", "-Certain Matters Regarding the Trustee" and
"-Resignation and Removal of the Trustee" in the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the weighted average
of the applicable Effective Net Mortgage Rates. Accordingly, the yield on the
Offered Certificates will be sensitive to (x) adjustments to the Mortgage Rates
on the ARM Loans and (y) changes in the relative composition of the Mortgage
Pool as a result of scheduled amortization, voluntary prepayments and
involuntary liquidations of the Mortgage Loans. See "Description of the Mortgage
Pool" herein and "-Yield Considerations-Rate and Timing of Principal Payments"
below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or
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purchases of Mortgage Loans out of the Trust Fund). Prepayments and, assuming
the respective stated maturity dates therefor have not occurred, liquidations
and purchases of the Mortgage Loans, will result in distributions on the Offered
Certificates of amounts that would otherwise be distributed over the remaining
terms of the Mortgage Loans. Defaults on the Mortgage Loans, particularly at or
near their stated maturity dates, may result in significant delays in payments
of principal on the Mortgage Loans (and, accordingly, on the Offered
Certificates) while work-outs are negotiated or foreclosures are completed. See
"Servicing of the Mortgage Loans-Modifications, Waivers and Amendments" herein
and "The Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage
Loans" and "Certain Legal Aspects of Mortgage Loans-Foreclosure" in the
Prospectus. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described below), no
assurance can be given as to such rate or the rate of principal prepayments in
particular. The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a large group of mortgage loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
on such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on such Certificate could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such Certificate could result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is made on an Offered Certificate
purchased at a discount or premium, the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments on such investor's Offered Certificates occurring at a rate
higher (or lower) than the rate anticipated by the investor during any
particular period would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: first, by the holders of the
Class C Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; second, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; and last, by the holders of the Senior Certificates. As more
fully described herein under "Description of the
Certificates-Distributions-Distributable Certificate Interest", Net Aggregate
Prepayment Interest Shortfalls will generally be borne by the respective Classes
of Certificateholders on a pro rata basis.
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Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental properties
in such areas, the quality of management of the Mortgaged Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. See "Risk Factors" and "Description of the
Mortgage Pool" herein and "Risk Factors" and "Yield and Maturity
Considerations-Yield and Prepayment Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool-Certain
Payment Characteristics" and "-The Index" herein. As a result, the Mortgage
Rates on the ARM Loans at any time may not be comparable to prevailing market
interest rates. In addition, as prevailing market interest rates decline, and
without regard to whether the Mortgage Rates on the ARM Loans decline in a
manner consistent therewith, related borrowers may have an increased incentive
to refinance for purposes of either (i) converting to a fixed rate loan and
thereby "locking in" such rate, or (ii) taking advantage of a different index,
margin or rate cap or floor on another adjustable rate mortgage loan. The
Mortgage Loans may be prepaid at any time and, in ____ cases (approximately
_____% of the Initial Pool Balance), may be prepaid in whole or in part without
payment of a Prepayment Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least
_____ days and as many as ______ days following the Due Dates for the Mortgage
Loans during the related Due
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Period, the effective yield to the holders of the Offered Certificates will be
lower than the yield that would otherwise be produced by the applicable
Pass-Through Rates and purchase prices (assuming such prices did not account for
such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates-Distributions-Priority" herein, if the portion of the
Available Distribution Amount distributable in respect of interest on any Class
of Offered Certificates on any Distribution Date is less than the Distributable
Certificate Interest then payable for such Class, the shortfall will be
distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of available funds. Any such shortfall will
not bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Certificates for so long as it is outstanding.
Weighted Average Life
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of such Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected, which may be in the form of scheduled amortization,
voluntary prepayments, Insurance and Condemnation Proceeds and Liquidation
Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the ["Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loans is prepaid before maturity. The columns headed "___%", "___%", "___%" and
"___%" assume that prepayments on the Mortgage Loans are made at those levels of
CPR. There is no assurance, however, that prepayments of the Mortgage Loans will
conform to any level of CPR, and no representation is made that the Mortgage
Loans will prepay at the levels of CPR shown or at any other prepayment rate.]
The following tables indicate the percentage of the initial Certificate
Balance of each of the Class A Certificates and the Class B Certificates that
would be outstanding after each of the dates shown at various CPRs and the
corresponding weighted average life of each such Class of Certificates. The
tables have been prepared on the basis of the following assumptions, among
others: (i) scheduled monthly payments of principal and interest on the Mortgage
Loans, in each case prior to any prepayment of the loan, will be timely received
(with no defaults) and will be distributed on the 25th day of each month
commencing in ________ 199___; (ii) the Mortgage Rate in effect for each
Mortgage Loan as of the Cut-off Date will remain in effect (a) in the case of
each Fixed Rate Loan, to maturity and, (b) in the case of each ARM Loan, until
its next Interest Rate Adjustment Date, when a new Mortgage Rate that is to
remain in effect to maturity will be calculated reflecting the value of the
related
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Index as of ________, 199__, subject to such Mortgage Loan's lifetime and/or
periodic rate caps and floors, if any; (iii) all Mortgage Loans accrue and pay
interest on a 30/360 basis; (iv) the monthly principal and interest payment due
for each Mortgage Loan on the first Due Date following the Cut-off Date will
continue to be due (a) in the case of each Fixed Rate Loan, on each Due Date
until maturity and (b) in the case of each ARM Loan, until its next Payment
Adjustment Date, when a new payment that is to be due on each Due Date until
maturity will be calculated reflecting the appropriate Mortgage Rate and
remaining amortization term; (v) any principal prepayments on the Mortgage Loans
will be received on their respective Due Dates at the respective levels of CPR
set forth in the tables, and there will be no Net Aggregate Prepayment Interest
Shortfalls in connection therewith; and (vi) the Mortgage Loan Seller will not
be required to repurchase any Mortgage Loan, and neither the Master Servicer nor
the Depositor will exercise its option to purchase all the Mortgage Loans and
thereby cause an early termination of the Trust Fund. To the extent that the
Mortgage Loans have characteristics that differ from those assumed in preparing
the tables set forth below, the Class A Certificates or the Class B Certificates
may mature earlier or later than indicated by the tables. It is highly unlikely
that the Mortgage Loans will prepay at any constant rate until maturity or that
all the Mortgage Loans will prepay at the same rate. In addition, variations in
the actual prepayment experience and the balance of the Mortgage Loans that
prepay may increase or decrease the percentages of initial Certificate Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of the Mortgage Loans were to
equal any of the specified CPR percentages. Investors are urged to conduct their
own analyses of the rates at which the Mortgage Loans may be expected to prepay.
Based on the foregoing assumptions, the following table indicates the resulting
weighted average lives of the Class A Certificates and sets forth the percentage
of the initial Certificate Balance of the Class A Certificates that would be
outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class A Certificates at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- --- --- --- --- ---
Delivery Date 100.0 100.0 100.0 100.0 100.0
_________ 25, 1998 .............
_________ 25, 1999 .............
_________ 25, 2000 .............
_________ 25, 2001 .............
_________ 25, 2002 .............
_________ 25, 2003 .............
_________ 25, 2004 .............
_________ 25, 2005 .............
_________ 25, 2006 .............
Weighted Average Life
(years)(A) ..................
- ----------
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(A) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class A Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class A Certificate.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class B Certificates at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- --- --- --- --- ---
Delivery Date 100.0 100.0 100.0 100.0 100.0
_________ 25, 1998 .............
_________ 25, 1999 .............
_________ 25, 2000 .............
_________ 25, 2001 .............
_________ 25, 2002 .............
_________ 25, 2003 .............
_________ 25, 2004 .............
_________ 25, 2005 .............
_________ 25, 2006 .............
Weighted Average Life
(years)(A) ..................
- ----------
(A) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class B Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class B Certificate.
[The following disclosure is applicable to Stripped Interest Certificates, when
offered...
Yield Sensitivity of the Class S Certificates
The yield to maturity of the Class S Certificates will be especially
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a
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material negative effect on the yield to maturity of the Class S Certificates.
There can be no assurance that the Mortgage Loans will prepay at any particular
rate. Prospective investors in the Class S Certificates should fully consider
the associated risks, including the risk that such investors may not fully
recover their initial investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class S Certificates to various constant rates of prepayment on
the Mortgage Loans by projecting the monthly aggregate payments of interest on
the Class S Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in the third paragraph under the heading "--Weighted Average Life"
above, including the assumptions regarding the characteristics and performance
of the Mortgage Loans which differ from the actual characteristics and
performance thereof and assuming the aggregate purchase price set forth below.
Any differences between such assumptions and the actual characteristics and
performance of the Mortgage Loans and of the Class S Certificates may result in
yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Class S Certificates
at the Following CPRs
Assumed Purchase Price 0% % % % % %
- ---------------------- -- -- -- -- -- --
$________________ ........ ____% ____% ____% ____% ____% ____%
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class S Certificates, would cause
the discounted present value of such assumed stream of cash flows to equal the
assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price and is used in computing the corporate bond equivalent
yields shown. These yields do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Class S Certificates, and thus do not reflect the return on
any investment in the Class S Certificates when any reinvestment rates other
than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Class S
Certificates is likely to differ from those shown in the tables, even if all of
the Mortgage Loans prepay at the indicated CPRs over any given time period or
over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class S Certificates will conform to
the yields described herein. Investors are urged to make their investment
decisions based on the determinations as to
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anticipated rates of prepayment under a variety of scenarios. Investors in the
Class S Certificates should fully consider the risk that a rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments.]
Additional Yield Considerations Applicable Solely to the Class R Certificates
The Class R Certificateholders' after-tax rate of return on the Class R
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Class R Certificates. Holders of Class R
Certificates may have tax liabilities with respect to their Certificates during
the early years of the Trust Fund's term that substantially exceed any
distributions payable thereon during any such period. In addition, holders of
Class R Certificates may have tax liabilities with respect to their Certificates
the present value of which substantially exceeds the present value of
distributions payable thereon and of any tax benefits that may arise with
respect thereto. Accordingly, the after-tax rate of return on the Class R
Certificates may be negative or may otherwise be significantly adversely
affected. The timing and amount of taxable income attributable to the Class R
Certificates will depend on, among other things, the timing and amounts of
prepayments and losses experienced with respect to the Mortgage Pool.
The Class R Certificateholders should consult their tax advisors as to the
effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Class R Certificates on after-tax rates of
return on such Certificates. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, [Cadwalader, Wickersham &
Taft], counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as having
been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
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Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income tax
purposes as having been issued at a premium. Whether any holder of [either] such
Class of Certificates will be treated as holding a Certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" within the meaning of
Section 856(c)(4)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-Events of Default" and "-Rights Upon Event of Default" in the
Prospectus.
For further information regarding the Federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
Special Tax Considerations Applicable to REMIC Residual Certificates
The IRS has issued REMIC Regulations that significantly affect holders of
REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to the transfer of "noneconomic" residual interests to U.S. Persons.
Pursuant to the Pooling and Servicing Agreement, the Class R Certificates may
not be transferred to certain non-U.S. Persons. See "Certain Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Residual Certificates" in the
Prospectus. A transfer to a U.S. Person of "noneconomic" residual interests will
be disregarded for all federal income tax purposes, and the purported transferor
of "noneconomic" residual interests will continue to remain liable for any taxes
due with respect to the income on such residual interests, if "a significant
purpose of the transfer was to impede
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the assessment or collection of tax." Based on the REMIC Regulations, the Class
R Certificates may constitute noneconomic residual interests during some or all
of their terms for purposes of the REMIC Regulations and, accordingly, if a
significant purpose of a transfer is to impede the assessment or collection of
tax, transfers of the Class R Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Class R Certificates. All transfers of the Class R Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Class R Certificates constitute noneconomic
residual interests. See "Certain Federal Income Tax Consequences-REMICs-Taxation
of Owners of REMIC Residual Certificates-Noneconomic REMIC Residual
Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under the
Pooling and Servicing Agreement, the holder of the largest Percentage Interest
in the Class R Certificates shall, by its acceptance of such Certificates, agree
to irrevocably appoint the Master Servicer as its agent to perform all of the
duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences of
investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
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<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated _____________, 199_ (the "Underwriting Agreement"), ______________________
(the "Underwriter") has agreed to purchase and the Depositor has agreed to sell
to the Underwriter each class of the Offered Certificates. It is expected that
delivery of the Class A Certificates will be made only in book-entry form
through the Same Day Funds Settlement System of DTC, and that the delivery of
the Class B and Class R Certificates will be made at the offices of the
Underwriter, _____________________, on or about _____________, 199_ against
payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of its Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately ____% of the aggregate
Certificate Balance of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
its Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act of
1933, as amended, or contribute to payments required to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the Prospectus
under "Description of the Certificates--Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. Except
as described herein under "Description of the Certificates--Reports to
Certificateholders; Certain
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Available Information", there can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Offered Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered Certificates becomes
available.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates with respect to which the Underwriter acts as principal.
The Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of NationsBank
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the Underwriter by [Cadwalader, Wickersham & Taft]. Certain federal
income tax matters and other matters will be passed upon for the Depositor by
[Cadwalader, Wickersham & Taft].
RATING
It is a condition to issuance that the Senior Certificates be rated not
lower than "__", and the Class B Certificates be rated not lower than "__", by
____________________________________.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans, [The following disclosure is applicable to Stripped Interest
Certificates, when offered... or the possibility that as a result of prepayments
investors in the Class S Certificates may realize a lower than anticipated yield
or may fail to recover fully their initial investment.]
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by
___________________________.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy,
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sell or hold securities and may be subject to revision or withdrawal at any time
by the assigning rating agency.
LEGAL INVESTMENT
[As long as the Senior Certificates are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, the Senior Certificates will constitute "mortgage related
securities" within the meaning of SMMEA, and as such will be legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, life insurance
companies and pension funds) created pursuant to or existing under the laws of
the United States or of any State whose authorized investments are subject to
state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Under SMMEA, however, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA.]
[The Class B Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
Class B Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Class B
Certificates, may be subject to significant interpretive uncertainties.]
[Except as set forth above the respect to the status of the Senior
Certificates as "mortgage related securities,"] no representation is made as to
the proper characterization of any class of Offered Certificates for legal
investment purposes, financial instution regulatory or other purposes, or as to
the ability of particular investors to purchase the Offered Certificates under
applicable legal investment or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the Offered Certificates constitute legal investments for them or are subject to
investment, capital or other restrictions and, if applicable, whether SMMEA has
been overriden in any jurisdiction relevant to such investor.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to ERISA, or Section 4975 of the Code (each, a "Plan")
should review with its legal advisors
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whether the purchase or holding of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under ERISA
or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
The U.S. Department of Labor issued to NationsBank Corporation an
individual prohibited transaction exemption, Prohibited Transaction Exemption
93-31 (the "Exemption"), which generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the excise taxes
imposed on such prohibited transactions pursuant to Sections 4975(a) and (b) of
the Code and Section 501(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage pools, such as the Mortgage
Pool, and the purchase, sale and holding of mortgage pass-through certificates,
such as the Class A Certificates, underwritten by an Underwriter (as hereinafter
defined), provided that certain conditions set forth in the Exemption are
satisfied. For purposes of this Section "ERISA Considerations", the term
"Underwriter" shall include (a) NationsBank Corporation, (b) any person directly
or indirectly, through one or more intermediaries, controlling, controlled by or
under common control with NationsBank Corporation, and (c) any member of the
underwriting syndicate or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to the Class A Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of the Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the Class
A Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Class A Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Compaines, Inc. ("Standard & Poor's"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch
Investors Service, Inc. ("Fitch"). Fourth, the Trustee cannot be an affiliate of
any other member of the "Restricted Group", which consists of any Underwriter,
the Depositor, the Trustee, the Master Servicer, the Special Servicer, any
sub-servicer, and any mortgagor with respect to Mortgage Loans constituting more
than 5% of the aggregate unamortized principal balance of the Mortgage Loans as
of the date of initial issuance of the Class A Certificates. Fifth, the sum of
all payments made to and retained by the Underwriter must represent not more
than reasonable compensation for underwriting the Class A Certificates; the sum
of all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer, the Special Servicer and any sub-servicer must
represent not more than reasonable compensation for such person's services under
the Pooling and Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the investing Plan must be
an accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
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Because the Class A Certificates are not subordinated to any other Class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "__" by
_______________________________________________________. As of the Delivery
Date, the fourth general condition set forth above will be satisfied with
respect to the Class A Certificates. A fiduciary of a Plan contemplating
purchasing a Class A Certificate in the secondary market must make its own
determination that, at the time of such purchase, the Class A Certificates
continue to satisfy the third and fourth general conditions set forth above. A
fiduciary of a Plan contemplating purchasing a Class A Certificate, whether in
the initial issuance of such Certificates or in the secondary market, must make
its own determination that the first, fifth and sixth general conditions set
forth above will be satisfied with respect to such Class A Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of Class A
Certificates in the initial issuance of Certificates between the Depositor or an
Underwriter and a Plan when the Depositor, the Underwriter, the Trustee, the
Master Servicer, the Special Servicer, a Sub-Servicer or a mortgagor is a Party
in Interest with respect to the investing Plan, (ii) the direct or indirect
acquisition or disposition in the secondary market of the Class A Certificates
by a Plan and (iii) the holding of Class A Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Class A Certificate on
behalf of an "Excluded Plan" by any person who has discretionary authority or
renders investment advice with respect to the assets of such Excluded Plan. For
purposes hereof, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates between
the Depositor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(2) the direct or indirect
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acquisition or disposition in the secondary market of Class A Certificates by a
Plan and (3) the holding of Class A Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (a) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of Offered Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions. See "ERISA Considerations" in
the Prospectus. A purchaser of a Class A Certificate should be aware, however,
that even if the conditions specified in one or more exemptions are satisfied,
the scope of relief provided by an exemption may not cover all acts which might
be construed as prohibited transactions.
Because the characteristics of the Class B Certificates [and the Class R
Certificates] do not meet the requirements of the Exemption, the purchase or
holding of such Certificates by a Plan may result in prohibited transactions or
the imposition of excise taxes or civil penalties. As a result, no transfer of a
Class B Certificate [or Class R Certificate] or any interest therein may be made
to a Plan or to any person who is directly or indirectly purchasing such
Certificate or interest therein on behalf of, as named fiduciary of, as trustee
of, or with assets of a Plan, unless the prospective transferee provides the
Certificate Registrar with a certification of facts and an opinion of counsel
which establish to the satisfaction of the Certificate Registrar that such
transfer will not result in a violation of Section 406 of ERISA or Section 4975
of the Code or cause the Master Servicer, the Special Servicer or the Trustee to
be deemed a fiduciary of such Plan or result in the imposition of an excise tax
under Section 4975 of the Code. See "ERISA Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase an Offered Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
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<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus Supplement and
the Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Depositor or by the
Underwriter. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in NATIONSLINK FUNDING CORPORATION
which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. Neither the delivery
of this Prospectus Supplement and the Prospectus nor any
sale made hereunder shall, under any circumstances, create $___________
an implication that information herein or therein is
correct as of any time since the date of this Prospectus Mortgage Pass-Through
Supplement or the Prospectus. Certificates
Series 199_-_
TABLE OF CONTENTS
Class A Certificates Variable Rate $___________
Class B Certificates Variable Rate $___________
Page Class R Certificates Variable Rate $ 100
----
Prospectus Supplement
Summary............................................
Risk Factors....................................... ___________
Description of the Mortgage Pool...................
Servicing of the Mortgage Loans.................... PROSPECTUS SUPPLEMENT
Description of the Certificates.................... ___________
Yield and Maturity Considerations..................
Certain Federal Income Tax Consequences............
Method of Distribution.............................
Legal Matters......................................
Rating............................................. [UNDERWRITER(S)]
Legal Investment...................................
ERISA Considerations...............................
Index of Principal Definitions.....................
Prospectus
Prospectus Supplement.............................. Dated __________, 199_
Available Information..............................
Incorporation of Certain Information by Reference..
Summary of Prospectus..............................
Risk Factors.......................................
Description of the Trust Funds.....................
Yield and Maturity Considerations..................
The Depositor......................................
Description of the Certificates....................
The Pooling and Servicing Agreements...............
Description of Credit Support......................
Certain Legal Aspects of Mortgage Loans............
Certain Federal Income Tax Consequences............
State Tax and Other Considerations.................
ERISA Considerations...............................
Legal Investment...................................
Use of Proceeds....................................
Method of Distribution.............................
Legal Matters......................................
Financial Information..............................
Rating.............................................
Index of Principal Definitions.....................
</TABLE>
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
---------------------------------------------
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INDEX OF PRINIPAL DEFINITIONS
30/360 basis.......................................47
Accrued Certificate Interest.......................48
Advance........................................10, 51
ARM Loans...........................................3
Available Distribution Amount......................45
Balloon Payment.....................................4
Certificate Balance................................iv
Certificate Registrar..............................43
Certificates........................................i
Class...............................................i
Class A Certificate Owner...........................2
Class B Available Distribution Amount...............7
Class S Certificates...............................iv
Collateral Support Deficit.................12, 13, 50
Constant Prepayment Rate...........................58
CPR................................................58
Cut-off Date......................................iii
Cut-off Date Balance...............................20
Debt Service Coverage Ratio........................29
Definitive Class A Certificate......................2
Delivery Date.....................................iii
Determination Date.................................45
Distributable Certificate Interest.................47
Distributable Principal............................49
Distribution Date..............................iv, 44
Distribution Date Statement........................52
Due Date............................................3
Due Period.........................................45
Effective Net Mortgage Rate........................47
ERISA..............................................15
ERISA Considerations...............................68
Fixed Rate Loans....................................4
Form 8-K...........................................35
Gross Margin........................................3
Index...............................................3
Initial Pool Balance..............................iii
Interest Rate Adjustment Date.......................3
LTV Ratio..........................................30
Master Servicing Fee...............................38
Monthly Payments....................................3
Mortgage...........................................20
Mortgage Loans....................................iii
Mortgage Note......................................20
Mortgage Pool.....................................iii
Mortgage Rate.......................................3
Mortgaged Property..............................2, 20
Net Aggregate Prepayment Interest Shortfall........48
Net Mortgage Rate...................................5
Net Operating Income...............................29
Nonrecoverable Advance.............................52
Offered Certificates............................i, 42
Ownership Percentage...............................49
Pass-Through Rate..................................iv
Payment Adjustment Date.............................4
Percentage Interest................................42
Plan...............................................67
Pooling and Servicing Agreement.....................4
Prepayment Interest Excess.........................39
Prepayment Premiums................................21
Purchase Agreement..................................2
Purchase Price.....................................35
Reimbursement Rate.................................52
Related Proceeds...................................52
REMIC Regular Certificates........................iii
REO Loan...........................................49
REO Property...................................36, 42
Rules..............................................43
<PAGE>
Senior Certificates.............................i, 42
Servicing Fees.....................................38
Special Servicing Fee..............................38
Specially Serviced Mortgage Assets.................37
Specially Serviced Mortgage Loans..................37
Stated Principal Balance...........................49
Trust Fund........................................iii
Underwriter...................................iii, 64
Underwriting Agreement.............................64
Voting Rights......................................53
Workout Fee........................................38
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SUBJECT TO COMPLETION, DATED _________ __, 1998
NATIONSLINK FUNDING CORPORATION VERSION 1
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of any
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "Certificates".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") to be formed by NationsLink Funding Corporation (the "Depositor")
and consisting primarily of a segregated pool (a "Mortgage Asset Pool") of
various types of multifamily and commercial mortgage loans ("Mortgage Loans"),
mortgage-backed securities ("MBS") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or commercial
mortgage loans, or a combination of Mortgage Loans and MBS (collectively,
"Mortgage Assets"). If so specified in the related Prospectus Supplement, the
Trust Fund for a series of Certificates may include letters of credit, insurance
policies, guarantees, reserve funds or other types of credit support, or any
combination thereof, and also interest rate exchange agreements and other
financial assets, or any combination thereof. See "Description of the Trust
Funds", "Description of the Certificates" and "Description of Credit Support".
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates--Termination;
Retirement of the Certificates".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS
AFFILIATES, INCLUDING NATIONSBANK CORPORATION, THE DEPOSITOR'S ULTIMATE PARENT.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page 12
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, which may include
NationsBanc Montgomery Securities LLC, an affiliate of the Depositor, as
described under "Method of Distribution" and in the related Prospectus
Supplement.
There will be no secondary market for the Offered Certificates of any
series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if it does develop, that it
will continue. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any series unless
accompanied by the Prospectus Supplement for such series.
--------
The date of this Prospectus is ______ __, 1998
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one or
more classes of Certificates that: (i) provide for the accrual of interest
thereon based on a fixed, variable or adjustable interest rate; (ii) are senior
or subordinate to one or more other classes of Certificates in entitlement to
certain distributions on the Certificates; (iii) are entitled to distributions
of principal, with disproportionate, nominal or no distributions of interest;
(iv) are entitled to distributions of interest, with disproportionate, nominal
or no distributions of principal; (v) provide for distributions of interest
thereon or principal thereof that commence only following the occurrence of
certain events, such as the retirement of one or more other classes of
Certificates of such series; (vi) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; or
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology. Distributions in respect of the Certificates of each series will be
made on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. See "Description of the
Certificates".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" (each, a "REMIC") for federal income
tax purposes. If applicable, the Prospectus Supplement for a series of
Certificates will specify which class or classes of such series of Certificates
will be considered to be regular interests in the related REMIC and which class
of Certificates or other interests will be designated as the residual interest
in the related REMIC. See "Certain Federal Income Tax Consequences".
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<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) a description of the class or classes of such
Offered Certificates, including the payment provisions with respect to each such
class, the aggregate principal amount, if any, of each such class, the rate at
which interest accrues from time to time, if at all, with respect to each such
class or the method of determining such rate, and whether interest with respect
to each such class will accrue from time to time on its aggregate principal
amount, if any, or on a specified notional amount, if at all; (ii) information
with respect to any other classes of Certificates of the same series; (iii) the
respective dates on which distributions are to be made; (iv) information as to
the assets, including the Mortgage Assets, constituting the related Trust Fund
(all such assets, with respect to the Certificates of any series, the "Trust
Assets"); (v) the circumstances, if any, under which the related Trust Fund may
be subject to early termination; (vi) additional information with respect to the
method of distribution of such Offered Certificates; (vii) whether one or more
REMIC elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created and the identity of the person
(the "REMIC Administrator") responsible for the various tax-related duties in
respect of each REMIC to be created; (viii) the initial percentage ownership
interest in the related Trust Fund to be evidenced by each class of Certificates
of such series; (ix) information concerning the Trustee (as defined herein) of
the related Trust Fund; (x) if the related Trust Fund includes Mortgage Loans,
information concerning the Master Servicer and any Special Servicer (each as
defined herein) of such Mortgage Loans and the circumstances under which all or
a portion, as specified, of the servicing of a Mortgage Loan would transfer from
the Master Servicer to the Special Servicer; (xi) information as to the nature
and extent of subordination of any class of Certificates of such series,
including a class of Offered Certificates; and (xii) whether such Offered
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549, and at its
Midwest Regional Offices located as follows: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048. The Commission
also maintains a public access site on the Internet through the World Wide Web
at which site reports, information statements and other information, including
all electronic filings, regarding the Depositor and the Trust Fund may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
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<PAGE>
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein since the date hereof or therein since the date
thereof. This Prospectus and any related Prospectus Supplement are not an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
The Master Servicer, the Trustee or another specified person will cause to
be provided to registered holders of the Offered Certificates of each series
periodic unaudited reports concerning the related Trust Fund. If beneficial
interests in a class or series of Offered Certificates are being held and
transferred in book-entry format through the facilities of The Depository Trust
Company ("DTC") as described herein, then unless otherwise provided in the
related Prospectus Supplement, such reports will be sent on behalf of the
related Trust Fund to a nominee of DTC as the registered holder of the Offered
Certificates. Conveyance of notices and other communications by DTC to its
participating organizations, and directly or indirectly through such
participating organizations to the beneficial owners of the applicable Offered
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. See
"Description of the Certificates--Reports to Certificateholders" and
"--Book-Entry Registration and Definitive Certificates".
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Depositor intends to make a
written request to the staff of the Commission that the staff either (i) issue
an order pursuant to Section 12(h) of the Exchange Act exempting the Depositor
from certain reporting requirements under the Exchange Act with respect to each
Trust Fund or (ii) state that the staff will not recommend that the Commission
take enforcement action if the Depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the Depositor will
file or cause to be filed with the Commission as to each Trust Fund the periodic
unaudited reports to holders of the Offered Certificates referenced in the
preceding paragraph; however, because of the nature of the Trust Funds, it is
unlikely that any significant additional information will be filed. In addition,
because of the limited number of Certificateholders expected for each series,
the Depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, prior
to the termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or
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<PAGE>
cause to be provided without charge to each person to whom this Prospectus is
delivered in connection with the offering of one or more classes of Offered
Certificates, upon written or oral request of such person, a copy of any or all
documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of such
Offered Certificates, other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Such
requests to the Depositor should be directed in writing to its principal
executive offices at the NationsBank Corporate Center, Charlotte, North Carolina
28255, or by telephone at (704) 386-2400.
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<PAGE>
TABLE OF CONTENTS
Page
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PROSPECTUS SUPPLEMENT .................................................... iii
AVAILABLE INFORMATION .................................................... iii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ........................ iv
SUMMARY OF PROSPECTUS .................................................... 1
RISK FACTORS ............................................................. 12
Limited Assets ........................................................ 13
Credit Support Limitations ............................................ 13
Effect of Prepayments on Average Life of Certificates ................. 14
Effect of Prepayments on Yield of Certificates ........................ 16
Limited Nature of Ratings ............................................. 16
Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans ......................................... 17
Inclusion of Delinquent and Nonperforming Mortgage Loans
in a Mortgage Asset Pool ........................................... 21
DESCRIPTION OF THE TRUST FUNDS ........................................... 21
General ............................................................... 21
Mortgage Loans ........................................................ 22
MBS ................................................................... 27
Certificate Accounts .................................................. 28
Credit Support ........................................................ 28
Cash Flow Agreements .................................................. 29
YIELD AND MATURITY CONSIDERATIONS ........................................ 29
General ............................................................... 29
Pass-Through Rate ..................................................... 29
Payment Delays ........................................................ 30
Certain Shortfalls in Collections of Interest ......................... 30
Yield and Prepayment Considerations ................................... 30
Weighted Average Life and Maturity .................................... 32
Other Factors Affecting Yield, Weighted Average Life and Maturity ..... 33
THE DEPOSITOR ............................................................ 36
DESCRIPTION OF THE CERTIFICATES .......................................... 36
General ............................................................... 36
Distributions ......................................................... 37
Distributions of Interest on the Certificates ......................... 38
Distributions of Principal of the Certificates ........................ 39
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<PAGE>
Distributions on the Certificates in Respect of
Prepayment Premiums or in Respect of Equity Participations ......... 40
Allocation of Losses and Shortfalls ................................... 41
Advances in Respect of Delinquencies .................................. 41
Reports to Certificateholders ......................................... 42
Voting Rights ......................................................... 44
Termination ........................................................... 44
Book-Entry Registration and Definitive Certificates ................... 45
THE POOLING AND SERVICING AGREEMENTS ..................................... 47
General ............................................................... 47
Assignment of Mortgage Loans; Repurchases ............................. 48
Representations and Warranties; Repurchases ........................... 50
Collection and Other Servicing Procedures ............................. 51
Sub-Servicers ......................................................... 54
Certificate Account ................................................... 54
Modifications, Waivers and Amendments of Mortgage Loans ............... 57
Realization Upon Defaulted Mortgage Loans ............................. 58
Hazard Insurance Policies ............................................. 60
Due-on-Sale and Due-on-Encumbrance Provisions ......................... 61
Servicing Compensation and Payment of Expenses ........................ 62
Evidence as to Compliance ............................................. 62
Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Depositor ................ 63
Events of Default ..................................................... 65
Rights Upon Event of Default .......................................... 66
Amendment ............................................................. 67
List of Certificateholders ............................................ 68
The Trustee ........................................................... 68
Duties of the Trustee ................................................. 69
Certain Matters Regarding the Trustee ................................. 69
Resignation and Removal of the Trustee ................................ 69
DESCRIPTION OF CREDIT SUPPORT ............................................ 70
General ............................................................... 70
Subordinate Certificates .............................................. 70
Insurance or Guarantees with Respect to Mortgage Loans ................ 71
Letter of Credit ...................................................... 71
Certificate Insurance and Surety Bonds ................................ 71
Reserve Funds ......................................................... 72
Credit Support with respect to MBS .................................... 72
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS .................................. 72
General ............................................................... 73
Types of Mortgage Instruments ......................................... 73
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Leases and Rents ...................................................... 74
Personalty ............................................................ 74
Foreclosure ........................................................... 75
Bankruptcy Laws ....................................................... 79
Environmental Considerations .......................................... 80
Due-on-Sale and Due-on-Encumbrance Provisions ......................... 82
Junior Liens; Rights of Holders of Senior Liens ....................... 83
Subordinate Financing ................................................. 83
Default Interest and Limitations on Prepayments ....................... 84
Applicability of Usury Laws ........................................... 84
Certain Laws and Regulations .......................................... 84
Americans with Disabilities Act ....................................... 85
Soldiers' and Sailors' Civil Relief Act of 1940 ....................... 85
Forfeitures in Drug and RICO Proceedings .............................. 86
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................. 86
General ............................................................... 86
REMICs ................................................................ 87
Grantor Trust Funds ................................................... 109
STATE AND OTHER TAX CONSEQUENCES ......................................... 121
ERISA CONSIDERATIONS ..................................................... 121
General ............................................................... 121
Plan Asset Regulations ................................................ 121
Consultation With Counsel ............................................. 124
Tax Exempt Investors .................................................. 124
LEGAL INVESTMENT ......................................................... 124
USE OF PROCEEDS .......................................................... 127
METHOD OF DISTRIBUTION ................................................... 127
LEGAL MATTERS ............................................................ 129
FINANCIAL INFORMATION .................................................... 129
RATING ................................................................... 129
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<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Securities Offered ............. Mortgage pass-through certificates.
Depositor ...................... NationsLink Funding Corporation, a Delaware
corporation and a subsidiary of NationsBank,
N.A. See "The Depositor".
Trustee ........................ The trustee (the "Trustee") for each series of
Certificates will be named in the related
Prospectus Supplement. See "The Pooling and
Servicing Agreements-The Trustee".
Master Servicer ................ If a Trust Fund includes Mortgage Loans, then
the master servicer (the "Master Servicer")
for the corresponding series of Certificates
will be named in the related Prospectus
Supplement. The Master Servicer for any series
of Certificates may be an affiliate of the
Depositor. See "The Pooling and Servicing
Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the
REMIC Administrator and the Depositor".
Special Servicer ............... If a Trust Fund includes Mortgage Loans, then
the special servicer (the "Special Servicer")
for the corresponding series of Certificates
will be named, or the circumstances under
which a Special Servicer may be appointed will
be described, in the related Prospectus
Supplement. The Special Servicer for any
series of Certificates may be the Master
Servicer or an affiliate of the Depositor. See
"The Pooling and Servicing
Agreements-Collection and Other Servicing
Procedures".
MBS Administrator .............. If a Trust Fund includes MBS, then the entity
responsible for administering such MBS (the
"MBS Administrator") will be named in the
related Prospectus Supplement. If an entity
other than the
<PAGE>
Trustee and the Master Servicer is the MBS
Administrator, such entity will be herein
referred to as the "Manager". The Manager for
any series of Certificates may be an affiliate
of the Depositor.
REMIC Administrator ............ The person (the "REMIC Administrator")
responsible for the various tax-related
administration duties for a series of
Certificates as to which one or more REMIC
elections have been made, will be named in the
related Prospectus Supplement. Any REMIC
Administrator may be an affiliate of the
Depositor and/or may also be acting as Master
Servicer, Special Servicer, Trustee or MBS
Administrator. See "Certain Federal Income Tax
Consequences-REMIC's-Reporting and Other
Administrative Matters."
The Mortgage Assets ............ The Mortgage Assets will be the primary assets
of any Trust Fund. The Mortgage Assets with
respect to each series of Certificates will,
in general, consist of a pool of mortgage
loans ("Mortgage Loans") secured by first or
junior liens on, or security interests in,
without limitation, (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment
buildings or other residential structures
("Multifamily Properties") or (ii) office
buildings, retail stores and establishments,
hotels or motels, nursing homes, hospitals or
other health care-related facilities,
recreational vehicle and mobile home parks,
warehouse facilities, mini-warehouse
facilities, self-storage facilities,
industrial plants, parking lots, entertainment
or sports arenas, restaurants, marinas, mixed
use or various other types of income-producing
properties or unimproved land ("Commercial
Properties"). However, no one of the following
types of Commercial Properties will represent
security for a material concentration of the
Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund
is formed: (i) restaurants; (ii) entertainment
or sports arenas; (iii) marinas; or (iv)
nursing homes, hospitals or other health
care-related facilities. The Mortgage Loans
will not be
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<PAGE>
guaranteed or insured by the Depositor or any
of its affiliates or, unless otherwise
provided in the related Prospectus Supplement,
by any governmental agency or instrumentality
or by any other person. If so specified in the
related Prospectus Supplement, some Mortgage
Loans may be delinquent or nonperforming as of
the date the related Trust Fund is formed.
As and to the extent described in the related
Prospectus Supplement, a Mortgage Loan (i) may
provide for no accrual of interest or for
accrual of interest thereon at an interest
rate (a "Mortgage Rate") that is fixed over
its term or that adjusts from time to time, or
that may be converted at the borrower's
election from an adjustable to a fixed
Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for
level payments to maturity or for payments
that adjust from time to time to accommodate
changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may permit
negative amortization, (iii) may be fully
amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on
its stated maturity date, (iv) may prohibit
over its term or for a certain period
prepayments and/or require payment of a
premium or a yield maintenance payment in
connection with certain prepayments and (v)
may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the related
Prospectus Supplement. Each Mortgage Loan will
have had an original term to maturity of not
more than 40 years. No Mortgage Loan will have
been originated by the Depositor; however,
some or all of the Mortgage Loans in any Trust
Fund may have been originated by an affiliate
of the Depositor. See "Description of the
Trust Funds-Mortgage Loans".
If any Mortgage Loan, or group of related
Mortgage Loans, constitutes a concentration of
credit risk, financial statements or other
financial information with respect to the
related Mortgaged
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<PAGE>
Property or Mortgaged Properties will be
included in the related Prospectus Supplement.
See "Description of the Trust Funds-Mortgage
Loans-Mortgage Loan Information in Prospectus
Supplements".
If and to the extent specified in the related
Prospectus Supplement, the Mortgage Assets
with respect to a series of Certificates may
also include, or consist of, mortgage
participations, mortgage pass-through
certificates and/or other mortgage-backed
securities (collectively, "MBS"), that
evidence an interest in, or are secured by a
pledge of, one or more mortgage loans that
conform to the descriptions of the Mortgage
Loans contained herein and which may or may
not be issued, insured or guaranteed by the
United States or an agency or instrumentality
thereof. See "Description of the Trust
Funds-MBS".
The Certificates ............... Each series of Certificates will be issued in
one or more classes pursuant to a pooling and
servicing agreement or other agreement
specified in the related Prospectus Supplement
(in any case, a "Pooling and Servicing
Agreement") and will represent in the
aggregate the entire beneficial ownership
interest in the related Trust Fund.
As described in the related Prospectus
Supplement, the Certificates of each series,
including the Offered Certificates of such
series, may consist of one or more classes of
Certificates that, among other things: (i) are
senior (collectively, "Senior Certificates")
or subordinate (collectively, "Subordinate
Certificates") to one or more other classes of
Certificates in entitlement to certain
distributions on the Certificates; (ii) are
entitled to distributions of principal, with
disproportionate, nominal or no distributions
of interest (collectively, "Stripped Principal
Certificates"); (iii) are entitled to
distributions of interest, with
disproportionate, nominal or no distributions
of principal (collectively, "Stripped Interest
Certificates"); (iv) provide for distributions
of interest thereon or principal thereof that
commence
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<PAGE>
only after the occurrence of certain events,
such as the retirement of one or more other
classes of Certificates of such series; (v)
provide for distributions of principal thereof
to be made, from time to time or for
designated periods, at a rate that is faster
(and, in some cases, substantially faster) or
slower (and, in some cases, substantially
slower) than the rate at which payments or
other collections of principal are received on
the Mortgage Assets in the related Trust Fund;
(vi) provide for distributions of principal
thereof to be made, subject to available
funds, based on a specified principal payment
schedule or other methodology; or (vii)
provide for distribution based on collections
on the Mortgage Assets in the related Trust
Fund attributable to prepayment premiums,
yield maintenance payments or equity
participations.
If so specified in the related Prospectus
Supplement, a series of Certificates may
include one or more "Controlled Amortization
Classes", which will entitle the holders
thereof to receive principal distributions
according to a specified principal payment
schedule. Although prepayment risk cannot be
eliminated entirely for any class of
Certificates, a Controlled Amortization Class
will generally provide a relatively stable
cash flow so long as the actual rate of
prepayment on the Mortgage Loans in the
related Trust Fund remains relatively constant
at the rate, or within the range of rates, of
prepayment used to establish the specific
principal payment schedule for such
Certificates. Prepayment risk with respect to
a given Mortgage Asset Pool does not
disappear, however, and the stability afforded
to a Controlled Amortization Class comes at
the expense of one or more other classes of
the same series, any of which other classes
may also be a class of Offered Certificates.
See "Risk Factors-Effect of Prepayments on
Average Life of Certificates" and "-Effect of
Prepayments on Yield of Certificates".
Each class of Certificates, other than certain
classes of Stripped Interest Certificates and
certain
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<PAGE>
classes of REMIC Residual Certificates (as
defined herein), will have an initial stated
principal amount (a "Certificate Balance");
and each class of Certificates, other than
certain classes of Stripped Principal
Certificates and certain classes of REMIC
Residual Certificates, will accrue interest on
its Certificate Balance or, in the case of
certain classes of Stripped Interest
Certificates, on a notional amount (a
"Notional Amount"), based on a fixed, variable
or adjustable interest rate (a "Pass-Through
Rate"). The related Prospectus Supplement will
specify the Certificate Balance, Notional
Amount and/or Pass-Through Rate (or, in the
case of a variable or adjustable Pass-Through
Rate, the method for determining such rate),
as applicable, for each class of Offered
Certificates.
If so specified in the related Prospectus
Supplement, a class of Certificates may have
two or more component parts, each having
characteristics that are otherwise described
herein as being attributable to separate and
distinct classes.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person or
entity, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors-Limited Assets".
Distributions of Interest on
the Certificates ............. Interest on each class of Offered Certificates
(other than certain classes of Stripped
Principal Certificates and certain classes of
REMIC Residual Certificates) of each series
will accrue at the applicable Pass-Through
Rate on the Certificate Balance or, in the
case of certain classes of Stripped Interest
Certificates, the Notional Amount thereof
outstanding from time to time and will be
distributed to Certificateholders as provided
in the related Prospectus Supplement (each of
the specified dates on which distributions are
to be made, a "Distribution Date").
Distributions of interest with respect to one
or more classes of
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<PAGE>
Certificates (collectively, "Accrual
Certificates") may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates, and interest accrued with
respect to a class of Accrual Certificates
prior to the occurrence of such an event will
either be added to the Certificate Balance
thereof or otherwise deferred as described in
the related Prospectus Supplement.
Distributions of interest with respect to one
or more classes of Certificates may be reduced
to the extent of certain delinquencies, losses
and other contingencies described herein and
in the related Prospectus Supplement. See
"Risk Factors-Effect of Prepayments on Average
Life of Certificates" and "-Effect of
Prepayments on Yield of Certificates", "Yield
and Maturity Considerations--Certain
Shortfalls in Collections of Interest" and
"Description of the Certificates-Distributions
of Interest on the Certificates".
Distributions of Principal of
the Certificates ............. Each class of Certificates of each series
(other than certain classes of Stripped
Interest Certificates and certain classes of
REMIC Residual Certificates) will have a
Certificate Balance. The Certificate Balance
of a class of Certificates outstanding from
time to time will represent the maximum amount
that the holders thereof are then entitled to
receive in respect of principal from future
cash flow on the assets in the related Trust
Fund. The initial aggregate Certificate
Balance of all classes of a series of
Certificates will not be greater than the
outstanding principal balance of the related
Mortgage Assets as of a specified date (the
"Cut-off Date"), after application of
scheduled payments due on or before such date,
whether or not received. As and to the extent
described in each Prospectus Supplement,
distributions of principal with respect to the
related series of Certificates will be made on
each Distribution Date to the holders of the
class or classes of Certificates of such
series then entitled thereto until the
Certificate Balances of such Certificates have
been reduced to zero. Distributions of
principal with
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respect to one or more classes of
Certificates: (i) may be made at a rate that
is faster (and, in some cases, substantially
faster) or slower (and, in some cases,
substantially slower) than the rate at which
payments or other collections of principal are
received on the Mortgage Assets in the related
Trust Fund; (ii) may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of the same series; (iii) may be
made, subject to certain limitations, based on
a specified principal payment schedule; or
(iv) may be contingent on the specified
principal payment schedule for another class
of the same series and the rate at which
payments and other collections of principal on
the Mortgage Assets in the related Trust Fund
are received. Unless otherwise specified in
the related Prospectus Supplement,
distributions of principal of any class of
Offered Certificates will be made on a pro
rata basis among all of the Certificates of
such class. See "Description of the
Certificates-Distributions of Principal of the
Certificates".
Credit Support and
Cash Flow Agreements ......... If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be
provided to one or more classes of
Certificates of the related series in the form
of subordination of one or more other classes
of Certificates of such series, which other
classes may include one or more classes of
Offered Certificates, or by one or more other
types of credit support, such as a letter of
credit, insurance policy, guarantee, reserve
fund or another type of credit support, or a
combination thereof (any such coverage with
respect to the Certificates of any series,
"Credit Support"). If so provided in the
related Prospectus Supplement, a Trust Fund
may include: (i) guaranteed investment
contracts pursuant to which moneys held in the
funds and accounts established for the related
series will be invested at a specified rate;
or (ii) certain other agreements, such as
interest rate exchange agreements, interest
rate cap or floor agreements,
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or other agreements designed to reduce the
effects of interest rate fluctuations on the
Mortgage Assets or on one or more classes of
Certificates (any such agreement, in the case
of clause (i) or (ii), a "Cash Flow
Agreement"). Certain relevant information
regarding any applicable Credit Support or
Cash Flow Agreement will be set forth in the
Prospectus Supplement for a series of Offered
Certificates. See "Risk Factors-Credit Support
Limitations", "Description of the Trust
Funds-Credit Support" and "-Cash Flow
Agreements" and "Description of Credit
Support".
Advances ....................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, the Master Servicer,
the Special Servicer, the Trustee, any
provider of Credit Support and/or any other
specified person may be obligated to make, or
have the option of making, certain advances
with respect to delinquent scheduled payments
of principal and/or interest on such Mortgage
Loans. Any such advances made with respect to
a particular Mortgage Loan will be
reimbursable from subsequent recoveries in
respect of such Mortgage Loan and otherwise to
the extent described herein and in the related
Prospectus Supplement. See "Description of the
Certificates -Advances in Respect of
Delinquencies". If and to the extent provided
in the Prospectus Supplement for a series of
Certificates, any entity making such advances
may be entitled to receive interest thereon
for a specified period during which certain or
all of such advances are outstanding, payable
from amounts in the related Trust Fund. See
"Description of the Certificates- Advances in
Respect of Delinquencies". If a Trust Fund
includes MBS, any comparable advancing
obligation of a party to the related Pooling
and Servicing Agreement, or of a party to the
related MBS Agreement, will be described in
the related Prospectus Supplement.
Optional Termination ........... If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination through
the
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repurchase of the Mortgage Assets in the
related Trust Fund by the party or parties
specified therein, under the circumstances and
in the manner set forth therein. If so
provided in the related Prospectus Supplement,
upon the reduction of the Certificate Balance
of a specified class or classes of
Certificates by a specified percentage or
amount or upon a specified date, a party
specified therein may be authorized or
required to solicit bids for the purchase of
all of the Mortgage Assets of the related
Trust Fund, or of a sufficient portion of such
Mortgage Assets to retire such class or
classes, under the circumstances and in the
manner set forth therein. See "Description of
the Certificates-Termination".
Certain Federal Income Tax
Consequences ................. The Certificates of each series will
constitute or evidence ownership of either (i)
"regular interests" ("REMIC Regular
Certificates") and "residual interests"
("REMIC Residual Certificates") in a Trust
Fund, or a designated portion thereof, treated
as a REMIC under Sections 860A through 860G of
the Internal Revenue Code of 1986 (the
"Code"), or (ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as a
grantor trust (or a partnership) under
applicable provisions of the Code.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations ........... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual retirement
accounts, annuities, Keogh plans, and
collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested, that
are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code, should review with
their legal advisors whether the purchase or
holding of Offered Certificates could give
rise to a transaction that is
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prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and in
the related Prospectus Supplement.
Legal Investment ............... The Offered Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984, as amended ("SMMEA"), only if so
specified in the related Prospectus
Supplement. Investors whose investment
authority is subject to legal restrictions
should consult their legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus
Supplement.
Rating ......................... At their respective dates of issuance, each
class of Offered Certificates will be rated
not lower than investment grade by one or more
nationally recognized statistical rating
agencies (each, a "Rating Agency"). See
"Rating" herein and in the related Prospectus
Supplement.
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RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
Limited Liquidity of Offered Certificates
General. The Offered Certificates of any series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Certificates for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates-Termination".
Lack of a Secondary Market. There can be no assurance that a secondary
market for the Offered Certificates of any series will develop or, if it does
develop, that it will provide holders with liquidity of investment or that it
will continue for as long as such Certificates remain outstanding. The
Prospectus Supplement for any series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in such
Offered Certificates; however, no underwriter will be obligated to do so. Any
such secondary market may provide less liquidity to investors than any
comparable market for securities that evidence interests in single-family
mortgage loans. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Certificates of any series, including
information regarding the status of the related Mortgage Assets and any Credit
Support for such Certificates, will be the periodic reports to
Certificateholders to be delivered pursuant to the related Pooling and Servicing
Agreement as described herein under the heading "Description of the
Certificates-Reports to Certificateholders". There can be no assurance that any
additional ongoing information regarding the Offered Certificates of any series
will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely affect
the liquidity thereof, even if a secondary market for such Certificates does
develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to any series of Offered Certificates
or class thereof, the market value of such Certificates will be affected by
several factors, including the perceived
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liquidity thereof, the anticipated cash flow thereon (which may vary widely
depending upon the prepayment and default assumptions applied in respect of the
underlying Mortgage Loans) and prevailing interest rates. The price payable at
any given time in respect of certain classes of Offered Certificates (in
particular, a class with a relatively long average life, a Companion Class (as
defined herein) or a class of Stripped Interest Certificates or Stripped
Principal Certificates) may be extremely sensitive to small fluctuations in
prevailing interest rates; and the relative change in price for an Offered
Certificate in response to an upward or downward movement in prevailing interest
rates may not necessarily equal the relative change in price for such Offered
Certificate in response to an equal but opposite movement in such rates.
Accordingly, the sale of Offered Certificates by a holder in any secondary
market that may develop may be at a discount from the price paid by such holder.
The Depositor is not aware of any source through which price information about
the Offered Certificates will be generally available on an ongoing basis.
Limited Assets
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other person
or entity; and no Offered Certificate of any series will represent a claim
against or security interest in the Trust Funds for any other series.
Accordingly, if the related Trust Fund has insufficient assets to make payments
on a series of Offered Certificates, no other assets will be available for
payment of the deficiency, and the holders of one or more classes of such
Offered Certificates will be required to bear the consequent loss. Furthermore,
certain amounts on deposit from time to time in certain funds or accounts
constituting part of a Trust Fund, including the Certificate Account and any
accounts maintained as Credit Support, may be withdrawn under certain
conditions, if and to the extent described in the related Prospectus Supplement,
for purposes other than the payment of principal of or interest on the related
series of Certificates. If and to the extent so provided in the Prospectus
Supplement for a series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Mortgage Assets have been incurred, all or a
portion of the amount of such losses or shortfalls will be borne first by one or
more classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
Credit Support Limitations
Limitations Regarding Types of Losses Covered. The Prospectus Supplement
for a series of Certificates will describe any Credit Support provided with
respect thereto. Use of Credit Support will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement. Moreover,
such Credit Support may not cover all potential losses; for example, Credit
Support may or may not cover loss by reason of fraud or negligence by a mortgage
loan originator or other parties. Any such losses not covered by
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<PAGE>
Credit Support may, at least in part, be allocated to one or more classes of
Offered Certificates.
Disproportionate Benefits to Certain Classes and Series. A series of
Certificates may include one or more classes of Subordinate Certificates (which
may include Offered Certificates), if so provided in the related Prospectus
Supplement. Although subordination is intended to reduce the likelihood of
temporary shortfalls and ultimate losses to holders of Senior Certificates, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more classes of
Offered Certificates of a series are made in a specified order of priority, any
related Credit Support may be exhausted before the principal of the later paid
classes of Offered Certificates of such series has been repaid in full. As a
result, the impact of losses and shortfalls experienced with respect to the
Mortgage Assets may fall primarily upon those classes of Offered Certificates
having a later right of payment. Moreover, if a form of Credit Support covers
the Offered Certificates of more than one series and losses on the related
Mortgage Assets exceed the amount of such Credit Support, it is possible that
the holders of Offered Certificates of one (or more) such series will be
disproportionately benefited by such Credit Support to the detriment of the
holders of Offered Certificates of one (or more) other such series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable Credit Support supporting one or more classes of Offered
Certificates, including the subordination of one or more other classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies and losses on the underlying Mortgage Assets and certain
other factors. There can, however, be no assurance that the loss experience on
the related Mortgage Assets will not exceed such assumed levels. See
"Description of the Certificates--Allocation of Losses and Shortfalls" and
"Description of Credit Support". If the losses on the related Mortgage Assets do
exceed such assumed levels, the holders of one or more classes of Offered
Certificates will be required to bear such additional losses.
Effect of Prepayments on Average Life of Certificates
As a result of prepayments on the Mortgage Loans in any Trust Fund, the
amount and timing of distributions of principal and/or interest on the Offered
Certificates of the related series may be highly unpredictable. Prepayments on
the Mortgage Loans in any Trust Fund will result in a faster rate of principal
payments on one or more classes of the related series of Certificates than if
payments on such Mortgage Loans were made as scheduled. Thus, the prepayment
experience on the Mortgage Loans in a Trust Fund may affect the average life of
one or more classes of Certificates of the related series, including a class of
Offered Certificates. The rate of principal payments on pools of mortgage loans
varies among pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax and legal factors. For example, if
prevailing interest rates fall significantly below the Mortgage Rates borne by
the Mortgage Loans included in a Trust Fund, then, subject to the particular
terms of the Mortgage Loans (e.g., provisions that
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prohibit voluntary prepayments during specified periods or impose penalties in
connection therewith) and the ability of borrowers to obtain new financing,
principal prepayments on such Mortgage Loans are likely to be higher than if
prevailing interest rates remain at or above the rates borne by those Mortgage
Loans. Conversely, if prevailing interest rates rise significantly above the
Mortgage Rates borne by the Mortgage Loans included in a Trust Fund, then
principal prepayments on such Mortgage Loans are likely to be lower than if
prevailing interest rates remain at or below the mortgage rates borne by those
Mortgage Loans. There can be no assurance as to the actual rate of prepayment on
the Mortgage Loans in any Trust Fund or that such rate of prepayment will
conform to any model described herein or in any Prospectus Supplement. As a
result, depending on the anticipated rate of prepayment for the Mortgage Loans
in any Trust Fund, the retirement of any class of Certificates of the related
series could occur significantly earlier or later, and the average life thereof
could be significantly shorter or longer, than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms and provisions of such Certificates. A class of
Certificates, including a class of Offered Certificates, may provide that on any
Distribution Date the holders of such Certificates are entitled to a pro rata
share of the prepayments on the Mortgage Loans in the related Trust Fund that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
increases the likelihood of early retirement of such class ("Call Risk") if the
rate of prepayment is relatively fast; while a class of Certificates that
entitles the holders thereof to a disproportionately small share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of an extended average life of such class ("Extension Risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
classes of Certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more classes of Certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such Mortgage
Loans).
A series of Certificates may include one or more Controlled Amortization
Classes, which will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule. Although
prepayment risk cannot be eliminated entirely for any class of Certificates, a
Controlled Amortization Class will generally provide a relatively stable cash
flow so long as the actual rate of prepayment on the Mortgage Loans in the
related Trust Fund remains relatively constant at the rate, or within the range
of rates, of prepayment used to establish the specific principal payment
schedule for such Certificates. Prepayment risk with respect to a given Mortgage
Asset Pool does not disappear, however, and the stability afforded to a
Controlled Amortization Class comes at the expense of one or more Companion
Classes of the same series, any of which Companion Classes may also be a
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class of Offered Certificates. In general, and as more specifically described in
the related Prospectus Supplement, a Companion Class may entitle the holders
thereof to a disproportionately large share of prepayments on the Mortgage Loans
in the related Trust Fund when the rate of prepayment is relatively fast, and/or
may entitle the holders thereof to a disproportionately small share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively slow. As and to the extent described in the related
Prospectus Supplement, a Companion Class absorbs some (but not all) of the Call
Risk and/or Extension Risk that would otherwise belong to the related Controlled
Amortization Class if all payments of principal of the Mortgage Loans in the
related Trust Fund were allocated on a pro rata basis.
Effect of Prepayments on Yield of Certificates
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recover its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Certificates are purchased at a discount or
premium and the amount and timing of distributions thereon. An investor should
consider, in the case of any Offered Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. See "Yield and Maturity Considerations".
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such Offered
Certificates will receive payments to which such Certificateholders are entitled
under the related Pooling and Servicing Agreement. Such rating will not
constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the related Trust Fund. Furthermore, such rating
will not address the possibility that prepayment of the related Mortgage Loans
at a higher or lower rate than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor that
purchases an Offered Certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Hence, a rating
assigned by a Rating Agency does not guarantee or ensure the realization of any
anticipated yield on a class of Offered Certificates.
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The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. As a result, the
Credit Support required in respect of the Offered Certificates of any series may
be insufficient to fully protect the holders thereof from losses on the related
Mortgage Asset Pool. See "Description of Credit Support" and "Rating".
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans
General. The payment performance of the Offered Certificates of any series
will be directly related to the payment performance of the underlying Mortgage
Loans. Set forth below is a discussion of certain factors that will affect the
full and timely payment of the Mortgage Loans in any Trust Fund. In addition, a
description of certain material considerations associated with investments in
mortgage loans is included herein under "Certain Legal Aspects of Mortgage
Loans".
The Offered Certificates will be directly or indirectly backed by mortgage
loans secured by multifamily and/or commercial properties. Mortgage loans made
on the security of multifamily or commercial property may have a greater
likelihood of delinquency and foreclosure, and a greater likelihood of loss in
the event thereof, than loans made on the security of an owner-occupied
single-family property. See "Description of the Trust Funds-Mortgage
Loans-Default and Loss Considerations with Respect to the Mortgage Loans". The
ability of a borrower to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such property
rather than upon the existence of independent income or assets of the borrower;
thus, the value of an income-producing property is directly related to the net
operating income derived from such property. If the net operating income of the
property is reduced (for example, if rental or occupancy rates decline or real
estate tax rates or other operating expenses increase), the borrower's ability
to repay the loan may be impaired. A number of the Mortgage Loans may be secured
by liens on owner-occupied Mortgaged Properties or on Mortgaged Properties
leased to a single tenant or a small number of significant tenants. Accordingly,
a decline in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by factors generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses;
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changes in governmental rules, regulations and fiscal policies, including
environmental legislation; natural disasters and civil disturbances such as
earthquakes, hurricanes, floods, eruptions or riots; and other circumstances,
conditions or events beyond the control of a Master Servicer or a Special
Servicer. Additional considerations may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes are subject to significant governmental
regulation of the ownership, operation, maintenance and financing of health care
institutions. Hotel, motel and restaurant properties are often operated pursuant
to franchise, management or operating agreements that may be terminable by the
franchisor or operator, and the transferability of a hotel's or restaurant's
operating, liquor and other licenses upon a transfer of the hotel or the
restaurant, as the case may be, whether through purchase or foreclosure, is
subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans. It is anticipated that some
or all of the Mortgage Loans included in any Trust Fund will be nonrecourse
loans or loans for which recourse may be restricted or unenforceable. As to any
such Mortgage Loan, recourse in the event of borrower default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the Mortgage Loan. However, even with respect to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans-Foreclosure--Anti-Deficiency Legislation".
Limitations on Enforceability of Cross-Collateralization. A Mortgage Pool
may include groups of Mortgage Loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective Mortgage Loans in a
cross-collateralized group, and the cash flows generated thereby, are available
to support debt service on, and ultimate repayment of, the aggregate
indebtedness evidenced by those Mortgage Loans. These arrangements thus seek to
reduce the risk that the inability of one or more of the Mortgaged Properties
securing any such group of Mortgage Loans to generate net operating income
sufficient to pay debt service will result in defaults and ultimate losses.
There may not be complete identity of ownership of the Mortgaged Properties
securing a group of cross-collateralized Mortgage Loans. In such an instance,
creditors of one or more of the related borrowers could challenge the
cross-collateralization arrangement as a fraudulent conveyance. Generally, under
federal and state fraudulent conveyance statutes, the incurring of an obligation
or the transfer of property by a person will be subject to avoidance
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under certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and was
then insolvent or was rendered insolvent by such obligation or transfer.
Accordingly, a creditor seeking ownership of a Mortgaged Property subject to
such cross-collateralization to repay such creditor's claim against the related
borrower could assert (i) that such borrower was insolvent at the time the
cross-collateralized Mortgage Loans were made and (ii) that such borrower did
not, when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other Mortgage Loans in the group of
cross-collateralized Mortgage Loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, there can be no
assurance that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value, and no unqualified legal
opinion to that effect will be obtained.
The cross-collateralized Mortgage Loans constituting any group thereof may
be secured by mortgage liens on Mortgaged Properties located in different
states. Because of various state laws governing foreclosure or the exercise of a
power of sale and because, in general, foreclosure actions are brought in state
court, and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such Mortgage Loan
to foreclose on the related Mortgaged Properties in a particular order rather
than simultaneously in order to ensure that the lien of the related Mortgages is
not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Certain of the
Mortgage Loans included in a Trust Fund may be nonamortizing or only partially
amortizing over their terms to maturity and, thus, will require substantial
payments of principal and interest (that is, balloon payments) at their stated
maturity. Mortgage Loans of this type involve a greater likelihood of default
than self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by a number of factors, including the
value of the related Mortgaged Property, the level of available mortgage rates
at the time of sale or refinancing, the borrower's equity in the related
Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Depositor
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage Loans". While the Master
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Servicer or the Special Servicer generally will be required to determine that
any such extension or modification is reasonably likely to produce a greater
recovery than liquidation, taking into account the time value of money, there
can be no assurance that any such extension or modification will in fact
increase the present value of receipts from or proceeds of the affected Mortgage
Loans.
Lender Difficulty in Collecting Rents Upon the Default and/or Bankruptcy of
Borrower. Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect rents. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans-Leases and Rents".
Limitations on Enforceability of Due-on-Sale and Debt-Acceleration Clauses.
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers or
conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by the
borrower or a prior owner. A lender also risks such liability on foreclosure of
the mortgage. See "Certain Legal Aspects of Mortgage Loans-Environmental
Considerations".
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a Prospectus Supplement, the Master Servicer and Special
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such
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Trust Fund to maintain such insurance coverage in respect of the related
Mortgaged Property as is required under the related Mortgage, including hazard
insurance; provided that, as and to the extent described herein and in the
related Prospectus Supplement, each of the Master Servicer and the Special
Servicer may satisfy its obligation to cause hazard insurance to be maintained
with respect to any Mortgaged Property through acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin, domestic animals and certain other kinds of
risks. Unless the related Mortgage specifically requires the mortgagor to insure
against physical damage arising from such causes, then, to the extent any
consequent losses are not covered by Credit Support, such losses may be borne,
at least in part, by the holders of one or more classes of Offered Certificates
of the related series. See "The Pooling and Servicing Agreements-Hazard
Insurance Policies".
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset
Pool
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are nonperforming. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by the Special Servicer;
however, the same entity may act as both Master Servicer and Special Servicer.
Credit Support provided with respect to a particular series of Certificates may
not cover all losses related to such delinquent or nonperforming Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage Loans
in the Trust Fund may adversely affect the rate of defaults and prepayments in
respect of the subject Mortgage Asset Pool and the yield on the Offered
Certificates of such series. See "Description of the Trust Funds-Mortgage
Loans-General".
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) various types of
multifamily or commercial mortgage loans ("Mortgage Loans"), (ii) mortgage
participations, pass-through certificates or other mortgage-backed securities
("MBS") that evidence interests in, or that are secured by pledges of, one or
more of various types of multifamily or commercial mortgage loans or (iii) a
combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). Each
Trust Fund will be established by the Depositor. Each Mortgage Asset will be
selected by the Depositor for inclusion in a Trust Fund from among those
purchased, either directly or indirectly, from a prior holder thereof (a
"Mortgage Asset
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Seller"), which prior holder may or may not be the originator of such Mortgage
Loan or the issuer of such MBS and may be an affiliate of the Depositor. The
Mortgage Assets will not be guaranteed or insured by the Depositor or any of its
affiliates or, unless otherwise provided in the related Prospectus Supplement,
by any governmental agency or instrumentality or by any other person. The
discussion below under the heading "-Mortgage Loans", unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
Trust Fund.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores and establishments, hotels or motels, nursing homes, hospitals or
other health care-related facilities, recreational vehicle and mobile home
parks, warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial plants, parking lots, entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of income-producing properties or
unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). However, no
one of the following types of Commercial Properties will represent security for
a material concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed: (i) restaurants; (ii)
entertainment or sports arenas; (iii) marinas; or (iv) nursing homes, hospitals
or other health care-related facilities. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage will create a first priority
mortgage lien on a borrower's fee estate in a Mortgaged Property. If a Mortgage
creates a lien on a borrower's leasehold estate in a property, then, unless
otherwise specified in the related Prospectus Supplement, the term of any such
leasehold will exceed the term of the Mortgage Note by at least ten years.
Unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan will have been originated by a person (the "Originator") other than the
Depositor; however, the Originator may be or may have been an affiliate of the
Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
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Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not obtained and satisfied. Moreover, deficiency
judgments may not be available in certain jurisdictions, or the particular
Mortgage Loan may be a nonrecourse loan, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the Mortgage
Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular series of Certificates may include Mortgage Loans that are
delinquent or nonperforming as of the date such Certificates are issued. In that
case, the related Prospectus Supplement will set forth, as to each such Mortgage
Loan, available information as to the period of such delinquency or
nonperformance, any forbearance arrangement then in effect, the condition of the
related Mortgaged Property and the ability of the Mortgaged Property to generate
income to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
Mortgage Loans included in a particular Trust Fund may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments of principal and/or interest on the Mortgage Loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (i)
noncash items such as depreciation and amortization, (ii)
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capital expenditures and (iii) debt service on the related Mortgage Loan or on
any other loans that are secured by such Mortgaged Property. The Net Operating
Income of a Mortgaged Property will generally fluctuate over time and may or may
not be sufficient to cover debt service on the related Mortgage Loan at any
given time. As the primary source of the operating revenues of a nonowner
occupied, income-producing property, rental income (and, with respect to a
Mortgage Loan secured by a Cooperative apartment building, maintenance payments
from tenant-stockholders of a Cooperative) may be affected by the condition of
the applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a Mortgaged Property may depend substantially
on the financial condition of the borrower or a tenant, and Mortgage Loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the "Value" of a
Mortgaged Property will be its fair market value as determined by an appraisal
of such property conducted by or on behalf of the Originator in connection with
the origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
Mortgage Loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
value of a
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Mortgaged Property as of the date of initial issuance of the related series of
Certificates may be less than the Value determined at loan origination, and will
likely continue to fluctuate from time to time based upon certain factors
including changes in economic conditions and the real estate market. Moreover,
even when current, an appraisal is not necessarily a reliable estimate of value.
Appraised values of income-producing properties are generally based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods can present analytical difficulties. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate and discount rate. Where
more than one of these appraisal methods are used and provide significantly
different results, an accurate determination of value and, correspondingly, a
reliable analysis of the likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors-Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage Loans-General" and "-Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans-Increased Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(i) have had original terms to maturity of not more than 40 years and (ii)
provide for scheduled payments of principal, interest or both, to be made on
specified dates ("Due Dates") that occur monthly, quarterly, semi-annually or
annually. A Mortgage Loan (i) may provide for no accrual of interest or for
accrual of interest thereon at a Mortgage Rate that is fixed over its term or
that adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Date") and/or require payment of a premium or
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a yield maintenance payment (a "Prepayment Premium") in connection with certain
prepayments, in each case as described in the related Prospectus Supplement. A
Mortgage Loan may also contain a provision that entitles the lender to a share
of appreciation of the related Mortgaged Property, or profits realized from the
operation or disposition of such Mortgaged Property or the benefit, if any,
resulting from the refinancing of the Mortgage Loan (any such provision, an
"Equity Participation"), as described in the related Prospectus Supplement.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following: (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans, (ii) the type or types of property that provide security for repayment of
the Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) the original and remaining terms to maturity of
the Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
Loan-to-Value Ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
the range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
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If and to the extent available and relevant to an investment decision in
the Offered Certificates of the related series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may be so materially different from those of the related Mortgage
Asset Pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the Master Servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a Special Servicer, no comparable prepayment
information will be presented with respect to the Special Servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (i) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (ii) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association ("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural Mortgage Corporation ("FAMC"),
provided that, unless otherwise specified in the related Prospectus Supplement,
each MBS will evidence an interest in, or will be secured by a pledge of,
mortgage loans that conform to the descriptions of the Mortgage Loans contained
herein.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a Mortgage Asset
Pool: (a) either will (i) have been previously registered under the Securities
Act of 1933, as amended, (ii) be exempt from such registration requirements or
(iii) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from the Depositor or an affiliate thereof) in bona fide secondary
market transactions.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will be parties
to the MBS Agreement, generally together with a trustee (the "MBS Trustee") or,
in the alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in
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the related Prospectus Supplement. The MBS Issuer or the MBS Servicer or another
person specified in the related Prospectus Supplement may have the right or
obligation to repurchase or substitute assets underlying the MBS after a certain
date or under other circumstances specified in the related Prospectus
Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount(s) and type of the MBS to
be included in the Trust Fund, (ii) the original and remaining term(s) to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate(s) of
the MBS or the formula for determining such rate(s), (iv) the payment
characteristics of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as
applicable, of each of the MBS, (vi) a description of the related credit
support, if any, (vii) the circumstances under which the related underlying
mortgage loans, or the MBS themselves, may be purchased prior to their maturity,
(viii) the terms on which mortgage loans may be substituted for those originally
underlying the MBS, (ix) the type of mortgage loans underlying the MBS and, to
the extent available to the Depositor and appropriate under the circumstances,
such other information in respect of the underlying mortgage loans described
under "-Mortgage Loans-Mortgage Loan Information in Prospectus Supplements", and
(x) the characteristics of any cash flow agreements that relate to the MBS.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements-Certificate Account".
Credit Support
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more classes of
Certificates of such series in the form of subordination of one or more other
classes of Certificates of such series or by one or more other types of Credit
Support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof. The amount and types of Credit
Support, the identity of the entity providing it (if applicable) and related
information with respect to each type of Credit Support, if any, will be set
forth in the Prospectus Supplement for a series of
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Certificates. See "Risk Factors-Credit Support Limitations" and "Description of
Credit Support".
Cash Flow Agreements
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets on one or more classes of Certificates.
The principal terms of any such Cash Flow Agreement, including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be described
in the related Prospectus Supplement. The related Prospectus Supplement will
also identify the obligor under the Cash Flow Agreement.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors-Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a Trust Fund that consists solely of Mortgage Loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of Certificates as will the characteristics and behavior
of comparable Mortgage Loans, the effect may differ due to the payment
characteristics of the MBS. If a Trust Fund includes MBS, the related Prospectus
Supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
Offered Certificates of the related series.
Pass-Through Rate
The Certificates of any class within a series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of Offered Certificates of such series or, in
the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under a Cash Flow Agreement.
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Payment Delays
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
Certificates and distributable thereon on any Distribution Date will generally
correspond to interest accrued on the Mortgage Loans to their respective Due
Dates during the related Due Period. A "Due Period" will be a specified time
period (generally corresponding in length to the period between Distribution
Dates) and all scheduled payments on the Mortgage Loans in the related Trust
Fund that are due during a given Due Period will, to the extent received by a
specified date (the "Determination Date") or otherwise advanced by the related
Master Servicer, Special Servicer or other specified person, be distributed to
the holders of the Certificates of such series on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Certificate. The rate of principal payments on the Mortgage Loans in any
Trust Fund will in turn be affected by the amortization schedules thereof
(which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the related Mortgaged Properties, or purchases of Mortgage Loans out
of the related Trust Fund). Because the rate
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of principal prepayments on the Mortgage Loans in any Trust Fund will depend on
future events and a variety of factors (as described below), no assurance can be
given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, if an investor purchases an Offered Certificate
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Offered Certificates at
a rate slower (or faster) than the rate anticipated by the investor during any
particular period, any consequent adverse effects on such investor's yield would
not be fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any Trust
Fund may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the Mortgaged Properties are located, the quality of management of the
Mortgaged Properties, the servicing of the
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Mortgage Loans, possible changes in tax laws and other opportunities for
investment. In general, those factors which increase the attractiveness of
selling a Mortgaged Property or refinancing a Mortgage Loan or which enhance a
borrower's ability to do so, as well as those factors which increase the
likelihood of default under a Mortgage Loan, would be expected to cause the rate
of prepayment in respect of any Mortgage Asset Pool to accelerate. In contrast,
those factors having an opposite effect would be expected to cause the rate of
prepayment of any Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
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The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the related Mortgage Loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the Certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the Certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage Loans
included in a particular Trust Fund may require that balloon payments be made at
maturity. Because the ability of a borrower to make a balloon payment typically
will depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a
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possibility that Mortgage Loans that require balloon payments may default at
maturity, or that the maturity of such a Mortgage Loan may be extended in
connection with a workout. In the case of defaults, recovery of proceeds may be
delayed by, among other things, bankruptcy of the borrower or adverse conditions
in the market where the property is located. In order to minimize losses on
defaulted Mortgage Loans, the Master Servicer or the Special Servicer, to the
extent and under the circumstances set forth herein and in the related
Prospectus Supplement, may be authorized to modify Mortgage Loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan may delay
distributions of principal on a class of Offered Certificates and thereby extend
the weighted average life of such Certificates and, if such Certificates were
purchased at a discount, reduce the yield thereon.
Negative Amortization. The weighted average life of a class of Certificates
can be affected by Mortgage Loans that permit negative amortization to occur
(that is, Mortgage Loans that provide for the current payment of interest
calculated at a rate lower than the rate at which interest accrues thereon, with
the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more Mortgage Loans in any Trust Fund
may result in negative amortization on the Offered Certificates of the related
series. The related Prospectus Supplement will describe, if applicable, the
manner in which negative amortization in respect of the Mortgage Loans in any
Trust Fund is allocated among the respective classes of Certificates of the
related series. The portion of any Mortgage Loan negative amortization allocated
to a class of Certificates may result in a deferral of some or all of the
interest payable thereon, which deferred interest may be added to the
Certificate Balance thereof. In addition, an ARM Loan that permits negative
amortization would be expected during a period of increasing interest rates to
amortize at a slower rate (and perhaps not at all) than if interest rates were
declining or were remaining constant. Such slower rate of Mortgage Loan
amortization would correspondingly be reflected in a slower rate of amortization
for one or more classes of Certificates of the related series. Accordingly, the
weighted average lives of Mortgage Loans that permit negative amortization (and
that of the classes of Certificates to which any such negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization on such Mortgage Loans) may increase as a result of such feature.
Negative amortization may occur in respect of an ARM Loan that (i) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (ii) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (iii) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
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The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount thereof).
See "-Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more classes of Certificates of any series, including
one or more classes of Offered Certificates of such series, may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates, (ii) Excess Funds or (iii) any other amounts described in the
related Prospectus Supplement.
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Unless otherwise specified in the related Prospectus Supplement, "Excess Funds"
will, in general, represent that portion of the amounts distributable in respect
of the Certificates of any series on any Distribution Date that represent (i)
interest received or advanced on the Mortgage Assets in the related Trust Fund
that is in excess of the interest currently accrued on the Certificates of such
series, or (ii) Prepayment Premiums, payments from Equity Participations or any
other amounts received on the Mortgage Assets in the related Trust Fund that do
not constitute interest thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
THE DEPOSITOR
NationsLink Funding Corporation, a Delaware corporation (the "Depositor"),
was organized on December 13, 1995 for the limited purpose of acquiring, owning
and transferring Mortgage Assets and selling interests therein or bonds secured
thereby. The Depositor is a subsidiary of NationsBank, N.A. The Depositor
maintains its principal office at NationsBank Corporate Center, Charlotte, North
Carolina 28255. Its telephone number is (704) 386-2400.
Unless otherwise noted in the related Prospectus Supplement, neither the
Depositor nor any of the Depositor's affiliates will insure or guarantee
distributions on the Certificates of any series.
DESCRIPTION OF THE CERTIFICATES
General
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling and Servicing
Agreement. As described in the related Prospectus Supplement, the Certificates
of each series, including the Offered Certificates of such series, may consist
of one or more classes of Certificates that, among other things: (i) provide for
the accrual of interest on the Certificate Balance or Notional Amount thereof at
a fixed, variable or adjustable rate; (ii) constitute Senior Certificates or
Subordinate Certificates; (iii) constitute Stripped Interest Certificates or
Stripped Principal Certificates; (iv) provide for distributions of interest
thereon or principal thereof that commence only after the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series; (v) provide for distributions of principal thereof to be made, from
time to time or for designated periods, at a rate that is faster (and, in some
cases, substantially faster) or slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the Mortgage Assets in the
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related Trust Fund; (vi) provide for distributions of principal thereof to be
made, subject to available funds, based on a specified principal payment
schedule or other methodology; or (vii) provide for distributions based on
collections on the Mortgage Assets in the related Trust Fund attributable to
Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of DTC. The Offered Certificates of each series (if issued as
Definitive Certificates) may be transferred or exchanged, subject to any
restrictions on transfer described in the related Prospectus Supplement, at the
location specified in the related Prospectus Supplement, without the payment of
any service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of Book-Entry Certificates will be
transferred on the book-entry records of DTC and its participating
organizations. If so specified in the related Prospectus Supplement,
arrangements may be made for clearance and settlement through CEDEL Bank,
Societe Anonyme, or the Euroclear System (in Europe) if they are participants in
DTC.
Distributions
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be more specifically described in the related
Prospectus Supplement. In general, the Distribution Date for a series of
Certificates will be the 25th day of each month (or, if any such 25th day is
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not a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of Certificates is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
in proportion to the respective Percentage Interests evidenced thereby unless
otherwise specified in the related Prospectus Supplement. Payments will be made
either by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the person required to make
such payments with wiring instructions no later than the related Record Date or
such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein), or by
check mailed to the address of such Certificateholder as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of any class of Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
such Certificates at the location specified in the notice to Certificateholders
of such final distribution. The undivided percentage interest (the "Percentage
Interest") represented by an Offered Certificate of a particular class will be
equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the initial Certificate Balance or
Notional Amount of such class.
Distributions of Interest on the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class of Offered Certificates. Unless otherwise
specified in the related Prospectus Supplement, interest on the Certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
any class of Stripped Principal Certificates or REMIC Residual Certificates that
is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such class and
such Distribution
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Date, subject to the sufficiency of that portion, if any, of the Available
Distribution Amount allocable to such class on such Distribution Date. Prior to
the time interest is distributable on any class of Accrual Certificates, the
amount of Accrued Certificate Interest otherwise distributable on such class
will be added to the Certificate Balance thereof on each Distribution Date or
otherwise deferred as described in the related Prospectus Supplement. With
respect to each class of Certificates (other than certain classes of Stripped
Interest Certificates and certain classes of REMIC Residual Certificates), the
"Accrued Certificate Interest" for each Distribution Date will be equal to
interest at the applicable Pass-Through Rate accrued for a specified period
(generally the most recently ended calendar month) on the outstanding
Certificate Balance of such class of Certificates immediately prior to such
Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the Accrued Certificate Interest for each Distribution Date on a
class of Stripped Interest Certificates will be similarly calculated except that
it will accrue on a Notional Amount that is either (i) based on the principal
balances of some or all of the Mortgage Assets in the related Trust Fund or (ii)
equal to the Certificate Balances of one or more other classes of Certificates
of the same series. Reference to a Notional Amount with respect to a class of
Stripped Interest Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related Prospectus Supplement, the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the case
of Accrual Certificates, that may otherwise be added to the Certificate Balance
of) one or more classes of the Certificates of a series may be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations-Certain Shortfalls in Collections of Interest", exceed
the amount of any sums that are applied to offset the amount of such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the classes of Certificates of that series will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe the extent to which the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the Certificate Balance of) a class of Offered
Certificates may be reduced as a result of any other contingencies, including
delinquencies, losses and deferred interest on or in respect of the Mortgage
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of Certificates by reason of the
allocation to such class of a portion of any deferred interest on or in respect
of the Mortgage Assets in the related Trust Fund will result in a corresponding
increase in the Certificate Balance of such class. See "Risk Factors-Effect of
Prepayments on Average Life of Certificates" and "-Effect of Prepayments on
Yield of Certificates" and "Yield and Maturity Considerations-Certain Shortfalls
in Collections of Interest".
Distributions of Principal of the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
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Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if and to the extent so
provided in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time. In
turn, the outstanding Certificate Balance of a class of Certificates may be
increased as a result of any deferred interest on or in respect of the related
Mortgage Assets being allocated thereto from time to time, and will be
increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect thereof
(reduced as described above). The initial aggregate Certificate Balance of all
classes of a series of Certificates will not be greater than the aggregate
outstanding principal balance of the related Mortgage Assets as of a specified
date (the "Cut-off Date"), after application of scheduled payments due on or
before such date, whether or not received. The initial Certificate Balance of
each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related Prospectus
Supplement, distributions of principal with respect to a series of Certificates
will be made on each Distribution Date to the holders of the class or classes of
Certificates of such series entitled thereto until the Certificate Balances of
such Certificates have been reduced to zero. Distributions of principal with
respect to one or more classes of Certificates may be made at a rate that is
faster (and, in some cases, substantially faster) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
the same series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of Certificates
(each such class, a "Controlled Amortization Class") may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with respect to one or more other classes of Certificates (each
such class, a "Companion Class") may be contingent on the specified principal
payment schedule for a Controlled Amortization Class of the same series and the
rate at which payments and other collections of principal on the Mortgage Assets
in the related Trust Fund are received. Unless otherwise specified in the
related Prospectus Supplement, distributions of principal of any class of
Offered Certificates will be made on a pro rata basis among all of the
Certificates of such class.
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the class of Certificates of the related series entitled
thereto in accordance with the provisions described in such Prospectus
Supplement. Alternatively, such items may be retained by the Depositor or any of
its affiliates or by any other specified person and/or may be excluded as Trust
Assets.
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Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support".
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) respecting which such advances were
made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a series that includes one or more classes of Subordinate
Certificates, if so identified, collections on other Mortgage Assets in the
related Trust Fund that would otherwise be distributable to the holders of one
or more classes of such Subordinate Certificates. No advance will be required to
be made by a Master Servicer, Special Servicer or Trustee if, in the judgment of
the Master Servicer, Special Servicer or Trustee, as the case may be, such
advance would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in
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such Certificate Account on such Distribution Date are less than payments
required to be made to the related series of Certificateholders on such date. If
so specified in the related Prospectus Supplement, the obligation of a Master
Servicer, Special Servicer, Trustee or other entity to make advances may be
secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related Pooling and
Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the holders of
each class of the Offered Certificates of a series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that was applied to pay Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class of
Offered Certificates that was allocable to (A) Prepayment Premiums and (B)
payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate amount
of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if payable
directly out of
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the related Trust Fund, by any Special Servicer and any Sub-Servicer) and, if
the related Trust Fund includes MBS, the amount of administrative compensation
received by the MBS Administrator;
(vii) information regarding the aggregate principal balance of the related
Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans that
are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal prepayments made
with respect to such Mortgage Loans during the related Prepayment Period (that
is, the specified period, generally corresponding in length to the period
between Distribution Dates, during which prepayments and other unscheduled
collections on the Mortgage Loans in the related Trust Fund must be received in
order to be distributed on a particular Distribution Date);
(x) the Certificate Balance or Notional Amount, as the case may be, of such
class of Certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or Notional
Amount due to the allocation of any losses in respect of the related Mortgage
Assets, any increase in such Certificate Balance or Notional Amount due to the
allocation of any negative amortization in respect of the related Mortgage
Assets and any increase in the Certificate Balance of a class of Accrual
Certificates, if any, in the event that Accrued Certificate Interest has been
added to such balance;
(xi) if such class of Offered Certificates has a variable Pass-Through Rate
or an adjustable Pass-Through Rate, the Pass-Through Rate applicable thereto for
such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve fund as
of the close of business on such Distribution Date;
(xiii) if the related Trust Fund includes one or more instruments of Credit
Support, such as a letter of credit, an insurance policy and/or a surety bond,
the amount of coverage under each such instrument as of the close of business on
such Distribution Date; and
(xiv) the amount of Credit Support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of Offered Certificates or as a percentage.
The Prospectus Supplement for each series of Certificates may describe
additional information to be included in reports to the holders of the Offered
Certificates of such series.
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Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee for a series of Certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Certificate of such series a statement
containing the information set forth in subclauses (i)-(iii) above, aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "-Book-Entry Registration and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer, Manager or Trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
Voting Rights
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling and
Servicing Agreement and as otherwise specified in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements-Amendment". The holders of
specified amounts of Certificates of a particular series will have the right to
act as a group to remove the related Trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related Master Servicer, Special Servicer or REMIC Administrator.
See "The Pooling and Servicing Agreements-Events of Default", "-Rights Upon
Event of Default" and "-Resignation and Removal of the Trustee".
Termination
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates will terminate following (i) the final payment or other
liquidation of the last Mortgage Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Mortgage Loan subject thereto and (ii)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such Pooling and
Servicing Agreement. Written notice of termination of a Pooling and Servicing
Agreement will be given to each Certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
Certificates of such series at the location to be specified in the notice of
termination.
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If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount or upon a specified date, a party designated
therein may be authorized or required to solicit bids for the purchase of all
the Mortgage Assets of the related Trust Fund, or of a sufficient portion of
such Mortgage Assets to retire such class or classes, under the circumstances
and in the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global Certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interests in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except
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in the event that use of the book-entry system for the Book-Entry Certificates
of any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee, Master Servicer, Special Servicer or
Manager), subject to any statutory or regulatory requirements as may be in
effect from time to time. Accordingly, under a book-entry system, Certificate
Owners may receive payments after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling and Servicing
Agreement) of Book-Entry Certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor has been informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling and
Servicing Agreement only at the direction of one or more Direct Participants to
whose account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in Book-Entry Certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises
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the Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Certificates
and the Depositor is unable to locate a qualified successor or (ii) the
Depositor, at its option, elects to terminate the book-entry system through DTC
with respect to such Certificates. Upon the occurrence of either of the events
described in the preceding sentence, DTC will be required to notify all Direct
Participants of the availability through DTC of Definitive Certificates. Upon
surrender by DTC of the certificate or certificates representing a class of
Book-Entry Certificates, together with instructions for registration, the
Trustee for the related series or other designated party will be required to
issue to the Certificate Owners identified in such instructions the Definitive
Certificates to which they are entitled, and thereafter the holders of such
Definitive Certificates will be recognized as "Certificateholders" under and
within the meaning of the related Pooling and Servicing Agreement.
THE POOLING AND SERVICING AGREEMENTS
General
The Certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the Depositor, the Trustee, the Master Servicer, the
Special Servicer and, if one or more REMIC elections have been made with respect
to the Trust Fund, the REMIC Administrator. However, a Pooling and Servicing
Agreement that relates to a Trust Fund that includes MBS may include a Manager
as a party, but may not include a Master Servicer, Special Servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which Certificates of a series are issued will be identified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement, an
affiliate of the Depositor, or the Mortgage Asset Seller or an affiliate
thereof, may perform the functions of Master Servicer, Special Servicer, Manager
or REMIC Administrator. If so specified in the related Prospectus Supplement,
the Master Servicer may also perform the duties of Special Servicer, and the
Master Servicer, the Special Servicer or the Trustee may also perform the duties
of REMIC Administrator. Any party to a Pooling and Servicing Agreement or any
affiliate thereof may own Certificates issued thereunder; however, except with
respect to required consents to certain amendments to a Pooling and Servicing
Agreement, Certificates issued thereunder that are held by the Master Servicer
or Special Servicer for the related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling and Servicing Agreement under which Certificates that evidence
interests in Mortgage Loans will be issued. The Prospectus Supplement for a
series of Certificates will describe any provision of the related Pooling and
Servicing Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Trust Fund includes MBS, will
summarize all of the material
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provisions of the related Pooling and Servicing Agreement. The summaries herein
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each series of Certificates and the description of such provisions
in the related Prospectus Supplement. The Depositor will provide a copy of the
Pooling and Servicing Agreement (without exhibits) that relates to any series of
Certificates without charge upon written request of a holder of a Certificate of
such series addressed to it at its principal executive offices specified herein
under "The Depositor".
Assignment of Mortgage Loans; Repurchases
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the amortization term; and the original and
outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering Mortgages on Mortgaged Properties located in
the same county, if permitted by law. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers, or causes to be delivered,
to the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit certifying that the original thereof
has been lost or destroyed. In addition, if the Depositor cannot deliver, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment with
evidence of recording thereon concurrently with the execution and delivery of
the related Pooling and
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Servicing Agreement because of a delay caused by the public recording office,
the Depositor will deliver, or cause to be delivered, to the related Trustee (or
such custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) such Mortgage or assignment with
evidence of recording indicated thereon after receipt thereof from the public
recording office. If the Depositor cannot deliver, with respect to any Mortgage
Loan, the Mortgage or any intervening assignment with evidence of recording
thereon concurrently with the execution and delivery of the related Pooling and
Servicing Agreement because such Mortgage or assignment has been lost, the
Depositor will deliver, or cause to be delivered, to the related Trustee (or
such custodian) a true and correct photocopy of such Mortgage or assignment with
evidence of recording thereon. Unless otherwise specified in the related
Prospectus Supplement, assignments of Mortgage to the Trustee (or its nominee)
will be recorded in the appropriate public recording office, except in states
where, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Depositor or the originator of such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer, the
Special Servicer and the Depositor, and one of such persons will be required to
notify the relevant Mortgage Asset Seller. In that case, and if the Mortgage
Asset Seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise specified
below or in the related Prospectus Supplement, the Mortgage Asset Seller will be
obligated to repurchase the related Mortgage Loan from the Trustee at a price
generally equal to the unpaid principal balance thereof, together with accrued
but unpaid interest through a date on or about the date of purchase, or at such
other price as will be specified in the related Prospectus Supplement (in any
event, the "Purchase Price"). If so provided in the Prospectus Supplement for a
series of Certificates, a Mortgage Asset Seller, in lieu of repurchasing a
Mortgage Loan as to which there is missing or defective loan documentation, will
have the option, exercisable upon certain conditions and/or within a specified
period after initial issuance of such series of Certificates, to replace such
Mortgage Loan with one or more other mortgage loans, in accordance with
standards that will be described in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy to holders of the Certificates of any
series or to the related Trustee on their behalf for missing or defective
Mortgage Loan documentation, and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the Master Servicer or the Special Servicer will be
obligated to purchase or replace a Mortgage Loan if a Mortgage Asset Seller
defaults on its obligation to do so.
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The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor.
Representations and Warranties; Repurchases
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (ii) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or an
affiliate of the Depositor, the Master Servicer, the Special Servicer or another
person acceptable to the Depositor. The Warranting Party, if other than the
Mortgage Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that the Master Servicer and/or
Trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Loan from the Trustee at the applicable
Purchase Price. If so provided in the Prospectus Supplement for a series of
Certificates, a Warranting Party, in lieu of repurchasing a Mortgage Loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of Certificates, to replace such Mortgage Loan with one or more other
mortgage loans, in accordance with standards that will be described in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the Certificates of any series or to the related
Trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the Depositor nor the Master Servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a Mortgage Loan if a Warranting Party defaults on its obligation to do so.
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In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
Collection and Other Servicing Procedures
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer for any Mortgage Pool, directly or through
Sub-Servicers, will each be obligated under the related Pooling and Servicing
Agreement to service and administer the Mortgage Loans in such Mortgage Pool for
the benefit of the related Certificateholders, in accordance with applicable law
and further in accordance with the terms of such Pooling and Servicing
Agreement, such Mortgage Loans and any instrument of Credit Support included in
the related Trust Fund. Subject to the foregoing, the Master Servicer and the
Special Servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (ii) do not impair
recovery under any instrument of Credit Support included in the related Trust
Fund. Consistent with the foregoing, the Master Servicer and the Special
Servicer will each be permitted, in its discretion, unless otherwise specified
in the related Prospectus Supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund, either
separately or jointly, directly or through Sub-Servicers, will also be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) Mortgaged Properties acquired on behalf of such
Trust Fund through foreclosure, deed-in-lieu of foreclosure or otherwise (each,
an "REO Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and
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the extent to which servicing of a Mortgage Loan is to be transferred from the
Master Servicer to the Special Servicer. In general, and subject to the
discussion in the related Prospectus Supplement, a Special Servicer will be
responsible for the servicing and administration of: (i) Mortgage Loans that are
delinquent in respect of a specified number of scheduled payments; (ii) Mortgage
Loans as to which the related borrower has entered into or consented to
bankruptcy, appointment of a receiver or conservator or similar insolvency
proceeding, or the related borrower has become the subject of a decree or order
for such a proceeding which shall have remained in force undischarged or
unstayed for a specified number of days; and (iii) REO Properties. If so
specified in the related Prospectus Supplement, a Pooling and Servicing
Agreement also may provide that if a default on a Mortgage Loan has occurred or,
in the judgment of the related Master Servicer, a payment default is reasonably
foreseeable, the related Master Servicer may elect to transfer the servicing
thereof, in whole or in part, to the related Special Servicer. Unless otherwise
provided in the related Prospectus Supplement, when the circumstances no longer
warrant a Special Servicer's continuing to service a particular Mortgage Loan
(e.g., the related borrower is paying in accordance with the forbearance
arrangement entered into between the Special Servicer and such borrower), the
Master Servicer will resume the servicing duties with respect thereto. If and to
the extent provided in the related Pooling and Servicing Agreement and described
in the related Prospectus Supplement, a Special Servicer may perform certain
limited duties in respect of Mortgage Loans for which the Master Servicer is
primarily responsible (including, if so specified, performing property
inspections and evaluating financial statements); and a Master Servicer may
perform certain limited duties in respect of any Mortgage Loan for which the
Special Servicer is primarily responsible (including, if so specified,
continuing to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), making certain calculations with respect to
such Mortgage Loan and making remittances and preparing certain reports to the
Trustee and/or Certificateholders with respect to such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or
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accept a deed to a Mortgaged Property in lieu of foreclosure) on behalf of the
Certificateholders of the related series may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the mortgagor, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. If a mortgagor files a bankruptcy
petition, the Special Servicer may not be permitted to accelerate the maturity
of the Mortgage Loan or to foreclose on the related Mortgaged Property for a
considerable period of time. See "Certain Legal Aspects of Mortgage
Loans-Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Certificateholders and/or to preserve the security of
the related Mortgage Loan, subject to the application of the REMIC Provisions.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or Special Servicer, as applicable, will be required to advance the
necessary funds to cure the default or reinstate the Senior Lien, if such
advance is in the best interests of the related Certificateholders and the
Master Servicer or Special Servicer, as applicable, determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
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Sub-Servicers
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling and Servicing
Agreement. A Sub-Servicer for any series of Certificates may be an affiliate of
the Depositor. Unless otherwise provided in the related Prospectus Supplement,
each sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must provide for servicing of the applicable Mortgage
Loans consistent with the related Pooling and Servicing Agreement. The Master
Servicer and Special Servicer in respect of any Mortgage Asset Pool will each be
required to monitor the performance of Sub-Servicers retained by it and will
have the right to remove a Sub-Servicer retained by it at any time it considers
such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such Master
Servicer or Special Servicer would be reimbursed under a Pooling and Servicing
Agreement. See "-Certificate Account" and "-Servicing Compensation and Payment
of Expenses".
Certificate Account
General. The Master Servicer, the Trustee and/or the Special Servicer will,
as to each Trust Fund that includes Mortgage Loans, establish and maintain or
cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer as additional
compensation. A Certificate Account may be maintained with the related Master
Servicer, Special Servicer, Trustee or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
owned by the related Master Servicer or Special Servicer or serviced by either
on behalf of others.
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Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the following
payments and collections received or made by the Master Servicer, the Trustee or
the Special Servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each Trust Fund that includes Mortgage Loans, within a certain period following
receipt (in the case of collections on or in respect of the Mortgage Loans) or
otherwise as provided in the related Pooling and Servicing Agreement:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, including
any default interest collected, in each case net of any portion thereof retained
by the Master Servicer or the Special Servicer as its servicing compensation or
as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan or in connection with the full or partial condemnation of
a Mortgaged Property (other than proceeds applied to the restoration of the
property or released to the related borrower) (collectively, "Insurance and
Condemnation Proceeds") and all other amounts received and retained in
connection with the liquidation of defaulted Mortgage Loans or property acquired
in respect thereof, by foreclosure or otherwise (such amounts, together with
those amounts listed in clause (vii) below, "Liquidation Proceeds"), together
with the net operating income (less reasonable reserves for future expenses)
derived from the operation of any Mortgaged Properties acquired by the Trust
Fund through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
(v) any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Depositor, any Mortgage Asset Seller or any
other specified person as described under "-Assignment of Mortgage Loans;
Repurchases" and "-Representations and Warranties; Repurchases", all proceeds of
the purchase of any defaulted Mortgage Loan as described under "-Realization
Upon Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset purchased
as described under "Description of the Certificates-Termination; Retirement of
Certificates";
(viii) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or the Special Servicer and is not
otherwise retained by the Depositor or another specified person, any payments on
account of modification or
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assumption fees, late payment charges, Prepayment Premiums or Equity
Participations with respect to the Mortgage Loans;
(ix) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy as described
under "-Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer, the Special
Servicer or the Trustee in connection with losses realized on investments for
the benefit of the Master Servicer, the Special Servicer or the Trustee, as the
case may be, of funds held in the Certificate Account; and
(xi) any other amounts required to be deposited in the Certificate Account
as provided in the related Pooling and Servicing Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, a Master Servicer,
Trustee or Special Servicer may make withdrawals from the Certificate Account
for each Trust Fund that includes Mortgage Loans for any of the following
purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to pay the Master Servicer or the Special Servicer any servicing fees
not previously retained thereby, such payment to be made out of payments and
other collections of interest on the particular Mortgage Loans as to which such
fees were earned;
(iii) to reimburse the Master Servicer, the Special Servicer or any other
specified person for unreimbursed advances of delinquent scheduled payments of
principal and interest made by it, and certain unreimbursed servicing expenses
incurred by it, with respect to Mortgage Loans in the Trust Fund and properties
acquired in respect thereof, such reimbursement to be made out of amounts that
represent late payments collected on the particular Mortgage Loans, Liquidation
Proceeds and Insurance and Condemnation Proceeds collected on the particular
Mortgage Loans and properties, and net income collected on the particular
properties, with respect to which such advances were made or such expenses were
incurred or out of amounts drawn under any form of Credit Support with respect
to such Mortgage Loans and properties, or if in the judgment of the Master
Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Loans in the
same Trust Fund or, if and to the extent so provided by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, only
from that portion of amounts collected on such other Mortgage Loans that is
otherwise distributable on one or more classes of Subordinate Certificates of
the related series;
(iv) if and to the extent described in the related Prospectus Supplement,
to pay the Master Servicer, the Special Servicer or any other specified person
interest accrued on
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the advances and servicing expenses described in clause (iii) above incurred by
it while such remain outstanding and unreimbursed;
(v) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged Properties
that constitute security for defaulted Mortgage Loans, and for any containment,
clean-up or remediation of hazardous wastes and materials present on such
Mortgaged Properties, as described under "-Realization Upon Defaulted Mortgage
Loans";
(vi) to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator, the Depositor, the Trustee, or any of their respective directors,
officers, employees and agents, as the case may be, for certain expenses, costs
and liabilities incurred thereby, as and to the extent described under "-Certain
Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" and "-Certain Matters Regarding the Trustee";
(vii) if and to the extent described in the related Prospectus Supplement,
to pay the fees of the Trustee, the REMIC Administrator and any provider of
Credit Support;
(viii) if and to the extent described in the related Prospectus Supplement,
to reimburse prior draws on any form of Credit Support;
(ix) to pay the Master Servicer, the Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts held in
the Certificate Account as additional compensation;
(x) to pay any servicing expenses not otherwise required to be advanced by
the Master Servicer, the Special Servicer or any other specified person;
(xi) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Certain Federal Income Tax Consequences-REMICs-Prohibited
Transactions Tax and Other Taxes";
(xii) to pay for the cost of various opinions of counsel obtained pursuant
to the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
(xiii) to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement; and
(xiv) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
Modifications, Waivers and Amendments of Mortgage Loans
The Master Servicer and the Special Servicer may each agree to modify,
waive or amend any term of any Mortgage Loan serviced by it in a manner
consistent with the
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applicable Servicing Standard; provided that, unless otherwise set forth in the
related Prospectus Supplement, the modification, waiver or amendment (i) will
not affect the amount or timing of any scheduled payments of principal or
interest on the Mortgage Loan, (ii) will not, in the judgment of the Master
Servicer or the Special Servicer, as the case may be, materially impair the
security for the Mortgage Loan or reduce the likelihood of timely payment of
amounts due thereon and (iii) will not adversely affect the coverage under any
applicable instrument of Credit Support. Unless otherwise provided in the
related Prospectus Supplement, the Special Servicer also may agree to any other
modification, waiver or amendment if, in its judgment, (i) a material default on
the Mortgage Loan has occurred or a payment default is imminent, (ii) such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan, taking into account the time value
of money, than would liquidation and (iii) such modification, waiver or
amendment will not adversely affect the coverage under any applicable instrument
of Credit Support.
Realization Upon Defaulted Mortgage Loans
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property, by operation of
law or otherwise. Unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may not, however, acquire title to any
Mortgaged Property, have a receiver of rents appointed with respect to any
Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in compliance
with applicable environmental laws and regulations and (b) there are no
circumstances or conditions present at the Mortgaged Property that have resulted
in any contamination for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any applicable environmental
laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters and
related costs) on the information set forth in such report, determines that
taking such actions as are necessary to bring the Mortgaged Property into
compliance with applicable environmental laws and regulations and/or taking the
actions contemplated by clause (i)(b) above, is reasonably likely to produce a
greater recovery, taking into account the time value of money, than not taking
such actions. See "Certain Legal Aspects of Mortgage Loans-Environmental
Considerations".
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A Pooling and Servicing Agreement may grant to the Master Servicer, the
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. In the absence of any such sale, the Special Servicer will
generally be required to proceed against the related Mortgaged Property, subject
to the discussion above.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property prior to the close of the third calendar
year following the year the Trust Fund acquired such Mortgaged Property, unless
(i) the Internal Revenue Service (the "IRS") grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel to
the effect that the holding of the property by the Trust Fund beyond such period
will not result in the imposition of a tax on the Trust Fund or cause the Trust
Fund (or any designated portion thereof) to fail to qualify as a REMIC under the
Code at any time that any Certificate is outstanding. Subject to the foregoing
and any other tax-related limitations, the Special Servicer will generally be
required to attempt to sell any Mortgaged Property so acquired on the same terms
and conditions it would if it were the owner. Unless otherwise provided in the
related Prospectus Supplement, if title to any Mortgaged Property is acquired by
a Trust Fund as to which a REMIC election has been made, the Special Servicer
will also be required to ensure that the Mortgaged Property is administered so
that it constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of such property does not result in the
receipt by the Trust Fund of any income from nonpermitted assets as described in
Code Section 860F(a)(2)(B), and that the Trust Fund does not derive any "net
income from foreclosure property," within the meaning of Code Section
860G(c)(2), with respect to such property if another method of earning income
thereon would produce a higher after-tax return. If the Trust Fund acquires
title to any Mortgaged Property, the Special Servicer, on behalf of the Trust
Fund, may retain an independent contractor to manage and operate such property.
The retention of an independent contractor, however, will not relieve the
Special Servicer of its obligation to manage such Mortgaged Property as required
under the related Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Special Servicer and/or the Master Servicer in connection with
such Mortgage Loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting Credit Support, the Trust Fund will realize
a loss in the amount of such shortfall. The Special Servicer and/or
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the Master Servicer will be entitled to reimbursement out of the Liquidation
Proceeds recovered on any defaulted Mortgage Loan, prior to the distribution of
such Liquidation Proceeds to Certificateholders, any and all amounts that
represent unpaid servicing compensation in respect of the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. In addition, if and to the extent set forth in the related
Prospectus Supplement, amounts otherwise distributable on the Certificates may
be further reduced by interest payable to the Master Servicer and/or Special
Servicer on such servicing expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or the Master Servicer, as the case may be, for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn
on any instrument or fund constituting Credit Support.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer (or the Special
Servicer with respect to Mortgage Loans serviced thereby) to use reasonable
efforts to cause each Mortgage Loan borrower to maintain a hazard insurance
policy that provides for such coverage as is required under the related Mortgage
or, if the Mortgage permits the holder thereof to dictate to the borrower the
insurance coverage to be maintained on the related Mortgaged Property, such
coverage as is consistent with the Master Servicer's (or Special Servicer's)
normal servicing procedures. Unless otherwise specified in the related
Prospectus Supplement, such coverage generally will be in an amount equal to the
lesser of the principal balance owing on such Mortgage Loan and the replacement
cost of the related Mortgaged Property. The ability of a Master Servicer (or
Special Servicer) to assure that hazard insurance proceeds are appropriately
applied may be dependent upon its being named as an additional insured under any
hazard insurance policy and under any other insurance policy referred to below,
or upon the extent to which information concerning covered losses is furnished
by borrowers. All amounts collected by a Master Servicer (or Special Servicer)
under any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the borrower in accordance with
the Master Servicer's (or Special Servicer's) normal servicing procedures and/or
to the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the related Certificate Account. The Pooling and Servicing
Agreement may provide that the Master Servicer (or Special Servicer) may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by maintaining a blanket policy insuring against hazard losses on the Mortgage
Loans in a Trust Fund. If such blanket policy contains a deductible clause, the
Master Servicer (or Special Servicer) will be required, in the event of a
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casualty covered by such blanket policy, to deposit in the related Certificate
Account all additional sums that would have been deposited therein under an
individual policy but were not because of such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans-Due-on-Sale and
Due-on-Encumbrance".
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Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Certificates may consist of any or all
of the following components: (i) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it;
(ii) an additional specified portion of the interest payments on each Mortgage
Loan then currently serviced by it; and (iii) subject to any specified
limitations, a fixed percentage of some or all of the collections and proceeds
received with respect to each Mortgage Loan which was at any time serviced by
it, including Mortgage Loans for which servicing was returned to the Master
Servicer. Insofar as any portion of the Master Servicer's or Special Servicer's
compensation consists of a specified portion of the interest payments on a
Mortgage Loan, such compensation will generally be based on a percentage of the
principal balance of such Mortgage Loan outstanding from time to time and,
accordingly, will decrease with the amortization of the Mortgage Loan. As
additional compensation, a Master Servicer or Special Servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each Master Servicer's and Special
Servicer's compensation will be provided in the related Prospectus Supplement.
Any Sub-Servicer will receive as its sub-servicing compensation a portion of the
servicing compensation to be paid to the Master Servicer or Special Servicer
that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
Evidence as to Compliance
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related Trustee
a report of a firm of independent certified public accountants stating that (i)
it has obtained a letter of representation regarding certain
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matters from the management of the Master Servicer which includes an assertion
that the Master Servicer has complied with certain minimum mortgage loan
servicing standards (to the extent applicable to commercial and multifamily
mortgage loans), identified in the Uniform Single Attestation Program for
Mortgage Bankers established by the Mortgage Bankers Association of America,
with respect to the Master Servicer's servicing of commercial and multifamily
mortgage loans during the most recently completed calendar year and (ii) on the
basis of an examination conducted by such firm in accordance with standards
established by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
standards require it to report. In rendering its report such firm may rely, as
to the matters relating to the direct servicing of commercial and multifamily
mortgage loans by Sub-Servicers, upon comparable reports of firms of independent
public accountants rendered on the basis of examinations conducted in accordance
the same standards (rendered within one year of such report) with respect to
those Sub-Servicers. The Prospectus Supplement may provide that additional
reports of independent certified public accountants relating to the servicing of
mortgage loans may be required to be delivered to the Trustee.
Each Pooling and Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the Master Servicer and
Special Servicer shall each deliver to the related Trustee an annual statement
signed by one or more officers of the Master Servicer or the Special Servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the Master Servicer or the Special Servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Certificateholders upon
written request to the Trustee.
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling and Servicing Agreement may be an affiliate of the
Depositor and may have other normal business relationships with the Depositor or
the Depositor's affiliates. Unless otherwise specified in the Prospectus
Supplement for a series of Certificates, the related Pooling and Servicing
Agreement will permit the Master Servicer, the Special Servicer and any REMIC
Administrator to resign from its obligations thereunder only upon (a) the
appointment of, and the acceptance of such appointment by, a successor thereto
and receipt by the Trustee of written confirmation from each applicable Rating
Agency that such resignation and appointment will not have an adverse effect on
the rating assigned by such
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Rating Agency to any class of Certificates of such series or (b) a determination
that such obligations are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. No such resignation will become effective until the Trustee or other
successor has assumed the obligations and duties of the resigning Master
Servicer, Special Servicer or REMIC Administrator, as the case may be, under the
Pooling and Servicing Agreement. The Master Servicer and Special Servicer for
each Trust Fund will be required to maintain a fidelity bond and errors and
omissions policy or their equivalent that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions, subject to certain limitations as to amount of
coverage, deductible amounts, conditions, exclusions and exceptions permitted by
the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will further provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator, the Depositor or any
director, officer, employee or agent of any of them will be under any liability
to the related Trust Fund or Certificateholders for any action taken, or not
taken, in good faith pursuant to the Pooling and Servicing Agreement or for
errors in judgment; provided, however, that none of the Master Servicer, the
Special Servicer, the REMIC Administrator, the Depositor or any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of
obligations or duties thereunder or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related Prospectus
Supplement, each Pooling and Servicing Agreement will further provide that the
Master Servicer, the Special Servicer, the REMIC Administrator, the Depositor
and any director, officer, employee or agent of any of them will be entitled to
indemnification by the related Trust Fund against any loss, liability or expense
incurred in connection with any legal action that relates to such Pooling and
Servicing Agreement or the related series of Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of obligations or duties under such Pooling and Servicing Agreement,
or by reason of reckless disregard of such obligations or duties. In addition,
each Pooling and Servicing Agreement will provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor will be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its respective responsibilities under the Pooling and
Servicing Agreement and that in its opinion may involve it in any expense or
liability. However, each of the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor will be permitted, in the exercise of its
discretion, to undertake any such action that it may deem necessary or desirable
with respect to the enforcement and/or protection of the rights and duties of
the parties to the Pooling and Servicing Agreement and the interests of the
related series of Certificateholders thereunder. In such event, the legal
expenses and costs of such action, and any liability resulting therefrom, will
be expenses, costs and liabilities of the related series of Certificateholders,
and the Master Servicer, the Special Servicer, the REMIC Administrator or the
Depositor, as the case may be, will be entitled to charge the related
Certificate Account therefor.
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Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator or the Depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the Master Servicer, the
Special Servicer, the REMIC Administrator or the Depositor is a party, or any
person succeeding to the business of the Master Servicer, the Special Servicer,
the REMIC Administrator or the Depositor, will be the successor of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC Administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
Events of Default
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling and Servicing
Agreement will include, without limitation, (i) any failure by the Master
Servicer to distribute or cause to be distributed to the Certificateholders of
such series, or to remit to the Trustee for distribution to such
Certificateholders, any amount required to be so distributed or remitted, which
failure continues unremedied for five days after written notice thereof has been
given to the Master Servicer by any other party to the related Pooling and
Servicing Agreement, or to the Master Servicer, with a copy to each other party
to the related Pooling and Servicing Agreement, by Certificateholders entitled
to not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series; (ii) any failure by
the Special Servicer to remit to the Master Servicer or the Trustee, as
applicable, any amount required to be so remitted, which failure continues
unremedied for five days after written notice thereof has been given to the
Special Servicer by any other party to the related Pooling and Servicing
Agreement, or to the Special Servicer, with a copy to each other party to the
related Pooling and Servicing Agreement, by the Certificateholders entitled to
not less than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights of such series; (iii) any failure by the Master
Servicer or the Special Servicer duly to observe or perform in any material
respect any of its other covenants or obligations under the related Pooling and
Servicing Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party to the related Pooling and
Servicing Agreement, or to the Master Servicer or the Special Servicer, as the
case may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by Certificateholders entitled to not less than 25% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series; (iv) any failure by a REMIC Administrator (if
other than the Trustee) duly to observe or perform in any material respect any
of its covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for sixty days after written
notice thereof has been given to the REMIC Administrator by any other party to
the related Pooling and Servicing Agreement, or to the REMIC Administrator, with
a copy to
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each other party to the related Pooling and Servicing Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; and (v) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities, or similar proceedings in respect of or relating to
the Master Servicer, the Special Servicer or the REMIC Administrator (if other
than the Trustee), and certain actions by or on behalf of the Master Servicer,
the Special Servicer or the REMIC Administrator (if other than the Trustee)
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to add thereto or
shorten cure periods or eliminate notice requirements) will be specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, when a single entity acts as Master Servicer, Special
Servicer and REMIC Administrator, or in any two of the foregoing capacities, for
any Trust Fund, an Event of Default in one capacity will constitute an Event of
Default in each capacity.
Rights Upon Event of Default
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the Depositor or the Trustee will be authorized, and at the
direction of Certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for such series, the Trustee will be required, to terminate
all of the rights and obligations of the defaulting party as Master Servicer,
Special Servicer or REMIC Administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer or REMIC Administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances thereunder regarding delinquent Mortgage Loans, but the Trustee
is prohibited by law from obligating itself to make such advances, or if the
related Prospectus Supplement so specifies, the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, if the Trustee
is unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other entity
that (unless otherwise provided in the related Prospectus Supplement) is
acceptable to each applicable Rating Agency to act as successor to the Master
Servicer, Special Servicer or REMIC Administrator, as the case may be, under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee will be
obligated to act in such capacity.
If the same entity is acting as both Trustee and REMIC Administrator, it
may be removed in both such capacities as described under "-Resignation and
Removal of the Trustee" below.
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No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for sixty days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
Except as otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein which may be inconsistent with any other provision therein
or to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund (or any designated
portion thereof) as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related Trust Fund, provided that the Trustee has received an
opinion of counsel to the effect that (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any
holder of Certificates covered by the Pooling and Servicing Agreement, or (B) to
restrict the transfer of the REMIC Residual Certificates, provided that the
Depositor has determined that the then-current ratings of the classes of the
Certificates that have been rated will not be adversely affected, as evidenced
by a letter from each applicable Rating Agency, and that any such amendment will
not give rise to any tax with respect to the transfer of the REMIC Residual
Certificates to a non-permitted transferee (See "Certain Federal Income Tax
Consequences-REMICs-Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations" herein), (v) to make any other provisions
with respect to matters or questions arising under such Pooling and Servicing
Agreement or any other change, provided that such action will not adversely
affect in any material respect the interests of any Certificateholder, or (vi)
to amend specified provisions that are not material to holders of any class of
Certificates offered hereunder.
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The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each class affected
thereby evidencing, in each case, not less than 66-2/3% (or such other
percentage specified in the related Prospectus Supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of Certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on a Certificate of any class without the consent of the holder
of such Certificate or (ii) reduce the aforesaid percentage of Certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such amendment or the exercise
of any power granted to the Master Servicer, the Special Servicer, the
Depositor, the Trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related Trust Fund
or cause such Trust Fund (or any designated portion thereof) to fail to qualify
as a REMIC.
List of Certificateholders
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be required
to request from such registrar a current list and to afford such requesting
Certificateholders access thereto promptly upon receipt.
The Trustee
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Depositor and its affiliates and
with any Master Servicer, Special Servicer or REMIC Administrator and its
affiliates.
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Duties of the Trustee
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such Certificates or any underlying Mortgage Asset or related document and will
not be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or Special
Servicer in respect of the Certificates or the underlying Mortgage Assets. If no
Event of Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
Trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of this duties thereunder either directly or by or through agents or
attorneys, and the Trustee will not be responsible for any willful misconduct or
gross negligence on the part of any such agent or attorney appointed by it with
due care.
Resignation and Removal of the Trustee
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Depositor will be obligated to appoint
a successor Trustee. The Trustee may also be removed at any time by the holders
of Certificates of the applicable series evidencing not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series. Any resignation or removal of the Trustee and
appointment of a successor Trustee will
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not become effective until acceptance of the appointment by the successor
Trustee. Notwithstanding anything herein to the contrary, if any entity is
acting as both Trustee and REMIC Administrator, then any resignation or removal
of such entity as the Trustee will also constitute the resignation or removal of
such entity as REMIC Administrator, and the successor trustee will serve as
successor to the REMIC Administrator as well.
DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more classes of the
Certificates of any series or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Support may provide
credit enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of Credit Support covers the Offered Certificates of more than one series
and losses on the related Mortgage Assets exceed the amount of such Credit
Support, it is possible that the holders of Offered Certificates of one (or
more) such series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Certificates of one (or more) other such
series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors-Credit Support
Limitations".
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive
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distributions from the Certificate Account on any Distribution Date will be
subordinated to the corresponding rights of the holders of Senior Certificates.
If so provided in the related Prospectus Supplement, the subordination of a
class may apply only in the event of certain types of losses or shortfalls. The
related Prospectus Supplement will set forth information concerning the method
and amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which such subordination
will be available.
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
Letter of Credit
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or other financial institution (which may be an affiliate of the Depositor)
specified in such Prospectus Supplement (the "Letter of Credit Bank"). Under a
letter of credit, the Letter of Credit Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of some or all of the related
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws only in
the event of certain types of losses and shortfalls. The amount available under
the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the Letter of Credit Bank
under the letter of credit for each series of Certificates will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be
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covered by insurance policies or surety bonds provided by one or more insurance
companies or sureties. Such instruments may cover, with respect to one or more
classes of Certificates of the related series, timely distributions of interest
or distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the related
Prospectus Supplement. The related Prospectus Supplement will describe any
limitations on the draws that may be made under any such instrument.
Reserve Funds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such
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legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete, to reflect the laws
of any particular state, or to encompass the laws of all states in which the
security for the Mortgage Loans (or mortgage loans underlying any MBS) is
situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds-Mortgage Loans". For purposes of the following discussion, "Mortgage Loan"
includes a mortgage loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
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Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "-Bankruptcy Laws".
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
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Foreclosure
General. Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the real property at public auction to satisfy the
indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions.
United States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These principles
are generally designed to relieve borrowers from the effects of mortgage
defaults perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a nonmonetary default, such as a failure to
adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged property. Finally, some courts have addressed the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a borrower receive
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notice in addition to statutorily-prescribed minimum notice. For the most part,
these cases have upheld the reasonableness of the notice provisions or have
found that a public sale under a mortgage providing for a power of sale does not
involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans-Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to
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pay taxes, to obtain casualty insurance and to make such repairs as are
necessary to render the property suitable for sale. The costs of operating and
maintaining a commercial or multifamily residential property may be significant
and may be greater than the income derived from that property. The lender also
will commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale or lease of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Moreover, because of the expenses
associated with acquiring, owning and selling a mortgaged property, a lender
could realize an overall loss on a mortgage loan even if the mortgaged property
is sold at foreclosure, or resold after it is acquired through foreclosure, for
an amount equal to the full outstanding principal amount of the loan plus
accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan.
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However, even if a mortgage loan by its terms provides for recourse to the
borrower's other assets, a lender's ability to realize upon those assets may be
limited by state law. For example, in some states a lender cannot obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other statutes may
require the lender to exhaust the security afforded under a mortgage before
bringing a personal action against the borrower. In certain other states, the
lender has the option of bringing a personal action against the borrower on the
debt without first exhausting such security; however, in some of those states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy provision
exists will usually proceed first against the security. Finally, other statutory
provisions, designed to protect borrowers from exposure to large deficiency
judgments that might result from bidding at below-market values at the
foreclosure sale, limit any deficiency judgment to the excess of the outstanding
debt over the fair market value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
Cooperative Shares. Mortgage Loans may be secured by a security interest on
the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be cancelled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the
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security agreement relating to the shares. Article 9 of the UCC requires that a
sale be conducted in a "commercially reasonable" manner, which may be dependent
upon, among other things, the notice given the debtor and the method, manner,
time, place and terms of the sale. Article 9 of the UCC provides that the
proceeds of the sale will be applied first to pay the costs and expenses of the
sale and then to satisfy the indebtedness secured by the lender's security
interest. A recognition agreement, however, generally provides that the lender's
right to reimbursement is subject to the right of the Cooperative to receive
sums due under the proprietary leases.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "-
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Leases and Rents", the amendments provide that a pre-petition security interest
in rents or hotel revenues is designed to overcome those cases holding that a
security interest in rents is unperfected under the laws of certain states until
the lender has taken some further action, such as commencing foreclosure or
obtaining a receiver prior to activation of the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
become sufficiently involved in the
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management of such mortgaged property or the operations of the borrower. Such
liability may exist even if the lender did not cause or contribute to the
contamination and regardless of whether or not the lender has actually taken
possession of a mortgaged property through foreclosure, deed in lieu of
foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest". This is the so-called "secured creditor" exemption.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor exemption. The Act offers
substantial protection of lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. In
order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property of the borrower. The Act provides that "merely having
the capacity to influence, or unexercised right to control" operations does not
constitute participation in management. A lender will lose the protection of the
secured creditor exemption only if it exercises decision making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of operational functions of
the mortgaged property. The Act also provides that a lender will continue to
have the benefit of the secured-creditor exemption even if it forecloses on a
mortgaged property, purchases it at a foreclosure sale or accepts a deed-in-lieu
of foreclosure provided that the lender seeks to sell the mortgaged property at
the earliest practicable commercially reasonable time on commercially reasonable
terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. It should be noted, however, that liability for cleanup of
petroleum contamination may be governed by state law, which may not provide for
any specific protection of secured creditors.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property.
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While it may be more difficult to hold a lender liable in such cases,
unanticipated or uninsured liabilities of the borrower may jeopardize the
borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf of
the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage
Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the
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enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limitations as set forth in
the Garn Act and the regulations promulgated thereunder. Accordingly, a Master
Servicer may nevertheless have the right to accelerate the maturity of a
Mortgage Loan that contains a "due-on-sale" provision upon transfer of an
interest in the property, without regard to the Master Servicer's ability to
demonstrate that a sale threatens its legitimate security interest.
Junior Liens; Rights of Holders of Senior Liens
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related Senior Liens may not be included in the
Mortgage Pool. The primary risk to holders of Mortgage Loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related Senior Liens to satisfy fully both the Senior
Liens and the Mortgage Loan. In the event that a holder of a Senior Lien
forecloses on a Mortgaged Property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgage Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related Mortgaged Property are insufficient to satisfy all Senior
Liens and the Mortgage Loan in the aggregate, the Trust Fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
Certificates of the related series bear (i) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (ii) the risk
of loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the Mortgage Loan may
be nonrecourse.
Subordinate Financing
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior
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lenders can impair the security available to the senior lender and can interfere
with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
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Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer or Special Servicer to foreclose on an affected Mortgage
Loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
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Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the Depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. Counsel
to the Depositor for each series will be Cadwalader, Wickersham & Taft, and a
copy of the legal opinion of such counsel rendered in connection with any series
of Certificates will be filed by the Depositor with the Commission on a Current
Report on Form 8-K within 15 days after the Closing Date for such series of
Certificates. This discussion is directed primarily to Certificateholders that
hold the Certificates as "capital assets" within the meaning of Section 1221 of
the Code (although portions thereof may also apply to Certificateholders who do
not hold Certificates as "capital assets") and it does not purport to discuss
all federal income tax consequences that may be applicable to the individual
circumstances of particular investors, some of which (such as banks, insurance
companies and foreign investors) may be subject to special treatment under the
Code. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
("IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given
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with respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their tax advisors and tax return preparers regarding
the preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein. In addition to the federal income tax
consequences described herein, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of Offered Certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the REMIC Administrator will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
860G (the "REMIC Provisions") of the Code, and (ii) Grantor Trust Certificates
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election (or elections) will be made
for the related Trust Fund and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. For purposes of
this tax discussion, references to a "Certificateholder" or a "holder" are to
the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements other than guaranteed
investment contracts are included in a Trust Fund, the anticipated material tax
consequences associated with such Cash Flow Agreements also will be discussed in
the related Prospectus Supplement. See "Description of the Trust Funds-Cash Flow
Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICs
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular
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Certificates or REMIC Residual Certificates in that REMIC within the meaning of
the REMIC Provisions. The following general discussion of the anticipated
federal income tax consequences of the purchase, ownership and disposition of
REMIC Certificates, to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of counsel to the
Depositor for the applicable series as specified in the related Prospectus
Supplement, subject to any qualifications set forth herein. In addition, counsel
to the Depositor have prepared or reviewed the statements in this Prospectus
under the heading "Certain Federal Income Tax Consequences--REMICs," and are of
the opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any Trust Fund (or applicable portion thereof) as a REMIC
for federal income tax purposes on investors generally and of related tax
matters affecting investors generally, but do not purport to furnish information
in the level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" for a REMIC within the meaning of
Section 860G(a)(3) of the Code" and "permitted assets" for a financial
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asset securitization investment trust within the meaning of Section 860L(c) of
the Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections of the Code)
otherwise would receive the same treatment as the Mortgage Loans for purposes of
all of the foregoing sections of the Code. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections of the Code. If so, the related Prospectus Supplement will describe the
Mortgage Loans that may not be so treated. The REMIC Regulations do provide,
however, that cash received from payments on Mortgage Loans held pending
distribution is considered part of the Mortgage Loans for purposes of Section
856(c)(4)(A) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes. As to
each such series of REMIC Certificates, in the opinion of counsel to the
Depositor, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
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Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest".
"Qualified stated interest" is interest that is unconditionally payable at least
annually (during the entire term of the instrument) at a single fixed rate, or
at a "qualified floating rate", an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe
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the manner in which such rules will be applied with respect to those
Certificates in preparing information returns to the Certificateholders and the
IRS.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on
the day prior to a Distribution Date, in some cases, as a consequence of this
"long first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the
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outstanding stated principal amount of the REMIC Regular Certificate. The OID
Regulations also would permit a Certificateholder to elect to accrue de minimis
original issue discount into income currently based on a constant yield method.
See "-Taxation of Owners of REMIC Regular Certificates-Market Discount" below
for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (i) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Loans being prepaid at a
rate equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Certificate and (iii) taking into account
events (including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
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price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"-Taxation of Owners of REMIC Regular Certificates-Premium" below. Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest would be irrevocable except with the
approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a
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slower rate than discount would be required to be included in income using the
method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium
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under the constant yield method over the life of the Certificate. If made, such
an election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related debt instrument, rather
than as a separate interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the Certificateholder
as having made the election to amortize premium generally. See "-Taxation of
Owners of REMIC Regular Certificates-Market Discount" above. Although final
Treasury Regulations issued under Section 171 of the Code do not by their terms
apply to prepayable obligations such as REMIC Regular Certificates, the
Committee Report states that the same rules that apply to accrual of market
discount (which rules will require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have original issue discount) will also apply in
amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable income
or net loss of a REMIC is generally taken into account by the holder of the
REMIC Residual
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Certificates. Accordingly, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Mortgage Loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "-Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC
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Residual Certificateholders should have other sources of funds sufficient to pay
any federal income taxes due as a result of their ownership of REMIC Residual
Certificates or unrelated deductions against which income may be offset, subject
to the rules relating to "excess inclusions" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return. Such disparity between income and
distributions may not be offset by corresponding losses or reductions of income
attributable to the REMIC Residual Certificateholder until subsequent tax years
and, then, may not be completely offset due to changes in the Code, tax rates or
character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal the
income from the Mortgage Loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad debt losses with
respect to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under "-Taxation
of Owners of REMIC Regular Certificates-Original Issue Discount". The issue
price of a REMIC Certificate received in exchange for an interest in the
Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Mortgage Loans and
other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to Mortgage Loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "-Taxation of Owners of
REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is
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analogous to that required to be used by a REMIC as to Mortgage Loans with
market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the
REMIC will have additional income in each taxable year in an amount equal to the
portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"-Taxation of Owners of REMIC Regular Certificates-Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be
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allocated as a separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "-Possible Pass-Through of
Miscellaneous Itemized Deductions" below. If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
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between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-Taxation of Owners of REMIC
Residual Certificates-General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events. In general, the
"excess inclusions" with respect to a REMIC Residual Certificate for any
calendar quarter will be the excess, if any, of (i) the daily portions of REMIC
taxable income allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for each day during such quarter that
such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-Foreign Investors
in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported
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transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required liquidation provided for in the REMIC's organizational documents, (1)
the present value of the expected future distributions (discounted using the
"applicable Federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue with respect to
the REMIC Residual Certificate, which rate is computed and published monthly by
the IRS) on the REMIC Residual Certificate equals at least the present value of
the expected tax on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee, as to which the transferor is also required to make a
reasonable investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On January 4, 1995, the IRS issued final regulations
(the "Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, any REMIC Residual Certificate issued after January 4, 1995 will
not be treated as a security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC
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that is similar to a single class grantor trust, all or a portion of such fees
and expenses should be allocated to such types of holders of the related REMIC
Regular Certificates. Unless otherwise stated in the related Prospectus
Supplement, such fees and expenses will be allocated to the related REMIC
Residual Certificates in their entirety and not to the holders of the related
REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "-Taxation of Owners of REMIC Residual Certificates-Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term
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capital gains of individuals of 28% for property held for more than one year but
less than 18 months and 20% for property held more than 18 months. No such rate
differential exists for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "-Taxation of Owners of REMIC Regular Certificates-Market
Discount" and "-Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other
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residual interest in a REMIC or any similar interest in a "taxable mortgage
pool" (as defined in Section 7701(i) of the Code) during the period beginning
six months before, and ending six months after, the date of such sale, such sale
will be subject to the "wash sale" rules of Section 1091 of the Code. In that
event, any loss realized by the REMIC Residual Certificateholder on the sale
will not be deductible, but instead will be added to such REMIC Residual
Certificateholder's adjusted basis in the newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property", determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the Trust Fund than any other method of
operation.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax or
Contributions Tax will be borne by the related REMIC Administrator, Master
Servicer, Special Servicer, Manager or Trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
Administrator, a Master Servicer, Special
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Servicer, Manager or Trustee will be charged against the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate) of the total anticipated
excess inclusions with respect to such REMIC Residual Certificate for periods
after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must be determined
as of the date that the REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (i) residual interests in
such entity are not held by disqualified organizations and (ii) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Pooling and Servicing Agreement, and will be discussed in any
Prospectus Supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by section 860E(c) of the
Code. An exception to this tax, otherwise available to a
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pass-through entity that is furnished certain affidavits by record holders of
interests in the entity and that does not know such affidavits are false, is not
available to an electing large partnership.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Mortgage
Loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in such Certificate, such REMIC Residual Certificateholder should
(but may not) be treated as realizing a loss equal to the amount of such
difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item.
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Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. No
REMIC will be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-Taxation of Owners of REMIC Regular
Certificates-Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so
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in the proper manner. The New Regulations, as described below, change certain of
the rules relating to certain presumptions currently available relating to
information reporting and backup withholding. Non-U.S. Persons are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "U.S. Person" (as defined below) and is not subject to federal
income tax as a result of any direct or indirect connection to the United States
in addition to its ownership of a REMIC Regular Certificate will not, unless
otherwise disclosed in the related Prospectus Supplement, be subject to United
States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary
with certain identification requirements (including delivery of a statement,
signed by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). For these purposes, "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (except to the extent
provided in applicable Treasury Regulations) or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income tax regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more such U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to elect to be treated as U.S. Persons). It is possible that the IRS
may assert that the foregoing tax exemption should not apply with respect to a
REMIC Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign
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partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors concerning the application of the certification requirements in the New
Regulations.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the Depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the Depositor for the applicable series as specified
in the related Prospectus Supplement, subject to any qualifications set forth
herein. In addition, counsel to the Depositor have prepared or reviewed the
statements in this Prospectus under the heading "Certain Federal Income Tax
Consequences--Grantor Trust Funds," and are of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
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Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (ii) "obligation[s]
(including any participation or Certificate of beneficial ownership therein)
which . . .[are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3) of the Code; and (iii) "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
Depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent
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of such holder's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of Grantor Trust Fractional Interest Certificates
who are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below. Under the stripped bond rules, the
holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption
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price of a Grantor Trust Fractional Interest Certificate will be the sum of all
payments to be made on such Certificate, other than "qualified stated interest",
if any, as well as such Certificate's share of reasonable servicing fees and
other expenses. See "-Taxation of Owners of Grantor Trust Fractional Interest
Certificates-If Stripped Bond Rules Do Not Apply" for a definition of "qualified
stated interest". In general, the amount of such income that accrues in any
month would equal the product of such holder's adjusted basis in such Grantor
Trust Fractional Interest Certificate at the beginning of such month (see
"-Sales of Grantor Trust Certificates" below) and the yield of such Grantor
Trust Fractional Interest Certificate to such holder. Such yield would be
computed as the rate (compounded based on the regular interval between payment
dates) that, if used to discount the holder's share of future payments on the
Mortgage Loans, would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In computing yield
under the stripped bond rules, a Certificateholder's share of future payments on
the Mortgage Loans will not include any payments made in respect of any
ownership interest in the Mortgage Loans retained by the Depositor, the Master
Servicer, the Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate
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and the portion of the adjusted basis of such Certificate that is allocable to
such Certificateholder's interest in the Mortgage Loan. If a prepayment
assumption is used, it appears that no separate item of income or loss should be
recognized upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust Fractional
Interest Certificate and accounted for under a method similar to that described
for taking account of original issue discount on REMIC Regular Certificates. See
"-REMICs-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount" above. It is unclear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "-Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" and
"-Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not
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apply, to a Grantor Trust Fractional Interest Certificate to the extent it
evidences an interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount" above. In general,
the issue price of a Mortgage Loan will be the amount received by the borrower
from the lender under the terms of the Mortgage Loan, less any "points" paid by
the borrower, and the stated redemption price of a Mortgage Loan will equal its
principal amount, unless the Mortgage Loan provides for an initial "teaser," or
below-market interest rate. The determination as to whether original issue
discount will be considered to be de minimis will be calculated using the same
test as in the REMIC discussion. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of
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the first accrual period, the issue price) of such Mortgage Loan at the
beginning of the accrual period that includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day. The adjusted issue price of a Mortgage Loan at the beginning
of any accrual period will equal the issue price of such Mortgage Loan,
increased by the aggregate amount of original issue discount with respect to
such Mortgage Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the Trustee
or Master Servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor Trust
Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "-Taxation of Owners of REMIC Regular
Interests-Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
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discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above within the exception that it is less
likely that a prepayment assumption will be used for purposes of such rules with
respect to the Mortgage Loans.
Further, under the rules described above in "-REMICs-Taxation of Owners of
REMIC Regular Certificates-Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor
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Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Apply", no regulations
or published rulings under Section 1286 of the Code have been issued and some
uncertainty exists as to how it will be applied to securities such as the
Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust Strip
Certificates should consult their tax advisors concerning the method to be used
in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
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The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations have
been promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Grantor Trust Strip Certificates, due
to their similarity to other mortgage-backed securities (such as REMIC regular
interests and debt instrument subject to Section 1272(a)(6) of the Code) that
are expressly excepted from the application of the Contingent Payment
Regulations, may be excepted from such regulations. Like the OID Regulations,
the Contingent Payment Regulations do not specifically address securities, such
as the Grantor Trust Strip Certificates, that are subject to the stripped bond
rules of Section 1286 of the Code.
If the contingent payment rules similar to those under the OID regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip
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Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the comparable yield (as described below)
of the Grantor Trust Strip Certificate. The projected amount of each payment is
determined so that the projected payment schedule reflects the projected yield.
The projected amount of each payment must reasonably reflect the relative
expected values of the payments to be received by the holders of a Grantor Trust
Strip Certificate. The comparable yield referred to above is a rate that, as of
the issue date, reflects the yield at which the issuer would issue a fixed rate
debt instrument with terms and conditions similar to the contingent payment debt
instrument, including general market conditions, the credit quality of the
issuer, and the terms and conditions of the Mortgage Loans. The holder of a
Grantor Trust Strip Certificate would be required to include as interest income
in each month the adjusted issue price of the Grantor Trust Strip Certificate at
the beginning of the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus generally provides for
maximum tax rates of noncorporate taxpayers of 39.6% on ordinary income, 28% on
mid-term capital gains (generally, property held for more than one year but not
more than 18 months), and 20% on long-term capital gains (generally, property
held for more than 18 months). No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of
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interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"-REMICs-Backup Withholding with Respect to REMIC Certificates" will also apply
to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC Regular
Certificates in "-REMICs-Foreign Investors in REMIC Certificates" above applies
to Grantor Trust Certificates except that Grantor Trust Certificates will,
unless otherwise disclosed in the related Prospectus Supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
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STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Plan Asset Regulations
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section
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2510.3-101 of the regulations (the "Plan Asset Regulations") of the United
States Department of Labor (the "DOL") provides that when a Plan acquires an
equity interest in an entity, the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined therein. For this purpose, in general, equity participation by
benefit plan investors will be "significant" on any date if 25% or more of the
value of any class of equity interests in the entity is held by benefit plan
investors. Equity participation in a Trust Fund will be significant on any date
if immediately after the most recent acquisition of any Certificate, 25% or more
of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Special
Servicer, any Sub-Servicer, the Trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the Mortgage Assets and other assets included in
a Trust Fund constitute Plan assets, the purchase of Certificates by a Plan, as
well as the operation of the Trust Fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates, but, on their face, do not include FAMC Certificates. Accordingly,
even if such MBS (other than, perhaps, FAMC Certificates) included in a Trust
Fund were deemed to be assets of Plan investors, the mortgages underlying such
MBS (other than, perhaps, FAMC Certificates) would not be treated as assets of
such Plans. Private label mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities are not "guaranteed
governmental mortgage pool certificates" within the meaning of the Plan Asset
Regulations. Potential Plan investors should consult their counsel and review
the ERISA discussion in the related Prospectus Supplement before purchasing any
such Certificates.
In considering an investment in the Offered Certificates, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts
certain transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf
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of a Plan by a "qualified professional asset manager"; PTCE 95-60, which exempts
certain transactions between insurance company general accounts and Parties in
Interest; and PTCE 96-23, which exempts certain transactions effected on behalf
of a Plan by an "in-house asset manager." There can be no assurance that any of
these class exemptions will apply with respect to any particular Plan investment
in the Certificates or, even if it were deemed to apply, that any exemption
would apply to all prohibited transactions that may occur in connection with
such investment. The Prospectus Supplement with respect to a series of
Certificates may contain additional information regarding the availability of
other exemptions with respect to the Certificates offered thereby.
Insurance Company General Accounts
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust (such as the Trust) in which an insurance company general account has an
interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain Classes
of Certificates which do not meet the requirements of the Exemptions solely
because they (i) are subordinated to other Classes of Certificates in the Trust
and/or (ii) have not received a rating at the time of the acquisition in one of
the three highest rating categories from S&P, Moody's, DCR or Fitch. All other
conditions of the Exemptions would have to be satisfied in order for PTCE 95-60
to be available. Before purchasing such Class of Certificates, an insurance
company general account seeking to rely on Section III of PTCE 95-60 should
itself confirm that all applicable conditions and other requirements have been
satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which are to
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan Assets. On December 22, 1977, the DOL proposed such regulations.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
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before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Offered Certificates after
the date which is 18 months after the date the 401(c) Regulations become final.
Consultation With Counsel
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those Offered Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase such Offered Certificates, may be subject to
significant interpretive uncertainties. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Non-SMMEA Certificates
constitute legal investments for them. Generally, only classes of Offered
Certificates that (i) are rated in one of the two highest rating categories by
one or more Rating Agencies and (ii) are part of a series evidencing interests
in a Trust Fund consisting of loans originated by certain types of Originators
specified in SMMEA and secured by first liens on real estate, will be "mortgage
related securities" for purposes of SMMEA. Classes of Offered Certificates
qualifying as "mortgage related securities" will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, insurance companies
and pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state
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regulation, to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, a number of states enacted legislation, on or before the October 3, 1991
cutoff for such enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in "mortgage related
securities" secured by liens on residential, or mixed residential and commercial
properties, in most cases by requiring the affected investors to rely solely
upon existing state law, and not SMMEA. Pursuant to Section 347 of the Riegle
Community Development and Regulatory Improvement Act of 1994, which amended the
definition of "mortgage related security" (effective December 31, 1996) to
include, in relevant part, Offered Certificates satisfying the rating and
qualified Originator requirements for "mortgage related securities," but
evidencing interests in a Trust Fund consisting, in whole or in part, of first
liens on one or more parcels of real estate upon which are located one or more
commercial structures, states were authorized to enact legislation, on or before
September 23, 2001, specifically referring to Section 347 and prohibiting or
restricting the purchase, holding or investment by state-regulated entities in
such types of Offered Certificates. Accordingly, the investors affected by any
such state legislation, when and if enacted, will be authorized to invest in
Offered Certificates qualifying as "mortgage related securities" only to the
extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss.24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation, as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards concerning "safety and soundness" and
retention of credit information in 12 C.F.R. ss.1.5 concerning "safety and
soundness" and retention of credit information), certain "Type IV securities,"
defined in 12 C.F.R. ss.1.2(1) to include certain "commercial mortgage-related
securities" and "residential mortgage-related securities." As so defined,
"commercial mortgage-related security" and "residential mortgage-related
security" mean, in relevant part, "mortgage related security" within the meaning
of SMMEA, provided that, in the case of a "commercial mortgage-related
security," it "represents ownership of a promissory note or certificate of
interest or participation that is directly secured by a first lien on one or
more parcels of real estate upon which one or more commercial structures are
located and that is fully secured by interests in a pool of loans to numerous
obligors." In the absence of any rule or administrative interpretation by the
OCC defining the term "numerous obligors," no representation is made as to
whether any class of Offered Certificates will qualify as "commercial
mortgage-related securities," and thus as "Type IV securities," for investment
by national banks. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit
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federal credit unions to invest in "mortgage related securities" under certain
limited circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities, and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the "investment pilot program" described in 12 C.F.R.
ss.703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" (the "1998 Policy Statement") of the Federal Financial Institutions
Examination Council (the "FFIEC"), which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the Office of Thrift Supervision effective May 26,
1998, and by the NCUA effective October 1, 1998. The 1998 Policy Statement sets
forth general guidelines which depository institutions must follow in managing
risks (including market, credit, liquidity, operational (transactional), and the
legal risks) applicable to all securities (including mortgage pass-through
securities and mortgage-derivative products) used for investment purposes. Until
October 1, 1998, federal credit unions will still be subject to the FFIEC's
now-superseded "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as adopted by the NCUA with certain modifications, which
prohibited depository institutions from investing in certain "high-risk mortgage
securities," except under limited circumstances, and set forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase Offered Certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates.
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Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Offered Certificates of any class constitute
legal investments or are subject to investment, capital or other restrictions
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or will
be used by the Depositor to cover expenses related thereto. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters, which may include NationsBanc Montgomery Securities
LLC ("NationsBanc"), an affiliate of the Depositor;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such
Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more
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transactions, including negotiated transactions, at fixed public offering prices
or at varying prices to be determined at the time of sale or at the time of
commitment therefor. Such underwriters may be broker-dealers affiliated with the
Depositor whose identities and relationships to the Depositor will be as set
forth in the related Prospectus Supplement. The managing underwriter or
underwriters with respect to the offer and sale of Offered Certificates of a
particular series will be set forth on the cover of the Prospectus Supplement
relating to such series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by NationsBanc in connection with offers and sales
related to market-making transactions in Offered Certificates previously offered
hereunder in transactions with respect to which NationsBanc acts as principal.
NationsBanc may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.
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LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of NationsBank
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the underwriter or underwriters by Cadwalader, Wickersham & Taft.
Certain federal income tax matters and other matters will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of Stripped Interest Certificates might, in extreme
cases fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
1998 Policy Statement.............................126
401(c) Regulations................................123
Accrual Certificates................................7
Accrual Period.....................................92
Accrued Certificate Interest.......................39
Act................................................81
ADA................................................85
ARM Loans..........................................26
Available Distribution Amount......................37
Book-Entry Certificates............................37
Call Risk..........................................15
Cash Flow Agreement.................................9
CERCLA.............................................80
Certificate Account................................28
Certificate Balance.................................6
Certificate Owner..................................45
Closing Date.......................................90
Code...............................................10
Commercial Properties...........................2, 22
Commission........................................iii
Committee Report...................................90
Companion Class....................................40
Contributions Tax.................................104
Controlled Amortization Class......................40
Cooperatives.......................................22
CPR................................................33
Credit Support......................................8
Crime Control Act..................................86
Cut-off Date....................................7, 40
Debt Service Coverage Ratio........................23
Definitive Certificates............................37
Depositor.......................................i, 36
Determination Date.............................30, 38
Direct Participants................................45
Distribution Date...................................6
Distribution Date Statement........................42
DOL...............................................122
DTC............................................iv, 45
Due Dates..........................................25
Due Period.........................................30
Equity Participation...............................26
ERISA.........................................10, 121
Exchange Act.......................................iv
Extension Risk.....................................15
FAMC...............................................27
FFIEC.............................................126
FHLMC..............................................27
FNMA...............................................27
Garn Act...........................................82
Grantor Trust Certificates.........................10
Grantor Trust Fractional Interest Certificate.....109
Grantor Trust Fund.................................87
HUD.................................................2
Indirect Participants..............................45
Insurance Proceeds.................................55
IRS............................................59, 86
Issue Premium......................................98
Letter of Credit Bank..............................71
Liquidation Proceeds...............................55
Loan-to-Value Ratio................................24
Lock-out Date......................................25
Lock-out Period....................................25
Manager.............................................2
Mark-to-Market Regulations........................101
Master Servicer.....................................1
MBS..........................................i, 4, 21
MBS Administrator...................................1
MBS Agreement......................................27
MBS Issuer.........................................27
MBS Servicer.......................................27
MBS Trustee........................................27
Mortgage...........................................22
Mortgage Asset Pool.................................i
Mortgage Asset Seller..............................21
Mortgage Assets.................................i, 21
Mortgage Loans..................................2, 21
Mortgage Notes.....................................22
Mortgage Rate.......................................3
Mortgaged Properties...............................22
Mortgages..........................................73
Multifamily Properties..........................2, 22
NationsBanc.......................................127
NCUA..............................................125
Net Leases.........................................24
Net Operating Income...............................23
New Regulations...................................108
Nonrecoverable Advance.............................41
Non-SMMEA Certificates............................124
Notional Amount.....................................6
OCC...............................................125
Offered Certificates................................i
OID Regulations....................................87
Originator.........................................22
Participants.......................................45
Parties in Interest...............................121
Pass-Through Rate...................................6
Percentage Interest................................38
Permitted Investments..............................54
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Plan Asset Regulations............................122
Plans.............................................121
Pooling and Servicing Agreement.....................4
Prepayment Assumption..............................90
Prepayment Interest Shortfall......................30
Prepayment Period..................................43
Prepayment Premium.................................26
Prohibited Transactions Tax.......................104
Prospectus Supplement...............................i
PTCE..............................................122
Purchase Price.....................................49
Rating Agency......................................11
RCRA...............................................81
Record Date........................................38
Related Proceeds...................................41
Relief Act.........................................85
REMIC..............................................ii
REMIC Administrator.................................2
REMIC Certificates.................................87
REMIC Provisions...................................87
REMIC Regular Certificates.........................10
REMIC Regulations..................................87
REMIC Residual Certificates........................10
REO Property.......................................51
Residual Owner.....................................96
RICO...............................................86
Senior Certificates.................................4
Senior Liens.......................................22
SMMEA..............................................11
SPA................................................33
Special Servicer....................................1
Stripped Interest Certificates......................4
Stripped Principal Certificates.....................4
Subordinate Certificates............................4
Sub-Servicer.......................................54
Sub-Servicing Agreement............................54
Superlien..........................................80
Tax Exempt Investor...............................124
Tiered REMICs......................................89
Title V............................................84
Trust Assets......................................iii
Trust Fund..........................................i
Trustee.............................................1
UBTI..............................................124
UCC................................................74
Value..............................................24
Voting Rights......................................44
Warranting Party...................................50
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED _________ __, 1998
NATIONSLINK FUNDING CORPORATION VERSION 2
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of any
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "Certificates".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") to be formed by NationsLink Funding Corporation (the "Depositor")
and consisting primarily of a segregated pool (a "Mortgage Asset Pool") of
various types of multifamily and commercial mortgage loans ("Mortgage Loans"),
mortgage-backed securities ("MBS") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or commercial
mortgage loans, or a combination of Mortgage Loans and MBS (collectively,
"Mortgage Assets"). If so specified in the related Prospectus Supplement, the
Trust Fund for a series of Certificates may include letters of credit, insurance
policies, guarantees, reserve funds or other types of credit support, or any
combination thereof, and also interest rate exchange agreements and other
financial assets, or any combination thereof. See "Description of the Trust
Funds", "Description of the Certificates" and "Description of Credit Support".
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates--Termination;
Retirement of the Certificates".
(cover continued on next page)
-------------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS
AFFILIATES, INCLUDING NATIONSBANK CORPORATION, THE DEPOSITOR'S ULTIMATE PARENT.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
Prospective investors should review the information appearing on page 12
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, which may include
NationsBanc Montgomery Securities LLC, an affiliate of the Depositor, as
described under "Method of Distribution" and in the related Prospectus
Supplement.
There will be no secondary market for the Offered Certificates of any
series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if it does develop, that it
will continue. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any series unless
accompanied by the Prospectus Supplement for such series.
-----------
The date of this Prospectus is _____ __, 1998
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one or
more classes of Certificates that: (i) provide for the accrual of interest
thereon based on a fixed, variable or adjustable interest rate; (ii) are senior
or subordinate to one or more other classes of Certificates in entitlement to
certain distributions on the Certificates; (iii) are entitled to distributions
of principal, with disproportionate, nominal or no distributions of interest;
(iv) are entitled to distributions of interest, with disproportionate, nominal
or no distributions of principal; (v) provide for distributions of interest
thereon or principal thereof that commence only following the occurrence of
certain events, such as the retirement of one or more other classes of
Certificates of such series; (vi) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; or
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology. Distributions in respect of the Certificates of each series will be
made on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. See "Description of the
Certificates".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" (each, a "REMIC") for federal income
tax purposes. If applicable, the Prospectus Supplement for a series of
Certificates will specify which class or classes of such series of Certificates
will be considered to be regular interests in the related REMIC and which class
of Certificates or other interests will be designated as the residual interest
in the related REMIC. See "Certain Federal Income Tax Consequences".
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) a description of the class or classes of such
Offered Certificates, including the payment provisions with respect to each such
class, the aggregate principal amount, if any, of each such class, the rate at
which interest accrues from time to time, if at all, with respect to each such
class or the method of determining such rate, and whether interest with respect
to each such class will accrue from time to time on its aggregate principal
amount, if any, or on a specified notional amount, if at all; (ii) information
with respect to any other classes of Certificates of the same series; (iii) the
respective dates on which distributions are to be made; (iv) information as to
the assets, including the Mortgage Assets, constituting the related Trust Fund
(all such assets, with respect to the Certificates of any series, the "Trust
Assets"); (v) the circumstances, if any, under which the related Trust Fund may
be subject to early termination; (vi) additional information with respect to the
method of distribution of such Offered Certificates; (vii) whether one or more
REMIC elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created and the identity of the person
(the "REMIC Administrator") responsible for the various tax-related duties in
respect of each REMIC to be created; (viii) the initial percentage ownership
interest in the related Trust Fund to be evidenced by each class of Certificates
of such series; (ix) information concerning the Trustee (as defined herein) of
the related Trust Fund; (x) if the related Trust Fund includes Mortgage Loans,
information concerning the Master Servicer and any Special Servicer (each as
defined herein) of such Mortgage Loans and the circumstances under which all or
a portion, as specified, of the servicing of a Mortgage Loan would transfer from
the Master Servicer to the Special Servicer; (xi) information as to the nature
and extent of subordination of any class of Certificates of such series,
including a class of Offered Certificates; and (xii) whether such Offered
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, Room 1204, D.C. 20549, and at its
Midwest Regional Offices located as follows: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048. The Commission
also maintains a public access site on the Internet through the World Wide Web
at which site reports, information statements and other information, including
all electronic filings, regarding the Depositor and the Trust Fund may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
<PAGE>
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein since the date hereof or therein since the date
thereof. This Prospectus and any related Prospectus Supplement are not an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
The Master Servicer, the Trustee or another specified person will cause to
be provided to registered holders of the Offered Certificates of each series
periodic unaudited reports concerning the related Trust Fund. If beneficial
interests in a class or series of Offered Certificates are being held and
transferred in book-entry format through the facilities of The Depository Trust
Company ("DTC") as described herein, then unless otherwise provided in the
related Prospectus Supplement, such reports will be sent on behalf of the
related Trust Fund to a nominee of DTC as the registered holder of the Offered
Certificates. Conveyance of notices and other communications by DTC to its
participating organizations, and directly or indirectly through such
participating organizations to the beneficial owners of the applicable Offered
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. See
"Description of the Certificates--Reports to Certificateholders" and
"--Book-Entry Registration and Definitive Certificates".
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Depositor intends to make a
written request to the staff of the Commission that the staff either (i) issue
an order pursuant to Section 12(h) of the Exchange Act exempting the Depositor
from certain reporting requirements under the Exchange Act with respect to each
Trust Fund or (ii) state that the staff will not recommend that the Commission
take enforcement action if the Depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the Depositor will
file or cause to be filed with the Commission as to each Trust Fund the periodic
unaudited reports to holders of the Offered Certificates referenced in the
preceding paragraph; however, because of the nature of the Trust Funds, it is
unlikely that any significant additional information will be filed. In addition,
because of the limited number of Certificateholders expected for each series,
the Depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, prior
to the termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the offering
of one or more classes of Offered Certificates, upon written or oral request of
such person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such classes of such Offered Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Such requests to the Depositor should be directed in writing
to its principal executive offices at the NationsBank Corporate Center,
Charlotte, North Carolina 28255, or by telephone at (704) 386-2400.
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT ....................................................
AVAILABLE INFORMATION ....................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ........................
SUMMARY OF PROSPECTUS ....................................................
RISK FACTORS .............................................................
Limited Liquidity of Offered Certificates .............................
Limited Assets ........................................................
Credit Support Limitations ............................................
Effect of Prepayments on Average Life of Certificates .................
Effect of Prepayments on Yield of Certificates ........................
Limited Nature of Ratings .............................................
Certain Factors Affecting Delinquency, Foreclosure
and Loss of the Mortgage Loans .....................................
Inclusion of Delinquent and Nonperforming Mortgage
Loans in a Mortgage Asset Pool .....................................
Risks Associated with Health Care-Related Properties ..................
DESCRIPTION OF THE TRUST FUNDS ...........................................
General ...............................................................
Mortgage Loans ........................................................
MBS ...................................................................
Certificate Accounts ..................................................
Credit Support ........................................................
Cash Flow Agreements ..................................................
YIELD AND MATURITY CONSIDERATIONS ........................................
General ...............................................................
Pass-Through Rate .....................................................
Payment Delays ........................................................
Certain Shortfalls in Collections of Interest .........................
Yield and Prepayment Considerations ...................................
Weighted Average Life and Maturity ....................................
Other Factors Affecting Yield, Weighted Average Life and Maturity .....
THE DEPOSITOR ............................................................
DESCRIPTION OF THE CERTIFICATES ..........................................
General ...............................................................
Distributions .........................................................
Distributions of Interest on the Certificates .........................
Distributions of Principal of the Certificates ........................
Distributions on the Certificates in Respect of
Prepayment Premiums or in Respect of Equity Participations .........
Allocation of Losses and Shortfalls ...................................
Advances in Respect of Delinquencies ..................................
Reports to Certificateholders .........................................
Voting Rights .........................................................
Termination ...........................................................
Book-Entry Registration and Definitive Certificates ...................
THE POOLING AND SERVICING AGREEMENTS ...................................
General ...............................................................
Assignment of Mortgage Loans; Repurchases .............................
Representations and Warranties; Repurchases ...........................
Collection and Other Servicing Procedures .............................
Sub-Servicers .........................................................
Certificate Account ...................................................
Modifications, Waivers and Amendments of Mortgage Loans ...............
Realization Upon Defaulted Mortgage Loans .............................
Hazard Insurance Policies .............................................
Due-on-Sale and Due-on-Encumbrance Provisions .........................
Servicing Compensation and Payment of Expenses ........................
Evidence as to Compliance .............................................
Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Depositor ................
Events of Default .....................................................
Rights Upon Event of Default ..........................................
Amendment .............................................................
List of Certificateholders ............................................
The Trustee ...........................................................
Duties of the Trustee .................................................
Certain Matters Regarding the Trustee .................................
Resignation and Removal of the Trustee ................................
DESCRIPTION OF CREDIT SUPPORT ............................................
General ...............................................................
Subordinate Certificates ..............................................
Insurance or Guarantees with Respect to Mortgage Loans ................
Letter of Credit ......................................................
Certificate Insurance and Surety Bonds ................................
Reserve Funds .........................................................
Credit Support with respect to MBS ....................................
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ..................................
General ...............................................................
Types of Mortgage Instruments .........................................
Leases and Rents ......................................................
Personalty ............................................................
Foreclosure ...........................................................
Bankruptcy Laws .......................................................
Environmental Considerations ..........................................
Due-on-Sale and Due-on-Encumbrance Provisions .........................
Junior Liens; Rights of Holders of Senior Liens .......................
Subordinate Financing .................................................
Default Interest and Limitations on Prepayments .......................
Applicability of Usury Laws ...........................................
Certain Laws and Regulations ..........................................
Americans with Disabilities Act .......................................
Soldiers' and Sailors' Civil Relief Act of 1940 .......................
Forfeitures in Drug and RICO Proceedings ..............................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ..................................
General ...............................................................
REMICs ................................................................
Grantor Trust Funds ...................................................
STATE AND OTHER TAX CONSEQUENCES .........................................
ERISA CONSIDERATIONS .....................................................
General ...............................................................
Plan Asset Regulations ................................................
Consultation With Counsel .............................................
Tax Exempt Investors ..................................................
LEGAL INVESTMENT .........................................................
USE OF PROCEEDS ..........................................................
METHOD OF DISTRIBUTION ...................................................
LEGAL MATTERS ............................................................
FINANCIAL INFORMATION ....................................................
RATING ...................................................................
INDEX OF PRINCIPAL DEFINITIONS ...........................................
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Securities Offered ............. Mortgage pass-through certificates.
Depositor ...................... NationsLink Funding Corporation, a Delaware
corporation and a subsidiary of NationsBank,
N.A. See "The Depositor".
Trustee ........................ The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "The Pooling and
Servicing Agreements-The Trustee".
Master Servicer ................ If a Trust Fund includes Mortgage Loans,
then the master servicer (the "Master
Servicer") for the corresponding series of
Certificates will be named in the related
Prospectus Supplement. The Master Servicer
for any series of Certificates may be an
affiliate of the Depositor. See "The Pooling
and Servicing Agreements-Certain Matters
Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the
Depositor".
Special Servicer ............... If a Trust Fund includes Mortgage Loans,
then the special servicer (the "Special
Servicer") for the corresponding series of
Certificates will be named, or the
circumstances under which a Special Servicer
may be appointed will be described, in the
related Prospectus Supplement. The Special
Servicer for any series of Certificates may
be the Master Servicer or an affiliate of
the Depositor. See "The Pooling and
Servicing Agreements-Collection and Other
Servicing Procedures".
MBS Administrator .............. If a Trust Fund includes MBS, then the
entity responsible for administering such
MBS (the "MBS Administrator") will be named
in the related Prospectus Supplement. If an
entity other than the Trustee and the Master
Servicer is the MBS Administrator, such
entity will be herein referred to as the
"Manager". The Manager for any series of
Certificates may be an affiliate of the
Depositor.
REMIC Administrator ............ The person (the "REMIC Administrator")
responsible for the various tax-related
administration duties for a series of
Certificates as to which one or more REMIC
elections have been made, will be named in
the related Prospectus Supplement. Any REMIC
Administrator may be an affiliate of the
Depositor and/or may also be acting as
Master Servicer, Special Servicer, Trustee
or MBS Administrator. See "Certain Federal
Income Tax Consequences-REMIC's-Reporting
and Other Administrative Matters."
The Mortgage Assets ............ The Mortgage Assets will be the primary
assets of any Trust Fund. The Mortgage
Assets with respect to each series of
Certificates will, in general, consist of a
pool of mortgage loans ("Mortgage Loans")
secured by first or junior liens on, or
security interests in, without limitation,
(i) residential properties consisting of
five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or
garden apartment buildings or other
residential structures ("Multifamily
Properties") and (ii) office buildings,
retail stores and establishments, hotels or
motels, Health Care-Related Facilities (as
defined below), recreational vehicle and
mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage
facilities, industrial plants, parking lots,
entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of
income-producing properties or unimproved
land ("Commercial Properties"). "Health
Care-Related Facilities" include: hospitals
and other facilities providing acute medical
care services ("Acute Care Facilities");
(skilled nursing facilities ("Skilled
Nursing Facilities"); nursing homes,
congregate care homes and other assisted
living facilities ("Assisted Living
Facilities"); and senior and age restricted
housing ("Senior Housing").
No one of the following types of Commercial
Properties will represent security for a
material concentration of the Mortgage Loans
in any Trust Fund, based on principal
balance at the time such Trust Fund is
formed: (i) restaurants; (ii) entertainment
or sports arenas; (iii) marinas; or (iv)
Acute Care Facilities.
The Mortgage Loans will not be guaranteed or
insured by the Depositor or any of its
affiliates or, unless otherwise provided in
the related Prospectus Supplement, by any
governmental agency or instrumentality or by
any other person. If so specified in the
related Prospectus Supplement, some Mortgage
Loans may be delinquent or nonperforming as
of the date the related Trust Fund is
formed.
As and to the extent described in the
related Prospectus Supplement, a Mortgage
Loan (i) may provide for no accrual of
interest or for accrual of interest thereon
at an interest rate (a "Mortgage Rate") that
is fixed over its term or that adjusts from
time to time, or that may be converted at
the borrower's election from an adjustable
to a fixed Mortgage Rate, or from a fixed to
an adjustable Mortgage Rate, (ii) may
provide for level payments to maturity or
for payments that adjust from time to time
to accommodate changes in the Mortgage Rate
or to reflect the occurrence of certain
events, and may permit negative
amortization, (iii) may be fully amortizing
or may be partially amortizing or
nonamortizing, with a balloon payment due on
its stated maturity date, (iv) may prohibit
over its term or for a certain period
prepayments and/or require payment of a
premium or a yield maintenance payment in
connection with certain prepayments and (v)
may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the
related Prospectus Supplement. Each Mortgage
Loan will have had an original term to
maturity of not more than 40 years. No
Mortgage Loan will have been originated by
the Depositor; however, some or all of the
Mortgage Loans in any Trust Fund may have
been originated by an affiliate of the
Depositor. See "Description of the Trust
Funds-Mortgage Loans".
If any Mortgage Loan, or group of related
Mortgage Loans, constitutes a concentration
of credit risk, financial statements or
other financial information with respect to
the related Mortgaged Property or Mortgaged
Properties will be included in the related
Prospectus Supplement. See "Description of
the Trust Funds-Mortgage Loans-Mortgage Loan
Information in Prospectus Supplements".
If and to the extent specified in the
related Prospectus Supplement, the Mortgage
Assets with respect to a series of
Certificates may also include, or consist
of, mortgage participations, mortgage
pass-through certificates and/or other
mortgage-backed securities (collectively,
"MBS"), that evidence an interest in, or are
secured by a pledge of, one or more mortgage
loans that conform to the descriptions of
the Mortgage Loans contained herein and
which may or may not be issued, insured or
guaranteed by the United States or an agency
or instrumentality thereof. See "Description
of the Trust Funds-MBS".
The Certificates ............... Each series of Certificates will be issued
in one or more classes pursuant to a pooling
and servicing agreement or other agreement
specified in the related Prospectus
Supplement (in any case, a "Pooling and
Servicing Agreement") and will represent in
the aggregate the entire beneficial
ownership interest in the related Trust
Fund.
As described in the related Prospectus
Supplement, the Certificates of each series,
including the Offered Certificates of such
series, may consist of one or more classes
of Certificates that, among other things:
(i) are senior (collectively, "Senior
Certificates") or subordinate (collectively,
"Subordinate Certificates") to one or more
other classes of Certificates in entitlement
to certain distributions on the
Certificates; (ii) are entitled to
distributions of principal, with
disproportionate, nominal or no
distributions of interest (collectively,
"Stripped Principal Certificates"); (iii)
are entitled to distributions of interest,
with disproportionate, nominal or no
distributions of principal (collectively,
"Stripped Interest Certificates"); (iv)
provide for distributions of interest
thereon or principal thereof that commence
only after the occurrence of certain events,
such as the retirement of one or more other
classes of Certificates of such series; (v)
provide for distributions of principal
thereof to be made, from time to time or for
designated periods, at a rate that is faster
(and, in some cases, substantially faster)
or slower (and, in some cases, substantially
slower) than the rate at which payments or
other collections of principal are received
on the Mortgage Assets in the related Trust
Fund; (vi) provide for distributions of
principal thereof to be made, subject to
available funds, based on a specified
principal payment schedule or other
methodology; or (vii) provide for
distribution based on collections on the
Mortgage Assets in the related Trust Fund
attributable to prepayment premiums, yield
maintenance payments or equity
participations.
If so specified in the related Prospectus
Supplement, a series of Certificates may
include one or more "Controlled Amortization
Classes", which will entitle the holders
thereof to receive principal distributions
according to a specified principal payment
schedule. Although prepayment risk cannot be
eliminated entirely for any class of
Certificates, a Controlled Amortization
Class will generally provide a relatively
stable cash flow so long as the actual rate
of prepayment on the Mortgage Loans in the
related Trust Fund remains relatively
constant at the rate, or within the range of
rates, of prepayment used to establish the
specific principal payment schedule for such
Certificates. Prepayment risk with respect
to a given Mortgage Asset Pool does not
disappear, however, and the stability
afforded to a Controlled Amortization Class
comes at the expense of one or more other
classes of the same series, any of which
other classes may also be a class of Offered
Certificates. See "Risk Factors-Effect of
Prepayments on Average Life of Certificates"
and "-Effect of Prepayments on Yield of
Certificates".
Each class of Certificates, other than
certain classes of Stripped Interest
Certificates and certain classes of REMIC
Residual Certificates (as defined herein),
will have an initial stated principal amount
(a "Certificate Balance"); and each class of
Certificates, other than certain classes of
Stripped Principal Certificates and certain
classes of REMIC Residual Certificates, will
accrue interest on its Certificate Balance
or, in the case of certain classes of
Stripped Interest Certificates, on a
notional amount (a "Notional Amount"), based
on a fixed, variable or adjustable interest
rate (a "Pass-Through Rate"). The related
Prospectus Supplement will specify the
Certificate Balance, Notional Amount and/or
Pass-Through Rate (or, in the case of a
variable or adjustable Pass-Through Rate,
the method for determining such rate), as
applicable, for each class of Offered
Certificates.
If so specified in the related Prospectus
Supplement, a class of Certificates may have
two or more component parts, each having
characteristics that are otherwise described
herein as being attributable to separate and
distinct classes.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person or
entity, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors-Limited Assets".
Distributions of Interest on
the Certificates ............. Interest on each class of Offered
Certificates (other than certain classes of
Stripped Principal Certificates and certain
classes of REMIC Residual Certificates) of
each series will accrue at the applicable
Pass-Through Rate on the Certificate Balance
or, in the case of certain classes of
Stripped Interest Certificates, the Notional
Amount thereof outstanding from time to time
and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "Distribution Date").
Distributions of interest with respect to
one or more classes of Certificates
(collectively, "Accrual Certificates") may
not commence until the occurrence of certain
events, such as the retirement of one or
more other classes of Certificates, and
interest accrued with respect to a class of
Accrual Certificates prior to the occurrence
of such an event will either be added to the
Certificate Balance thereof or otherwise
deferred as described in the related
Prospectus Supplement. Distributions of
interest with respect to one or more classes
of Certificates may be reduced to the extent
of certain delinquencies, losses and other
contingencies described herein and in the
related Prospectus Supplement. See "Risk
Factors-Effect of Prepayments on Average
Life of Certificates" and "-Effect of
Prepayments on Yield of Certificates",
"Yield and Maturity Considerations--Certain
Shortfalls in Collections of Interest" and
"Description of the
Certificates-Distributions of Interest on
the Certificates".
Distributions of Principal of
the Certificates ............. Each class of Certificates of each series
(other than certain classes of Stripped
Interest Certificates and certain classes of
REMIC Residual Certificates) will have a
Certificate Balance. The Certificate Balance
of a class of Certificates outstanding from
time to time will represent the maximum
amount that the holders thereof are then
entitled to receive in respect of principal
from future cash flow on the assets in the
related Trust Fund. The initial aggregate
Certificate Balance of all classes of a
series of Certificates will not be greater
than the outstanding principal balance of
the related Mortgage Assets as of a
specified date (the "Cut-off Date"), after
application of scheduled payments due on or
before such date, whether or not received.
As and to the extent described in each
Prospectus Supplement, distributions of
principal with respect to the related series
of Certificates will be made on each
Distribution Date to the holders of the
class or classes of Certificates of such
series then entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Distributions of
principal with respect to one or more
classes of Certificates: (i) may be made at
a rate that is faster (and, in some cases,
substantially faster) or slower (and, in
some cases, substantially slower) than the
rate at which payments or other collections
of principal are received on the Mortgage
Assets in the related Trust Fund; (ii) may
not commence until the occurrence of certain
events, such as the retirement of one or
more other classes of Certificates of the
same series; (iii) may be made, subject to
certain limitations, based on a specified
principal payment schedule; or (iv) may be
contingent on the specified principal
payment schedule for another class of the
same series and the rate at which payments
and other collections of principal on the
Mortgage Assets in the related Trust Fund
are received. Unless otherwise specified in
the related Prospectus Supplement,
distributions of principal of any class of
Offered Certificates will be made on a pro
rata basis among all of the Certificates of
such class. See "Description of the
Certificates-Distributions of Principal of
the Certificates".
Credit Support and
Cash Flow Agreements ........... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any series, "Credit
Support"). If so provided in the related
Prospectus Supplement, a Trust Fund may
include: (i) guaranteed investment contracts
pursuant to which moneys held in the funds
and accounts established for the related
series will be invested at a specified rate;
or (ii) certain other agreements, such as
interest rate exchange agreements, interest
rate cap or floor agreements, or other
agreements designed to reduce the effects of
interest rate fluctuations on the Mortgage
Assets or on one or more classes of
Certificates (any such agreement, in the
case of clause (i) or (ii), a "Cash Flow
Agreement"). Certain relevant information
regarding any applicable Credit Support or
Cash Flow Agreement will be set forth in the
Prospectus Supplement for a series of
Offered Certificates. See "Risk
Factors-Credit Support Limitations",
"Description of the Trust Funds-Credit
Support" and "-Cash Flow Agreements" and
"Description of Credit Support".
Advances ....................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, the Master
Servicer, the Special Servicer, the Trustee,
any provider of Credit Support and/or any
other specified person may be obligated to
make, or have the option of making, certain
advances with respect to delinquent
scheduled payments of principal and/or
interest on such Mortgage Loans. Any such
advances made with respect to a particular
Mortgage Loan will be reimbursable from
subsequent recoveries in respect of such
Mortgage Loan and otherwise to the extent
described herein and in the related
Prospectus Supplement. See "Description of
the Certificates -Advances in Respect of
Delinquencies". If and to the extent
provided in the Prospectus Supplement for a
series of Certificates, any entity making
such advances may be entitled to receive
interest thereon for a specified period
during which certain or all of such advances
are outstanding, payable from amounts in the
related Trust Fund. See "Description of the
Certificates- Advances in Respect of
Delinquencies". If a Trust Fund includes
MBS, any comparable advancing obligation of
a party to the related Pooling and Servicing
Agreement, or of a party to the related MBS
Agreement, will be described in the related
Prospectus Supplement.
Optional Termination ........... If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination
through the repurchase of the Mortgage
Assets in the related Trust Fund by the
party or parties specified therein, under
the circumstances and in the manner set
forth therein. If so provided in the related
Prospectus Supplement, upon the reduction of
the Certificate Balance of a specified class
or classes of Certificates by a specified
percentage or amount or upon a specified
date, a party specified therein may be
authorized or required to solicit bids for
the purchase of all of the Mortgage Assets
of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets
to retire such class or classes, under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates-Termination".
Certain Federal Income Tax
Consequences ................. The Certificates of each series will
constitute or evidence ownership of either
(i) "regular interests" ("REMIC Regular
Certificates") and "residual interests"
("REMIC Residual Certificates") in a Trust
Fund, or a designated portion thereof,
treated as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of
1986 (the "Code"), or (ii) interests
("Grantor Trust Certificates") in a Trust
Fund treated as a grantor trust (or a
partnership) under applicable provisions of
the Code.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
ERISA Considerations ........... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh plans,
and collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested, that
are subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code,
should review with their legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment ............... The Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA"), only if
so specified in the related Prospectus
Supplement. Investors whose investment
authority is subject to legal restrictions
should consult their legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus
Supplement.
Rating ......................... At their respective dates of issuance, each
class of Offered Certificates will be rated
not lower than investment grade by one or
more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
<PAGE>
RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
Limited Liquidity of Offered Certificates
General. The Offered Certificates of any series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Certificates for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates-Termination".
Lack of a Secondary Market. There can be no assurance that a secondary
market for the Offered Certificates of any series will develop or, if it does
develop, that it will provide holders with liquidity of investment or that it
will continue for as long as such Certificates remain outstanding. The
Prospectus Supplement for any series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in such
Offered Certificates; however, no underwriter will be obligated to do so. Any
such secondary market may provide less liquidity to investors than any
comparable market for securities that evidence interests in single-family
mortgage loans. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Certificates of any series, including
information regarding the status of the related Mortgage Assets and any Credit
Support for such Certificates, will be the periodic reports to
Certificateholders to be delivered pursuant to the related Pooling and Servicing
Agreement as described herein under the heading "Description of the
Certificates-Reports to Certificateholders". There can be no assurance that any
additional ongoing information regarding the Offered Certificates of any series
will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely affect
the liquidity thereof, even if a secondary market for such Certificates does
develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to any series of Offered Certificates
or class thereof, the market value of such Certificates will be affected by
several factors, including the perceived liquidity thereof, the anticipated cash
flow thereon (which may vary widely depending upon the prepayment and default
assumptions applied in respect of the underlying Mortgage Loans) and prevailing
interest rates. The price payable at any given time in respect of certain
classes of Offered Certificates (in particular, a class with a relatively long
average life, a Companion Class (as defined herein) or a class of Stripped
Interest Certificates or Stripped Principal Certificates) may be extremely
sensitive to small fluctuations in prevailing interest rates; and the relative
change in price for an Offered Certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for such Offered Certificate in response to an equal but
opposite movement in such rates. Accordingly, the sale of Offered Certificates
by a holder in any secondary market that may develop may be at a discount from
the price paid by such holder. The Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis.
Limited Assets
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other person
or entity; and no Offered Certificate of any series will represent a claim
against or security interest in the Trust Funds for any other series.
Accordingly, if the related Trust Fund has insufficient assets to make payments
on a series of Offered Certificates, no other assets will be available for
payment of the deficiency, and the holders of one or more classes of such
Offered Certificates will be required to bear the consequent loss. Furthermore,
certain amounts on deposit from time to time in certain funds or accounts
constituting part of a Trust Fund, including the Certificate Account and any
accounts maintained as Credit Support, may be withdrawn under certain
conditions, if and to the extent described in the related Prospectus Supplement,
for purposes other than the payment of principal of or interest on the related
series of Certificates. If and to the extent so provided in the Prospectus
Supplement for a series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Mortgage Assets have been incurred, all or a
portion of the amount of such losses or shortfalls will be borne first by one or
more classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
Credit Support Limitations
Limitations Regarding Types of Losses Covered. The Prospectus Supplement
for a series of Certificates will describe any Credit Support provided with
respect thereto. Use of Credit Support will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement. Moreover,
such Credit Support may not cover all potential losses; for example, Credit
Support may or may not cover loss by reason of fraud or negligence by a mortgage
loan originator or other parties. Any such losses not covered by Credit Support
may, at least in part, be allocated to one or more classes of Offered
Certificates.
Disproportionate Benefits to Certain Classes and Series. A series of
Certificates may include one or more classes of Subordinate Certificates (which
may include Offered Certificates), if so provided in the related Prospectus
Supplement. Although subordination is intended to reduce the likelihood of
temporary shortfalls and ultimate losses to holders of Senior Certificates, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more classes of
Offered Certificates of a series are made in a specified order of priority, any
related Credit Support may be exhausted before the principal of the later paid
classes of Offered Certificates of such series has been repaid in full. As a
result, the impact of losses and shortfalls experienced with respect to the
Mortgage Assets may fall primarily upon those classes of Offered Certificates
having a later right of payment. Moreover, if a form of Credit Support covers
the Offered Certificates of more than one series and losses on the related
Mortgage Assets exceed the amount of such Credit Support, it is possible that
the holders of Offered Certificates of one (or more) such series will be
disproportionately benefited by such Credit Support to the detriment of the
holders of Offered Certificates of one (or more) other such series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable Credit Support supporting one or more classes of Offered
Certificates, including the subordination of one or more other classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies and losses on the underlying Mortgage Assets and certain
other factors. There can, however, be no assurance that the loss experience on
the related Mortgage Assets will not exceed such assumed levels. See
"Description of the Certificates--Allocation of Losses and Shortfalls" and
"Description of Credit Support". If the losses on the related Mortgage Assets do
exceed such assumed levels, the holders of one or more classes of Offered
Certificates will be required to bear such additional losses.
Effect of Prepayments on Average Life of Certificates
As a result of prepayments on the Mortgage Loans in any Trust Fund, the
amount and timing of distributions of principal and/or interest on the Offered
Certificates of the related series may be highly unpredictable. Prepayments on
the Mortgage Loans in any Trust Fund will result in a faster rate of principal
payments on one or more classes of the related series of Certificates than if
payments on such Mortgage Loans were made as scheduled. Thus, the prepayment
experience on the Mortgage Loans in a Trust Fund may affect the average life of
one or more classes of Certificates of the related series, including a class of
Offered Certificates. The rate of principal payments on pools of mortgage loans
varies among pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax and legal factors. For example, if
prevailing interest rates fall significantly below the Mortgage Rates borne by
the Mortgage Loans included in a Trust Fund, then, subject to the particular
terms of the Mortgage Loans (e.g., provisions that prohibit voluntary
prepayments during specified periods or impose penalties in connection
therewith) and the ability of borrowers to obtain new financing, principal
prepayments on such Mortgage Loans are likely to be higher than if prevailing
interest rates remain at or above the rates borne by those Mortgage Loans.
Conversely, if prevailing interest rates rise significantly above the Mortgage
Rates borne by the Mortgage Loans included in a Trust Fund, then principal
prepayments on such Mortgage Loans are likely to be lower than if prevailing
interest rates remain at or below the mortgage rates borne by those Mortgage
Loans. There can be no assurance as to the actual rate of prepayment on the
Mortgage Loans in any Trust Fund or that such rate of prepayment will conform to
any model described herein or in any Prospectus Supplement. As a result,
depending on the anticipated rate of prepayment for the Mortgage Loans in any
Trust Fund, the retirement of any class of Certificates of the related series
could occur significantly earlier or later, and the average life thereof could
be significantly shorter or longer, than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms and provisions of such Certificates. A class of
Certificates, including a class of Offered Certificates, may provide that on any
Distribution Date the holders of such Certificates are entitled to a pro rata
share of the prepayments on the Mortgage Loans in the related Trust Fund that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
increases the likelihood of early retirement of such class ("Call Risk") if the
rate of prepayment is relatively fast; while a class of Certificates that
entitles the holders thereof to a disproportionately small share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of an extended average life of such class ("Extension Risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
classes of Certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more classes of Certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such Mortgage
Loans).
A series of Certificates may include one or more Controlled Amortization
Classes, which will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule. Although
prepayment risk cannot be eliminated entirely for any class of Certificates, a
Controlled Amortization Class will generally provide a relatively stable cash
flow so long as the actual rate of prepayment on the Mortgage Loans in the
related Trust Fund remains relatively constant at the rate, or within the range
of rates, of prepayment used to establish the specific principal payment
schedule for such Certificates. Prepayment risk with respect to a given Mortgage
Asset Pool does not disappear, however, and the stability afforded to a
Controlled Amortization Class comes at the expense of one or more Companion
Classes of the same series, any of which Companion Classes may also be a class
of Offered Certificates. In general, and as more specifically described in the
related Prospectus Supplement, a Companion Class may entitle the holders thereof
to a disproportionately large share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Mortgage Loans in the related Trust Fund when the rate of prepayment is
relatively slow. As and to the extent described in the related Prospectus
Supplement, a Companion Class absorbs some (but not all) of the Call Risk and/or
Extension Risk that would otherwise belong to the related Controlled
Amortization Class if all payments of principal of the Mortgage Loans in the
related Trust Fund were allocated on a pro rata basis.
Effect of Prepayments on Yield of Certificates
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recover its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Certificates are purchased at a discount or
premium and the amount and timing of distributions thereon. An investor should
consider, in the case of any Offered Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. See "Yield and Maturity Considerations".
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such Offered
Certificates will receive payments to which such Certificateholders are entitled
under the related Pooling and Servicing Agreement. Such rating will not
constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the related Trust Fund. Furthermore, such rating
will not address the possibility that prepayment of the related Mortgage Loans
at a higher or lower rate than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor that
purchases an Offered Certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Hence, a rating
assigned by a Rating Agency does not guarantee or ensure the realization of any
anticipated yield on a class of Offered Certificates.
The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. As a result, the
Credit Support required in respect of the Offered Certificates of any series may
be insufficient to fully protect the holders thereof from losses on the related
Mortgage Asset Pool. See "Description of Credit Support" and "Rating".
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans
General. The payment performance of the Offered Certificates of any series
will be directly related to the payment performance of the underlying Mortgage
Loans. Set forth below is a discussion of certain factors that will affect the
full and timely payment of the Mortgage Loans in any Trust Fund. In addition, a
description of certain material considerations associated with investments in
mortgage loans is included herein under "Certain Legal Aspects of Mortgage
Loans".
The Offered Certificates will be directly or indirectly backed by mortgage
loans secured by multifamily and/or commercial properties. Mortgage loans made
on the security of multifamily or commercial property may have a greater
likelihood of delinquency and foreclosure, and a greater likelihood of loss in
the event thereof, than loans made on the security of an owner-occupied
single-family property. See "Description of the Trust Funds-Mortgage
Loans-Default and Loss Considerations with Respect to the Mortgage Loans". The
ability of a borrower to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such property
rather than upon the existence of independent income or assets of the borrower;
thus, the value of an income-producing property is directly related to the net
operating income derived from such property. If the net operating income of the
property is reduced (for example, if rental or occupancy rates decline or real
estate tax rates or other operating expenses increase), the borrower's ability
to repay the loan may be impaired. A number of the Mortgage Loans may be secured
by liens on owner-occupied Mortgaged Properties or on Mortgaged Properties
leased to a single tenant or a small number of significant tenants. Accordingly,
a decline in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by factors generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; natural
disasters and civil disturbances such as earthquakes, hurricanes, floods,
eruptions or riots; and other circumstances, conditions or events beyond the
control of a Master Servicer or a Special Servicer. Additional considerations
may be presented by the type and use of a particular Mortgaged Property. For
instance, Mortgaged Properties that operate as hospitals and nursing homes are
subject to significant governmental regulation of the ownership, operation,
maintenance and financing of health care institutions. Hotel, motel and
restaurant properties are often operated pursuant to franchise, management or
operating agreements that may be terminable by the franchisor or operator, and
the transferability of a hotel's or restaurant's operating, liquor and other
licenses upon a transfer of the hotel or the restaurant, as the case may be,
whether through purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans. It is anticipated that some
or all of the Mortgage Loans included in any Trust Fund will be nonrecourse
loans or loans for which recourse may be restricted or unenforceable. As to any
such Mortgage Loan, recourse in the event of borrower default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the Mortgage Loan. However, even with respect to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans-Foreclosure--Anti-Deficiency Legislation".
Limitations on Enforceability of Cross-Collateralization. A Mortgage Pool
may include groups of Mortgage Loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective Mortgage Loans in a
cross-collateralized group, and the cash flows generated thereby, are available
to support debt service on, and ultimate repayment of, the aggregate
indebtedness evidenced by those Mortgage Loans. These arrangements thus seek to
reduce the risk that the inability of one or more of the Mortgaged Properties
securing any such group of Mortgage Loans to generate net operating income
sufficient to pay debt service will result in defaults and ultimate losses.
There may not be complete identity of ownership of the Mortgaged Properties
securing a group of cross-collateralized Mortgage Loans. In such an instance,
creditors of one or more of the related borrowers could challenge the
cross-collateralization arrangement as a fraudulent conveyance. Generally, under
federal and state fraudulent conveyance statutes, the incurring of an obligation
or the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and was
then insolvent or was rendered insolvent by such obligation or transfer.
Accordingly, a creditor seeking ownership of a Mortgaged Property subject to
such cross-collateralization to repay such creditor's claim against the related
borrower could assert (i) that such borrower was insolvent at the time the
cross-collateralized Mortgage Loans were made and (ii) that such borrower did
not, when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other Mortgage Loans in the group of
cross-collateralized Mortgage Loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, there can be no
assurance that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value, and no unqualified legal
opinion to that effect will be obtained.
The cross-collateralized Mortgage Loans constituting any group thereof may
be secured by mortgage liens on Mortgaged Properties located in different
states. Because of various state laws governing foreclosure or the exercise of a
power of sale and because, in general, foreclosure actions are brought in state
court, and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such Mortgage Loan
to foreclose on the related Mortgaged Properties in a particular order rather
than simultaneously in order to ensure that the lien of the related Mortgages is
not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Certain of the
Mortgage Loans included in a Trust Fund may be nonamortizing or only partially
amortizing over their terms to maturity and, thus, will require substantial
payments of principal and interest (that is, balloon payments) at their stated
maturity. Mortgage Loans of this type involve a greater likelihood of default
than self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by a number of factors, including the
value of the related Mortgaged Property, the level of available mortgage rates
at the time of sale or refinancing, the borrower's equity in the related
Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Depositor
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage Loans". While the Master Servicer
or the Special Servicer generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
than liquidation, taking into account the time value of money, there can be no
assurance that any such extension or modification will in fact increase the
present value of receipts from or proceeds of the affected Mortgage Loans.
Lender Difficulty in Collecting Rents Upon the Default and/or Bankruptcy of
Borrower. Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect rents. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans-Leases and Rents".
Limitations on Enforceability of Due-on-Sale and Debt-Acceleration Clauses.
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers or
conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by the
borrower or a prior owner. A lender also risks such liability on foreclosure of
the mortgage. See "Certain Legal Aspects of Mortgage Loans-Environmental
Considerations".
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a Prospectus Supplement, the Master Servicer and Special
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, each of the Master
Servicer and the Special Servicer may satisfy its obligation to cause hazard
insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke, windstorm and
hail, and riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies covering the
Mortgaged Properties will be underwritten by different insurers under different
state laws in accordance with different applicable state forms, and therefore
will not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic animals
and certain other kinds of risks. Unless the related Mortgage specifically
requires the mortgagor to insure against physical damage arising from such
causes, then, to the extent any consequent losses are not covered by Credit
Support, such losses may be borne, at least in part, by the holders of one or
more classes of Offered Certificates of the related series. See "The Pooling and
Servicing Agreements-Hazard Insurance Policies".
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset
Pool
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are nonperforming. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by the Special Servicer;
however, the same entity may act as both Master Servicer and Special Servicer.
Credit Support provided with respect to a particular series of Certificates may
not cover all losses related to such delinquent or nonperforming Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage Loans
in the Trust Fund may adversely affect the rate of defaults and prepayments in
respect of the subject Mortgage Asset Pool and the yield on the Offered
Certificates of such series. See "Description of the Trust Funds-Mortgage
Loans-General".
Risks Associated with Health Care-Related Properties
Government Reimbursement Programs. Certain types of Health Care-Related
Facilities typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid and
Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions. Accordingly, there can be no
assurance that payments under government reimbursement programs will, in the
future, be sufficient to fully reimburse the cost of caring for program
beneficiaries. If such payments are insufficient, net operating income of those
Health Care-Related Facilities that receive revenues from those sources, and
consequently the ability of the related borrowers to meet their obligations
under any Mortgage Loans secured thereby, could be adversely affected.
Government Regulation. Health Care-Related Facilities are generally subject
to federal and state laws and licensing requirements that relate to the adequacy
of medical care, distribution of pharmaceuticals, rate setting, equipment,
personnel, operating policies and additions to facilities and services. The
failure of an operator to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a Health Care-Related
Facility or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, under applicable federal and state laws and
regulations, Medicare and Medicaid reimbursements are generally not permitted to
be made to any person other than the provider who actually furnished the related
medical goods and services. Accordingly, in the event of foreclosure, none of
the Trustee, the Master Servicer, the Special Servicer or a subsequent lessee or
operator of a Health Care-Related Facility securing a defaulted Mortgage Loan
would generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at such
property prior to such foreclosure. In those cases where Health Care-Related
Facilities constitute Mortgaged Properties, any of the aforementioned events may
adversely affect the ability of the related borrowers to meet their obligations
under the Mortgage Loans secured thereby.
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), (ii) mortgage
participations, pass-through certificates or other mortgage-backed securities
("MBS") that evidence interests in, or that are secured by pledges of, various
types of multifamily and commercial mortgage loans, or (iii) a combination of
Mortgage Loans and MBS (collectively, "Mortgage Assets"). Each Trust Fund will
be established by the Depositor. Each Mortgage Asset will be selected by the
Depositor for inclusion in a Trust Fund from among those purchased, either
directly or indirectly, from a prior holder thereof (a "Mortgage Asset Seller"),
which prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such MBS and may be an affiliate of the Depositor. The Mortgage Assets
will not be guaranteed or insured by the Depositor or any of its affiliates or,
unless otherwise provided in the related Prospectus Supplement, by any
governmental agency or instrumentality or by any other person. The discussion
below under the heading "-Mortgage Loans", unless otherwise noted, applies
equally to mortgage loans underlying any MBS included in a particular Trust
Fund.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores and establishments, hotels or motels, Health Care-Related
Facilities, recreational vehicle and mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial plants, parking
lots, entertainment or sports arenas, restaurants, marinas, mixed use or various
other types of income-producing properties or unimproved land ("Commercial
Properties"). The Multifamily Properties may include mixed commercial and
residential structures and apartment buildings owned by private cooperative
housing corporations ("Cooperatives"). However, no one of the following types of
Commercial Properties will represent security for a material concentration of
the Mortgage Loans in any Trust Fund, based on principal balance at the time
such Trust Fund is formed: (i) restaurants; (ii) entertainment or sports arenas;
(iii) marinas; or (iv) Acute Care Facilities. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage will create a first priority
mortgage lien on a borrower's fee estate in a Mortgaged Property. If a Mortgage
creates a lien on a borrower's leasehold estate in a property, then, unless
otherwise specified in the related Prospectus Supplement, the term of any such
leasehold will exceed the term of the Mortgage Note by at least ten years.
Unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan will have been originated by a person (the "Originator") other than the
Depositor; however, the Originator may be or may have been an affiliate of the
Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not obtained and satisfied. Moreover, deficiency
judgments may not be available in certain jurisdictions, or the particular
Mortgage Loan may be a nonrecourse loan, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the Mortgage
Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular series of Certificates may include Mortgage Loans that are
delinquent or nonperforming as of the date such Certificates are issued. In that
case, the related Prospectus Supplement will set forth, as to each such Mortgage
Loan, available information as to the period of such delinquency or
nonperformance, any forbearance arrangement then in effect, the condition of the
related Mortgaged Property and the ability of the Mortgaged Property to generate
income to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
Mortgage Loans included in a particular Trust Fund may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments of principal and/or interest on the Mortgage Loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (i)
noncash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on the related Mortgage Loan or on any other loans that
are secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a Mortgaged Property may depend substantially
on the financial condition of the borrower or a tenant, and Mortgage Loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the "Value" of a
Mortgaged Property will be its fair market value as determined by an appraisal
of such property conducted by or on behalf of the Originator in connection with
the origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
Mortgage Loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method (the cost
of replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or upon
a selection from or interpolation of the values derived from such methods. Each
of these appraisal methods can present analytical difficulties. It is often
difficult to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate capitalization rate and
discount rate. Where more than one of these appraisal methods are used and
provide significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of the likelihood of default and loss, is
even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors-Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage Loans-General" and "-Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans-Increased Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(i) have had original terms to maturity of not more than 40 years and (ii)
provide for scheduled payments of principal, interest or both, to be made on
specified dates ("Due Dates") that occur monthly, quarterly, semi-annually or
annually. A Mortgage Loan (i) may provide for no accrual of interest or for
accrual of interest thereon at a Mortgage Rate that is fixed over its term or
that adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Date") and/or require payment of a premium or a yield maintenance payment (a
"Prepayment Premium") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "Equity Participation"), as
described in the related Prospectus Supplement.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following: (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans, (ii) the type or types of property that provide security for repayment of
the Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) the original and remaining terms to maturity of
the Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
Loan-to-Value Ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
the range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
If and to the extent available and relevant to an investment decision in
the Offered Certificates of the related series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may be so materially different from those of the related Mortgage
Asset Pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the Master Servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a Special Servicer, no comparable prepayment
information will be presented with respect to the Special Servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
Mortgage Loans Secured by Health Care-Related Properties. The Mortgaged
Properties may include Senior Housing, Assisted Living Facilities, Skilled
Nursing Facilities and Acute Care Facilities ("Health Care-Related Facilities").
"Senior Housing" generally consist of facilities with respect to which the
residents are ambulatory, handle their own affairs and typically are couples
whose children have left the home and at which the accommodations are usually
apartment style. "Assisted Living Facilities" are typically single or double
room occupancy, dormitory-style housing facilities which provide food service,
cleaning and some personal care and with respect to which the tenants are able
to medicate themselves but may require assistance with certain daily routines.
"Skilled Nursing Facilities" provide services to post trauma and frail residents
with limited mobility who require extensive medical treatment. "Acute Care
Facilities" generally consist of hospital and other facilities providing
short-term, acute medical care services.
Certain types of Health Care-Related Properties, particularly Acute Care
Facilities, Skilled Nursing Facilities and some Assisted Living Facilities,
typically receive a substantial portion of their revenues from government
reimbursement programs, primarily Medicaid and Medicare. Medicaid and Medicare
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings, policy interpretations, delays by fiscal intermediaries
and government funding restrictions. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers, and
there exist various proposals for national health care reform that could further
limit those payments. Accordingly, there can be no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those Health Care-Related Facilities that
receive revenues from those sources, and consequently the ability of the related
borrowers to meet their obligations under any Mortgage Loans secured thereby,
could be adversely affected.
Moreover, Health Care-Related Facilities are generally subject to federal
and state laws that relate to the adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment, personnel, operating policies and
additions to facilities and services. In addition, facilities where such care or
other medical services are provided are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. Providers of assisted living
services are also subject to state licensing requirements in certain states. The
failure of an operator to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a Health Care-Related
Facility or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, under applicable federal and state laws and
regulations, Medicare and Medicaid reimbursements are generally not permitted to
be made to any person other than the provider who actually furnished the related
medical goods and services. Accordingly, in the event of foreclosure, none of
the Trustee, the Master Servicer, the Special Servicer or a subsequent lessee or
operator of any Health Care-Related Facility securing a defaulted Mortgage Loan
(a "Health Care-Related Mortgaged Property") would generally be entitled to
obtain from federal or state governments any outstanding reimbursement payments
relating to services furnished at such property prior to such foreclosure. Any
of the aforementioned events may adversely affect the ability of the related
borrowers to meet their Mortgage Loan obligations.
Government regulation applying specifically to Acute Care Facilities,
Skilled Nursing Facilities and certain types of Assisted Living Facilities
includes health planning legislation, enacted by most states, intended, at least
in part, to regulate the supply of nursing beds. The most common method of
control is the requirement that a state authority first make a determination of
need, evidenced by its issuance of a Certificate of Need ("CON"), before a
long-term care provider can establish a new facility, add beds to an existing
facility or, in some states, take certain other actions (for example, acquire
major medical equipment, make major capital expenditures, add services,
refinance long-term debt, or transfer ownership of a facility). States also
regulate nursing bed supply in other ways. For example, some states have imposed
moratoria on the licensing of new beds, or on the certification of new Medicaid
beds, or have discouraged the construction of new nursing facilities by limiting
Medicaid reimbursements allocable to the cost of new construction and equipment.
In general, a CON is site specific and operator specific; it cannot be
transferred from one site to another, or to another operator, without the
approval of the appropriate state agency. Accordingly, if a Mortgage Loan
secured by a lien on such a Health Care-Related Mortgaged Property were
foreclosed upon, the purchaser at foreclosure might be required to obtain a new
CON or an appropriate exemption. In addition, compliance by a purchaser with
applicable regulations may in any case require the engagement of a new operator
and the issuance of a new operating license. Upon a foreclosure, a state
regulatory agency may be willing to expedite any necessary review and approval
process to avoid interruption of care to a facility's residents, but there can
be no assurance that any will do so or that any necessary licenses or approvals
will be issued.
Further government regulation applicable to Health Care-Related Facilities
is found in the form of federal and state "fraud and abuse" laws that generally
prohibit payment or fee-splitting arrangements between health care providers
that are designed to induce or encourage the referral of patients to, or the
recommendation of, a particular provider for medical products or services.
Violation of these restrictions can result in license revocation, civil and
criminal penalties, and exclusion from participation in Medicare or Medicaid
programs. The state law restrictions in this area vary considerably from state
to state. Moreover, the federal anti- kickback law includes broad language that
potentially could be applied to a wide range of referral arrangements, and
regulations designed to create "safe harbors" under the law provide only limited
guidance. Accordingly, there can be no assurance that such laws will be
interpreted in a manner consistent with the practices of the owners or operators
of the Health Care-Related Properties that are subject to such laws.
The operators of Health Care-Related Facilities are likely to compete on a
local and regional basis with others that operate similar facilities, some of
which competitors may be better capitalized, may offer services not offered by
such operators, or may be owned by non-profit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other sources not available to such operators. The successful operation of a
Health Care-Related Facility will generally depend upon the number of competing
facilities in the local market, as well as upon other factors such as its age,
appearance, reputation and management, the types of services it provides and,
where applicable, the quality of care and the cost of that care. The inability
of a Health Care-Related Mortgaged Property to flourish in a competitive market
may increase the likelihood of foreclosure on the related Mortgage Loan,
possibly affecting the yield on one or more classes of the related series of
Offered Certificates.
MBS
MBS may include (i) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (ii) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association ("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural Mortgage Corporation ("FAMC"),
provided that, unless otherwise specified in the related Prospectus Supplement,
each MBS will evidence an interest in, or will be secured by a pledge of,
mortgage loans that conform to the descriptions of the Mortgage Loans contained
herein.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a Mortgage Asset
Pool: (a) either will (i) have been previously registered under the Securities
Act of 1933, as amended, (ii) be exempt from such registration requirements or
(iii) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from the Depositor or an affiliate thereof) in bona fide secondary
market transactions.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will be parties
to the MBS Agreement, generally together with a trustee (the "MBS Trustee") or,
in the alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount(s) and type of the MBS to
be included in the Trust Fund, (ii) the original and remaining term(s) to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate(s) of
the MBS or the formula for determining such rate(s), (iv) the payment
characteristics of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as
applicable, of each of the MBS, (vi) a description of the related credit
support, if any, (vii) the circumstances under which the related underlying
mortgage loans, or the MBS themselves, may be purchased prior to their maturity,
(viii) the terms on which mortgage loans may be substituted for those originally
underlying the MBS, (ix) the type of mortgage loans underlying the MBS and, to
the extent available to the Depositor and appropriate under the circumstances,
such other information in respect of the underlying mortgage loans described
under "-Mortgage Loans-Mortgage Loan Information in Prospectus Supplements", and
(x) the characteristics of any cash flow agreements that relate to the MBS.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements-Certificate Account".
Credit Support
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more classes of
Certificates of such series in the form of subordination of one or more other
classes of Certificates of such series or by one or more other types of Credit
Support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof. The amount and types of Credit
Support, the identity of the entity providing it (if applicable) and related
information with respect to each type of Credit Support, if any, will be set
forth in the Prospectus Supplement for a series of Certificates. See "Risk
Factors-Credit Support Limitations" and "Description of Credit Support".
Cash Flow Agreements
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets on one or more classes of Certificates.
The principal terms of any such Cash Flow Agreement, including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be described
in the related Prospectus Supplement. The related Prospectus Supplement will
also identify the obligor under the Cash Flow Agreement.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors-Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a Trust Fund that consists solely of Mortgage Loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of Certificates as will the characteristics and behavior
of comparable Mortgage Loans, the effect may differ due to the payment
characteristics of the MBS. If a Trust Fund includes MBS, the related Prospectus
Supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
Offered Certificates of the related series.
Pass-Through Rate
The Certificates of any class within a series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of Offered Certificates of such series or, in
the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under a Cash Flow Agreement.
Payment Delays
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
Certificates and distributable thereon on any Distribution Date will generally
correspond to interest accrued on the Mortgage Loans to their respective Due
Dates during the related Due Period. A "Due Period" will be a specified time
period (generally corresponding in length to the period between Distribution
Dates) and all scheduled payments on the Mortgage Loans in the related Trust
Fund that are due during a given Due Period will, to the extent received by a
specified date (the "Determination Date") or otherwise advanced by the related
Master Servicer, Special Servicer or other specified person, be distributed to
the holders of the Certificates of such series on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Certificate. The rate of principal payments on the Mortgage Loans in any
Trust Fund will in turn be affected by the amortization schedules thereof
(which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the related Mortgaged Properties, or purchases of Mortgage Loans out
of the related Trust Fund). Because the rate of principal prepayments on the
Mortgage Loans in any Trust Fund will depend on future events and a variety of
factors (as described below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, if an investor purchases an Offered Certificate
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Offered Certificates at
a rate slower (or faster) than the rate anticipated by the investor during any
particular period, any consequent adverse effects on such investor's yield would
not be fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any Trust
Fund may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the Mortgaged Properties are located, the quality of management of the
Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in
tax laws and other opportunities for investment. In general, those factors which
increase the attractiveness of selling a Mortgaged Property or refinancing a
Mortgage Loan or which enhance a borrower's ability to do so, as well as those
factors which increase the likelihood of default under a Mortgage Loan, would be
expected to cause the rate of prepayment in respect of any Mortgage Asset Pool
to accelerate. In contrast, those factors having an opposite effect would be
expected to cause the rate of prepayment of any Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the related Mortgage Loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the Certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the Certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage Loans
included in a particular Trust Fund may require that balloon payments be made at
maturity. Because the ability of a borrower to make a balloon payment typically
will depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a possibility that Mortgage Loans that require
balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or the Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
Negative Amortization. The weighted average life of a class of Certificates
can be affected by Mortgage Loans that permit negative amortization to occur
(that is, Mortgage Loans that provide for the current payment of interest
calculated at a rate lower than the rate at which interest accrues thereon, with
the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more Mortgage Loans in any Trust Fund
may result in negative amortization on the Offered Certificates of the related
series. The related Prospectus Supplement will describe, if applicable, the
manner in which negative amortization in respect of the Mortgage Loans in any
Trust Fund is allocated among the respective classes of Certificates of the
related series. The portion of any Mortgage Loan negative amortization allocated
to a class of Certificates may result in a deferral of some or all of the
interest payable thereon, which deferred interest may be added to the
Certificate Balance thereof. In addition, an ARM Loan that permits negative
amortization would be expected during a period of increasing interest rates to
amortize at a slower rate (and perhaps not at all) than if interest rates were
declining or were remaining constant. Such slower rate of Mortgage Loan
amortization would correspondingly be reflected in a slower rate of amortization
for one or more classes of Certificates of the related series. Accordingly, the
weighted average lives of Mortgage Loans that permit negative amortization (and
that of the classes of Certificates to which any such negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization on such Mortgage Loans) may increase as a result of such feature.
Negative amortization may occur in respect of an ARM Loan that (i) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (ii) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (iii) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount thereof).
See "-Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more classes of Certificates of any series, including
one or more classes of Offered Certificates of such series, may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates, (ii) Excess Funds or (iii) any other amounts described in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, "Excess Funds" will, in general, represent that portion
of the amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such series, or (ii) Prepayment
Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
THE DEPOSITOR
NationsLink Funding Corporation, a Delaware corporation (the "Depositor"),
was organized on December 13, 1995 for the limited purpose of acquiring, owning
and transferring Mortgage Assets and selling interests therein or bonds secured
thereby. The Depositor is a subsidiary of NationsBank, N.A. The Depositor
maintains its principal office at NationsBank Corporate Center, Charlotte, North
Carolina 28255. Its telephone number is (704) 386-2400.
Unless otherwise noted in the related Prospectus Supplement, neither the
Depositor nor any of the Depositor's affiliates will insure or guarantee
distributions on the Certificates of any series.
DESCRIPTION OF THE CERTIFICATES
General
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling and Servicing
Agreement. As described in the related Prospectus Supplement, the Certificates
of each series, including the Offered Certificates of such series, may consist
of one or more classes of Certificates that, among other things: (i) provide for
the accrual of interest on the Certificate Balance or Notional Amount thereof at
a fixed, variable or adjustable rate; (ii) constitute Senior Certificates or
Subordinate Certificates; (iii) constitute Stripped Interest Certificates or
Stripped Principal Certificates; (iv) provide for distributions of interest
thereon or principal thereof that commence only after the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series; (v) provide for distributions of principal thereof to be made, from
time to time or for designated periods, at a rate that is faster (and, in some
cases, substantially faster) or slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the Mortgage Assets in the related Trust Fund; (vi) provide for
distributions of principal thereof to be made, subject to available funds, based
on a specified principal payment schedule or other methodology; or (vii) provide
for distributions based on collections on the Mortgage Assets in the related
Trust Fund attributable to Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of DTC. The Offered Certificates of each series (if issued as
Definitive Certificates) may be transferred or exchanged, subject to any
restrictions on transfer described in the related Prospectus Supplement, at the
location specified in the related Prospectus Supplement, without the payment of
any service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of Book-Entry Certificates will be
transferred on the book-entry records of DTC and its participating
organizations. If so specified in the related Prospectus Supplement,
arrangements may be made for clearance and settlement through CEDEL Bank,
Societe Anonyme, or the Euroclear System (in Europe) if they are participants in
DTC.
Distributions
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be more specifically described in the related
Prospectus Supplement. In general, the Distribution Date for a series of
Certificates will be the 25th day of each month (or, if any such 25th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of Certificates is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
in proportion to the respective Percentage Interests evidenced thereby unless
otherwise specified in the related Prospectus Supplement. Payments will be made
either by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the person required to make
such payments with wiring instructions no later than the related Record Date or
such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein), or by
check mailed to the address of such Certificateholder as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of any class of Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
such Certificates at the location specified in the notice to Certificateholders
of such final distribution. The undivided percentage interest (the "Percentage
Interest") represented by an Offered Certificate of a particular class will be
equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the initial Certificate Balance or
Notional Amount of such class.
Distributions of Interest on the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class of Offered Certificates. Unless otherwise
specified in the related Prospectus Supplement, interest on the Certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
any class of Stripped Principal Certificates or REMIC Residual Certificates that
is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such class and
such Distribution Date, subject to the sufficiency of that portion, if any, of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance thereof on each
Distribution Date or otherwise deferred as described in the related Prospectus
Supplement. With respect to each class of Certificates (other than certain
classes of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates), the "Accrued Certificate Interest" for each Distribution Date
will be equal to interest at the applicable Pass-Through Rate accrued for a
specified period (generally the most recently ended calendar month) on the
outstanding Certificate Balance of such class of Certificates immediately prior
to such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the Accrued Certificate Interest for each Distribution Date on a
class of Stripped Interest Certificates will be similarly calculated except that
it will accrue on a Notional Amount that is either (i) based on the principal
balances of some or all of the Mortgage Assets in the related Trust Fund or (ii)
equal to the Certificate Balances of one or more other classes of Certificates
of the same series. Reference to a Notional Amount with respect to a class of
Stripped Interest Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related Prospectus Supplement, the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the case
of Accrual Certificates, that may otherwise be added to the Certificate Balance
of) one or more classes of the Certificates of a series may be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations-Certain Shortfalls in Collections of Interest", exceed
the amount of any sums that are applied to offset the amount of such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the classes of Certificates of that series will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe the extent to which the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the Certificate Balance of) a class of Offered
Certificates may be reduced as a result of any other contingencies, including
delinquencies, losses and deferred interest on or in respect of the Mortgage
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of Certificates by reason of the
allocation to such class of a portion of any deferred interest on or in respect
of the Mortgage Assets in the related Trust Fund will result in a corresponding
increase in the Certificate Balance of such class. See "Risk Factors-Effect of
Prepayments on Average Life of Certificates" and "-Effect of Prepayments on
Yield of Certificates" and "Yield and Maturity Considerations-Certain Shortfalls
in Collections of Interest".
Distributions of Principal of the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if and to the extent so
provided in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time. In
turn, the outstanding Certificate Balance of a class of Certificates may be
increased as a result of any deferred interest on or in respect of the related
Mortgage Assets being allocated thereto from time to time, and will be
increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect thereof
(reduced as described above). The initial aggregate Certificate Balance of all
classes of a series of Certificates will not be greater than the aggregate
outstanding principal balance of the related Mortgage Assets as of a specified
date (the "Cut-off Date"), after application of scheduled payments due on or
before such date, whether or not received. The initial Certificate Balance of
each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related Prospectus
Supplement, distributions of principal with respect to a series of Certificates
will be made on each Distribution Date to the holders of the class or classes of
Certificates of such series entitled thereto until the Certificate Balances of
such Certificates have been reduced to zero. Distributions of principal with
respect to one or more classes of Certificates may be made at a rate that is
faster (and, in some cases, substantially faster) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
the same series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of Certificates
(each such class, a "Controlled Amortization Class") may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with respect to one or more other classes of Certificates (each
such class, a "Companion Class") may be contingent on the specified principal
payment schedule for a Controlled Amortization Class of the same series and the
rate at which payments and other collections of principal on the Mortgage Assets
in the related Trust Fund are received. Unless otherwise specified in the
related Prospectus Supplement, distributions of principal of any class of
Offered Certificates will be made on a pro rata basis among all of the
Certificates of such class.
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the class of Certificates of the related series entitled
thereto in accordance with the provisions described in such Prospectus
Supplement. Alternatively, such items may be retained by the Depositor or any of
its affiliates or by any other specified person and/or may be excluded as Trust
Assets.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support".
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) respecting which such advances were
made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a series that includes one or more classes of Subordinate
Certificates, if so identified, collections on other Mortgage Assets in the
related Trust Fund that would otherwise be distributable to the holders of one
or more classes of such Subordinate Certificates. No advance will be required to
be made by a Master Servicer, Special Servicer or Trustee if, in the judgment of
the Master Servicer, Special Servicer or Trustee, as the case may be, such
advance would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related Pooling and
Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the holders of
each class of the Offered Certificates of a series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that was applied to pay Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class of
Offered Certificates that was allocable to (A) Prepayment Premiums and (B)
payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate amount
of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if payable
directly out of the related Trust Fund, by any Special Servicer and any
Sub-Servicer) and, if the related Trust Fund includes MBS, the amount of
administrative compensation received by the MBS Administrator;
(vii) information regarding the aggregate principal balance of the related
Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans that
are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal prepayments made
with respect to such Mortgage Loans during the related Prepayment Period (that
is, the specified period, generally corresponding in length to the period
between Distribution Dates, during which prepayments and other unscheduled
collections on the Mortgage Loans in the related Trust Fund must be received in
order to be distributed on a particular Distribution Date);
(x) the Certificate Balance or Notional Amount, as the case may be, of such
class of Certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or Notional
Amount due to the allocation of any losses in respect of the related Mortgage
Assets, any increase in such Certificate Balance or Notional Amount due to the
allocation of any negative amortization in respect of the related Mortgage
Assets and any increase in the Certificate Balance of a class of Accrual
Certificates, if any, in the event that Accrued Certificate Interest has been
added to such balance;
(xi) if such class of Offered Certificates has a variable Pass-Through Rate
or an adjustable Pass-Through Rate, the Pass-Through Rate applicable thereto for
such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve fund as
of the close of business on such Distribution Date;
(xiii) if the related Trust Fund includes one or more instruments of Credit
Support, such as a letter of credit, an insurance policy and/or a surety bond,
the amount of coverage under each such instrument as of the close of business on
such Distribution Date; and
(xiv) the amount of Credit Support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of Offered Certificates or as a percentage.
The Prospectus Supplement for each series of Certificates may describe
additional information to be included in reports to the holders of the Offered
Certificates of such series.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee for a series of Certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Certificate of such series a statement
containing the information set forth in subclauses (i)-(iii) above, aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "-Book-Entry Registration and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer, Manager or Trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
Voting Rights
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling and
Servicing Agreement and as otherwise specified in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements-Amendment". The holders of
specified amounts of Certificates of a particular series will have the right to
act as a group to remove the related Trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related Master Servicer, Special Servicer or REMIC Administrator.
See "The Pooling and Servicing Agreements-Events of Default", "-Rights Upon
Event of Default" and "-Resignation and Removal of the Trustee".
Termination
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates will terminate following (i) the final payment or other
liquidation of the last Mortgage Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Mortgage Loan subject thereto and (ii)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such Pooling and
Servicing Agreement. Written notice of termination of a Pooling and Servicing
Agreement will be given to each Certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
Certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount or upon a specified date, a party designated
therein may be authorized or required to solicit bids for the purchase of all
the Mortgage Assets of the related Trust Fund, or of a sufficient portion of
such Mortgage Assets to retire such class or classes, under the circumstances
and in the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global Certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interests in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee, Master Servicer, Special Servicer or
Manager), subject to any statutory or regulatory requirements as may be in
effect from time to time. Accordingly, under a book-entry system, Certificate
Owners may receive payments after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling and Servicing
Agreement) of Book-Entry Certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor has been informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling and
Servicing Agreement only at the direction of one or more Direct Participants to
whose account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in Book-Entry Certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Direct Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
"Certificateholders" under and within the meaning of the related Pooling and
Servicing Agreement.
THE POOLING AND SERVICING AGREEMENTS
General
The Certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the Depositor, the Trustee, the Master Servicer, the
Special Servicer and, if one or more REMIC elections have been made with respect
to the Trust Fund, the REMIC Administrator. However, a Pooling and Servicing
Agreement that relates to a Trust Fund that includes MBS may include a Manager
as a party, but may not include a Master Servicer, Special Servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which Certificates of a series are issued will be identified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement, an
affiliate of the Depositor, or the Mortgage Asset Seller or an affiliate
thereof, may perform the functions of Master Servicer, Special Servicer, Manager
or REMIC Administrator. If so specified in the related Prospectus Supplement,
the Master Servicer may also perform the duties of Special Servicer, and the
Master Servicer, the Special Servicer or the Trustee may also perform the duties
of REMIC Administrator. Any party to a Pooling and Servicing Agreement or any
affiliate thereof may own Certificates issued thereunder; however, except with
respect to required consents to certain amendments to a Pooling and Servicing
Agreement, Certificates issued thereunder that are held by the Master Servicer
or Special Servicer for the related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling and Servicing Agreement under which Certificates that evidence
interests in Mortgage Loans will be issued. The Prospectus Supplement for a
series of Certificates will describe any provision of the related Pooling and
Servicing Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Trust Fund includes MBS, will
summarize all of the material provisions of the related Pooling and Servicing
Agreement. The summaries herein do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Pooling and Servicing Agreement for each series of Certificates and the
description of such provisions in the related Prospectus Supplement. The
Depositor will provide a copy of the Pooling and Servicing Agreement (without
exhibits) that relates to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to it at its
principal executive offices specified herein under "The Depositor".
Assignment of Mortgage Loans; Repurchases
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the amortization term; and the original and
outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering Mortgages on Mortgaged Properties located in
the same county, if permitted by law. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers, or causes to be delivered,
to the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit certifying that the original thereof
has been lost or destroyed. In addition, if the Depositor cannot deliver, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment with
evidence of recording thereon concurrently with the execution and delivery of
the related Pooling and Servicing Agreement because of a delay caused by the
public recording office, the Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) a true and correct photocopy of such
Mortgage or assignment as submitted for recording. The Depositor will deliver,
or cause to be delivered, to the related Trustee (or such custodian) such
Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office. If the Depositor cannot
deliver, with respect to any Mortgage Loan, the Mortgage or any intervening
assignment with evidence of recording thereon concurrently with the execution
and delivery of the related Pooling and Servicing Agreement because such
Mortgage or assignment has been lost, the Depositor will deliver, or cause to be
delivered, to the related Trustee (or such custodian) a true and correct
photocopy of such Mortgage or assignment with evidence of recording thereon.
Unless otherwise specified in the related Prospectus Supplement, assignments of
Mortgage to the Trustee (or its nominee) will be recorded in the appropriate
public recording office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator of
such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer, the
Special Servicer and the Depositor, and one of such persons will be required to
notify the relevant Mortgage Asset Seller. In that case, and if the Mortgage
Asset Seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise specified
below or in the related Prospectus Supplement, the Mortgage Asset Seller will be
obligated to repurchase the related Mortgage Loan from the Trustee at a price
generally equal to the unpaid principal balance thereof, together with accrued
but unpaid interest through a date on or about the date of purchase, or at such
other price as will be specified in the related Prospectus Supplement (in any
event, the "Purchase Price"). If so provided in the Prospectus Supplement for a
series of Certificates, a Mortgage Asset Seller, in lieu of repurchasing a
Mortgage Loan as to which there is missing or defective loan documentation, will
have the option, exercisable upon certain conditions and/or within a specified
period after initial issuance of such series of Certificates, to replace such
Mortgage Loan with one or more other mortgage loans, in accordance with
standards that will be described in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy to holders of the Certificates of any
series or to the related Trustee on their behalf for missing or defective
Mortgage Loan documentation, and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the Master Servicer or the Special Servicer will be
obligated to purchase or replace a Mortgage Loan if a Mortgage Asset Seller
defaults on its obligation to do so.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor.
Representations and Warranties; Repurchases
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (ii) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or an
affiliate of the Depositor, the Master Servicer, the Special Servicer or another
person acceptable to the Depositor. The Warranting Party, if other than the
Mortgage Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that the Master Servicer and/or
Trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Loan from the Trustee at the applicable
Purchase Price. If so provided in the Prospectus Supplement for a series of
Certificates, a Warranting Party, in lieu of repurchasing a Mortgage Loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of Certificates, to replace such Mortgage Loan with one or more other
mortgage loans, in accordance with standards that will be described in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the Certificates of any series or to the related
Trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the Depositor nor the Master Servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a Mortgage Loan if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
Collection and Other Servicing Procedures
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer for any Mortgage Pool, directly or through
Sub-Servicers, will each be obligated under the related Pooling and Servicing
Agreement to service and administer the Mortgage Loans in such Mortgage Pool for
the benefit of the related Certificateholders, in accordance with applicable law
and further in accordance with the terms of such Pooling and Servicing
Agreement, such Mortgage Loans and any instrument of Credit Support included in
the related Trust Fund. Subject to the foregoing, the Master Servicer and the
Special Servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (ii) do not impair
recovery under any instrument of Credit Support included in the related Trust
Fund. Consistent with the foregoing, the Master Servicer and the Special
Servicer will each be permitted, in its discretion, unless otherwise specified
in the related Prospectus Supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund, either
separately or jointly, directly or through Sub-Servicers, will also be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) Mortgaged Properties acquired on behalf of such
Trust Fund through foreclosure, deed-in-lieu of foreclosure or otherwise (each,
an "REO Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and the extent to
which servicing of a Mortgage Loan is to be transferred from the Master Servicer
to the Special Servicer. In general, and subject to the discussion in the
related Prospectus Supplement, a Special Servicer will be responsible for the
servicing and administration of: (i) Mortgage Loans that are delinquent in
respect of a specified number of scheduled payments; (ii) Mortgage Loans as to
which the related borrower has entered into or consented to bankruptcy,
appointment of a receiver or conservator or similar insolvency proceeding, or
the related borrower has become the subject of a decree or order for such a
proceeding which shall have remained in force undischarged or unstayed for a
specified number of days; and (iii) REO Properties. If so specified in the
related Prospectus Supplement, a Pooling and Servicing Agreement also may
provide that if a default on a Mortgage Loan has occurred or, in the judgment of
the related Master Servicer, a payment default is reasonably foreseeable, the
related Master Servicer may elect to transfer the servicing thereof, in whole or
in part, to the related Special Servicer. Unless otherwise provided in the
related Prospectus Supplement, when the circumstances no longer warrant a
Special Servicer's continuing to service a particular Mortgage Loan (e.g., the
related borrower is paying in accordance with the forbearance arrangement
entered into between the Special Servicer and such borrower), the Master
Servicer will resume the servicing duties with respect thereto. If and to the
extent provided in the related Pooling and Servicing Agreement and described in
the related Prospectus Supplement, a Special Servicer may perform certain
limited duties in respect of Mortgage Loans for which the Master Servicer is
primarily responsible (including, if so specified, performing property
inspections and evaluating financial statements); and a Master Servicer may
perform certain limited duties in respect of any Mortgage Loan for which the
Special Servicer is primarily responsible (including, if so specified,
continuing to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), making certain calculations with respect to
such Mortgage Loan and making remittances and preparing certain reports to the
Trustee and/or Certificateholders with respect to such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Certificateholders of the related series
may vary considerably depending on the particular Mortgage Loan, the Mortgaged
Property, the mortgagor, the presence of an acceptable party to assume the
Mortgage Loan and the laws of the jurisdiction in which the Mortgaged Property
is located. If a mortgagor files a bankruptcy petition, the Special Servicer may
not be permitted to accelerate the maturity of the Mortgage Loan or to foreclose
on the related Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans-Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Certificateholders and/or to preserve the security of
the related Mortgage Loan, subject to the application of the REMIC Provisions.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or Special Servicer, as applicable, will be required to advance the
necessary funds to cure the default or reinstate the Senior Lien, if such
advance is in the best interests of the related Certificateholders and the
Master Servicer or Special Servicer, as applicable, determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
Sub-Servicers
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling and Servicing
Agreement. A Sub-Servicer for any series of Certificates may be an affiliate of
the Depositor. Unless otherwise provided in the related Prospectus Supplement,
each sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must provide for servicing of the applicable Mortgage
Loans consistent with the related Pooling and Servicing Agreement. The Master
Servicer and Special Servicer in respect of any Mortgage Asset Pool will each be
required to monitor the performance of Sub-Servicers retained by it and will
have the right to remove a Sub-Servicer retained by it at any time it considers
such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such Master
Servicer or Special Servicer would be reimbursed under a Pooling and Servicing
Agreement. See "-Certificate Account" and "-Servicing Compensation and Payment
of Expenses".
Certificate Account
General. The Master Servicer, the Trustee and/or the Special Servicer will,
as to each Trust Fund that includes Mortgage Loans, establish and maintain or
cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer as additional
compensation. A Certificate Account may be maintained with the related Master
Servicer, Special Servicer, Trustee or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
owned by the related Master Servicer or Special Servicer or serviced by either
on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the following
payments and collections received or made by the Master Servicer, the Trustee or
the Special Servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each Trust Fund that includes Mortgage Loans, within a certain period following
receipt (in the case of collections on or in respect of the Mortgage Loans) or
otherwise as provided in the related Pooling and Servicing Agreement:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, including
any default interest collected, in each case net of any portion thereof retained
by the Master Servicer or the Special Servicer as its servicing compensation or
as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan or in connection with the full or partial condemnation of
a Mortgaged Property (other than proceeds applied to the restoration of the
property or released to the related borrower) (collectively, "Insurance and
Condemnation Proceeds") and all other amounts received and retained in
connection with the liquidation of defaulted Mortgage Loans or property acquired
in respect thereof, by foreclosure or otherwise (such amounts, together with
those amounts listed in clause (vii) below, "Liquidation Proceeds"), together
with the net operating income (less reasonable reserves for future expenses)
derived from the operation of any Mortgaged Properties acquired by the Trust
Fund through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
(v) any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Depositor, any Mortgage Asset Seller or any
other specified person as described under "-Assignment of Mortgage Loans;
Repurchases" and "-Representations and Warranties; Repurchases", all proceeds of
the purchase of any defaulted Mortgage Loan as described under "-Realization
Upon Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset purchased
as described under "Description of the Certificates-Termination; Retirement of
Certificates";
(viii) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or the Special Servicer and is not
otherwise retained by the Depositor or another specified person, any payments on
account of modification or assumption fees, late payment charges, Prepayment
Premiums or Equity Participations with respect to the Mortgage Loans;
(ix) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy as described
under "-Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer, the Special
Servicer or the Trustee in connection with losses realized on investments for
the benefit of the Master Servicer, the Special Servicer or the Trustee, as the
case may be, of funds held in the Certificate Account; and
(xi) any other amounts required to be deposited in the Certificate Account
as provided in the related Pooling and Servicing Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, a Master Servicer,
Trustee or Special Servicer may make withdrawals from the Certificate Account
for each Trust Fund that includes Mortgage Loans for any of the following
purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to pay the Master Servicer or the Special Servicer any servicing fees
not previously retained thereby, such payment to be made out of payments and
other collections of interest on the particular Mortgage Loans as to which such
fees were earned;
(iii) to reimburse the Master Servicer, the Special Servicer or any other
specified person for unreimbursed advances of delinquent scheduled payments of
principal and interest made by it, and certain unreimbursed servicing expenses
incurred by it, with respect to Mortgage Loans in the Trust Fund and properties
acquired in respect thereof, such reimbursement to be made out of amounts that
represent late payments collected on the particular Mortgage Loans, Liquidation
Proceeds and Insurance and Condemnation Proceeds collected on the particular
Mortgage Loans and properties, and net income collected on the particular
properties, with respect to which such advances were made or such expenses were
incurred or out of amounts drawn under any form of Credit Support with respect
to such Mortgage Loans and properties, or if in the judgment of the Master
Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Loans in the
same Trust Fund or, if and to the extent so provided by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, only
from that portion of amounts collected on such other Mortgage Loans that is
otherwise distributable on one or more classes of Subordinate Certificates of
the related series;
(iv) if and to the extent described in the related Prospectus Supplement,
to pay the Master Servicer, the Special Servicer or any other specified person
interest accrued on the advances and servicing expenses described in clause
(iii) above incurred by it while such remain outstanding and unreimbursed;
(v) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged Properties
that constitute security for defaulted Mortgage Loans, and for any containment,
clean-up or remediation of hazardous wastes and materials present on such
Mortgaged Properties, as described under "-Realization Upon Defaulted Mortgage
Loans";
(vi) to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator, the Depositor, the Trustee, or any of their respective directors,
officers, employees and agents, as the case may be, for certain expenses, costs
and liabilities incurred thereby, as and to the extent described under "-Certain
Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" and "-Certain Matters Regarding the Trustee";
(vii) if and to the extent described in the related Prospectus Supplement,
to pay the fees of the Trustee, the REMIC Administrator and any provider of
Credit Support;
(viii) if and to the extent described in the related Prospectus Supplement,
to reimburse prior draws on any form of Credit Support;
(ix) to pay the Master Servicer, the Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts held in
the Certificate Account as additional compensation;
(x) to pay any servicing expenses not otherwise required to be advanced by
the Master Servicer, the Special Servicer or any other specified person;
(xi) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Certain Federal Income Tax Consequences-REMICs-Prohibited
Transactions Tax and Other Taxes";
(xii) to pay for the cost of various opinions of counsel obtained pursuant
to the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
(xiii) to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement; and
(xiv) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
Modifications, Waivers and Amendments of Mortgage Loans
The Master Servicer and the Special Servicer may each agree to modify,
waive or amend any term of any Mortgage Loan serviced by it in a manner
consistent with the applicable Servicing Standard; provided that, unless
otherwise set forth in the related Prospectus Supplement, the modification,
waiver or amendment (i) will not affect the amount or timing of any scheduled
payments of principal or interest on the Mortgage Loan, (ii) will not, in the
judgment of the Master Servicer or the Special Servicer, as the case may be,
materially impair the security for the Mortgage Loan or reduce the likelihood of
timely payment of amounts due thereon and (iii) will not adversely affect the
coverage under any applicable instrument of Credit Support. Unless otherwise
provided in the related Prospectus Supplement, the Special Servicer also may
agree to any other modification, waiver or amendment if, in its judgment, (i) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (ii) such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation and (iii) such
modification, waiver or amendment will not adversely affect the coverage under
any applicable instrument of Credit Support.
Realization Upon Defaulted Mortgage Loans
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property, by operation of
law or otherwise. Unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may not, however, acquire title to any
Mortgaged Property, have a receiver of rents appointed with respect to any
Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans-Environmental Considerations".
A Pooling and Servicing Agreement may grant to the Master Servicer, the
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. In the absence of any such sale, the Special Servicer will
generally be required to proceed against the related Mortgaged Property, subject
to the discussion above.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property prior to the close of the third calendar
year following the year the Trust Fund acquired such Mortgaged Property, unless
(i) the Internal Revenue Service (the "IRS") grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel to
the effect that the holding of the property by the Trust Fund beyond such period
will not result in the imposition of a tax on the Trust Fund or cause the Trust
Fund (or any designated portion thereof) to fail to qualify as a REMIC under the
Code at any time that any Certificate is outstanding. Subject to the foregoing
and any other tax-related limitations, the Special Servicer will generally be
required to attempt to sell any Mortgaged Property so acquired on the same terms
and conditions it would if it were the owner. Unless otherwise provided in the
related Prospectus Supplement, if title to any Mortgaged Property is acquired by
a Trust Fund as to which a REMIC election has been made, the Special Servicer
will also be required to ensure that the Mortgaged Property is administered so
that it constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of such property does not result in the
receipt by the Trust Fund of any income from nonpermitted assets as described in
Code Section 860F(a)(2)(B), and that the Trust Fund does not derive any "net
income from foreclosure property", within the meaning of Code Section
860G(c)(2), with respect to such property if another method of earning income
thereon would produce a higher after-tax return. If the Trust Fund acquires
title to any Mortgaged Property, the Special Servicer, on behalf of the Trust
Fund, may retain an independent contractor to manage and operate such property.
The retention of an independent contractor, however, will not relieve the
Special Servicer of its obligation to manage such Mortgaged Property as required
under the related Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Special Servicer and/or the Master Servicer in connection with
such Mortgage Loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting Credit Support, the Trust Fund will realize
a loss in the amount of such shortfall. The Special Servicer and/or the Master
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted Mortgage Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the Mortgage Loan, unreimbursed
servicing expenses incurred with respect to the Mortgage Loan and any
unreimbursed advances of delinquent payments made with respect to the Mortgage
Loan. In addition, if and to the extent set forth in the related Prospectus
Supplement, amounts otherwise distributable on the Certificates may be further
reduced by interest payable to the Master Servicer and/or Special Servicer on
such servicing expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or the Master Servicer, as the case may be, for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn
on any instrument or fund constituting Credit Support.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer (or the Special
Servicer with respect to Mortgage Loans serviced thereby) to use reasonable
efforts to cause each Mortgage Loan borrower to maintain a hazard insurance
policy that provides for such coverage as is required under the related Mortgage
or, if the Mortgage permits the holder thereof to dictate to the borrower the
insurance coverage to be maintained on the related Mortgaged Property, such
coverage as is consistent with the Master Servicer's (or Special Servicer's)
normal servicing procedures. Unless otherwise specified in the related
Prospectus Supplement, such coverage generally will be in an amount equal to the
lesser of the principal balance owing on such Mortgage Loan and the replacement
cost of the related Mortgaged Property. The ability of a Master Servicer (or
Special Servicer) to assure that hazard insurance proceeds are appropriately
applied may be dependent upon its being named as an additional insured under any
hazard insurance policy and under any other insurance policy referred to below,
or upon the extent to which information concerning covered losses is furnished
by borrowers. All amounts collected by a Master Servicer (or Special Servicer)
under any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the borrower in accordance with
the Master Servicer's (or Special Servicer's) normal servicing procedures and/or
to the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the related Certificate Account. The Pooling and Servicing
Agreement may provide that the Master Servicer (or Special Servicer) may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by maintaining a blanket policy insuring against hazard losses on the Mortgage
Loans in a Trust Fund. If such blanket policy contains a deductible clause, the
Master Servicer (or Special Servicer) will be required, in the event of a
casualty covered by such blanket policy, to deposit in the related Certificate
Account all additional sums that would have been deposited therein under an
individual policy but were not because of such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans-Due-on-Sale and
Due-on-Encumbrance".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Certificates may consist of any or all
of the following components: (i) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it;
(ii) an additional specified portion of the interest payments on each Mortgage
Loan then currently serviced by it; and (iii) subject to any specified
limitations, a fixed percentage of some or all of the collections and proceeds
received with respect to each Mortgage Loan which was at any time serviced by
it, including Mortgage Loans for which servicing was returned to the Master
Servicer. Insofar as any portion of the Master Servicer's or Special Servicer's
compensation consists of a specified portion of the interest payments on a
Mortgage Loan, such compensation will generally be based on a percentage of the
principal balance of such Mortgage Loan outstanding from time to time and,
accordingly, will decrease with the amortization of the Mortgage Loan. As
additional compensation, a Master Servicer or Special Servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each Master Servicer's and Special
Servicer's compensation will be provided in the related Prospectus Supplement.
Any Sub-Servicer will receive as its sub-servicing compensation a portion of the
servicing compensation to be paid to the Master Servicer or Special Servicer
that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
Evidence as to Compliance
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related Trustee
a report of a firm of independent certified public accountants stating that (i)
it has obtained a letter of representation regarding certain matters from the
management of the Master Servicer which includes an assertion that the Master
Servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the Master
Servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (ii) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by Sub-Servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance the same standards (rendered
within one year of such report) with respect to those Sub-Servicers. The
Prospectus Supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the Trustee.
Each Pooling and Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the Master Servicer and
Special Servicer shall each deliver to the related Trustee an annual statement
signed by one or more officers of the Master Servicer or the Special Servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the Master Servicer or the Special Servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Certificateholders upon
written request to the Trustee.
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling and Servicing Agreement may be an affiliate of the
Depositor and may have other normal business relationships with the Depositor or
the Depositor's affiliates. Unless otherwise specified in the Prospectus
Supplement for a series of Certificates, the related Pooling and Servicing
Agreement will permit the Master Servicer, the Special Servicer and any REMIC
Administrator to resign from its obligations thereunder only upon (a) the
appointment of, and the acceptance of such appointment by, a successor thereto
and receipt by the Trustee of written confirmation from each applicable Rating
Agency that such resignation and appointment will not have an adverse effect on
the rating assigned by such Rating Agency to any class of Certificates of such
series or (b) a determination that such obligations are no longer permissible
under applicable law or are in material conflict by reason of applicable law
with any other activities carried on by it. No such resignation will become
effective until the Trustee or other successor has assumed the obligations and
duties of the resigning Master Servicer, Special Servicer or REMIC
Administrator, as the case may be, under the Pooling and Servicing Agreement.
The Master Servicer and Special Servicer for each Trust Fund will be required to
maintain a fidelity bond and errors and omissions policy or their equivalent
that provides coverage against losses that may be sustained as a result of an
officer's or employee's misappropriation of funds or errors and omissions,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted by the related Pooling and
Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will further provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator, the Depositor or any
director, officer, employee or agent of any of them will be under any liability
to the related Trust Fund or Certificateholders for any action taken, or not
taken, in good faith pursuant to the Pooling and Servicing Agreement or for
errors in judgment; provided, however, that none of the Master Servicer, the
Special Servicer, the REMIC Administrator, the Depositor or any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of
obligations or duties thereunder or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related Prospectus
Supplement, each Pooling and Servicing Agreement will further provide that the
Master Servicer, the Special Servicer, the REMIC Administrator, the Depositor
and any director, officer, employee or agent of any of them will be entitled to
indemnification by the related Trust Fund against any loss, liability or expense
incurred in connection with any legal action that relates to such Pooling and
Servicing Agreement or the related series of Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of obligations or duties under such Pooling and Servicing Agreement,
or by reason of reckless disregard of such obligations or duties. In addition,
each Pooling and Servicing Agreement will provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor will be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its respective responsibilities under the Pooling and
Servicing Agreement and that in its opinion may involve it in any expense or
liability. However, each of the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor will be permitted, in the exercise of its
discretion, to undertake any such action that it may deem necessary or desirable
with respect to the enforcement and/or protection of the rights and duties of
the parties to the Pooling and Servicing Agreement and the interests of the
related series of Certificateholders thereunder. In such event, the legal
expenses and costs of such action, and any liability resulting therefrom, will
be expenses, costs and liabilities of the related series of Certificateholders,
and the Master Servicer, the Special Servicer, the REMIC Administrator or the
Depositor, as the case may be, will be entitled to charge the related
Certificate Account therefor.
Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator or the Depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the Master Servicer, the
Special Servicer, the REMIC Administrator or the Depositor is a party, or any
person succeeding to the business of the Master Servicer, the Special Servicer,
the REMIC Administrator or the Depositor, will be the successor of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC Administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
Events of Default
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling and Servicing
Agreement will include, without limitation, (i) any failure by the Master
Servicer to distribute or cause to be distributed to the Certificateholders of
such series, or to remit to the Trustee for distribution to such
Certificateholders, any amount required to be so distributed or remitted, which
failure continues unremedied for five days after written notice thereof has been
given to the Master Servicer by any other party to the related Pooling and
Servicing Agreement, or to the Master Servicer, with a copy to each other party
to the related Pooling and Servicing Agreement, by Certificateholders entitled
to not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series; (ii) any failure by
the Special Servicer to remit to the Master Servicer or the Trustee, as
applicable, any amount required to be so remitted, which failure continues
unremedied for five days after written notice thereof has been given to the
Special Servicer by any other party to the related Pooling and Servicing
Agreement, or to the Special Servicer, with a copy to each other party to the
related Pooling and Servicing Agreement, by the Certificateholders entitled to
not less than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights of such series; (iii) any failure by the Master
Servicer or the Special Servicer duly to observe or perform in any material
respect any of its other covenants or obligations under the related Pooling and
Servicing Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party to the related Pooling and
Servicing Agreement, or to the Master Servicer or the Special Servicer, as the
case may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by Certificateholders entitled to not less than 25% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series; (iv) any failure by a REMIC Administrator (if
other than the Trustee) duly to observe or perform in any material respect any
of its covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for sixty days after written
notice thereof has been given to the REMIC Administrator by any other party to
the related Pooling and Servicing Agreement, or to the REMIC Administrator, with
a copy to each other party to the related Pooling and Servicing Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; and (v) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities, or similar proceedings in respect of or relating to
the Master Servicer, the Special Servicer or the REMIC Administrator (if other
than the Trustee), and certain actions by or on behalf of the Master Servicer,
the Special Servicer or the REMIC Administrator (if other than the Trustee)
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to add thereto or
shorten cure periods or eliminate notice requirements) will be specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, when a single entity acts as Master Servicer, Special
Servicer and REMIC Administrator, or in any two of the foregoing capacities, for
any Trust Fund, an Event of Default in one capacity will constitute an Event of
Default in each capacity.
Rights Upon Event of Default
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the Depositor or the Trustee will be authorized, and at the
direction of Certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for such series, the Trustee will be required, to terminate
all of the rights and obligations of the defaulting party as Master Servicer,
Special Servicer or REMIC Administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer or REMIC Administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances thereunder regarding delinquent Mortgage Loans, but the Trustee
is prohibited by law from obligating itself to make such advances, or if the
related Prospectus Supplement so specifies, the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, if the Trustee
is unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other entity
that (unless otherwise provided in the related Prospectus Supplement) is
acceptable to each applicable Rating Agency to act as successor to the Master
Servicer, Special Servicer or REMIC Administrator, as the case may be, under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee will be
obligated to act in such capacity.
If the same entity is acting as both Trustee and REMIC Administrator, it
may be removed in both such capacities as described under "-Resignation and
Removal of the Trustee" below.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for sixty days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
Except as otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein which may be inconsistent with any other provision therein
or to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund (or any designated
portion thereof) as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related Trust Fund, provided that the Trustee has received an
opinion of counsel to the effect that (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any
holder of Certificates covered by the Pooling and Servicing Agreement, or (B) to
restrict the transfer of the REMIC Residual Certificates, provided that the
Depositor has determined that the then-current ratings of the classes of the
Certificates that have been rated will not be adversely affected, as evidenced
by a letter from each applicable Rating Agency, and that any such amendment will
not give rise to any tax with respect to the transfer of the REMIC Residual
Certificates to a non-permitted transferee (See "Certain Federal Income Tax
Consequences-REMICs-Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations" herein), (v) to make any other provisions
with respect to matters or questions arising under such Pooling and Servicing
Agreement or any other change, provided that such action will not adversely
affect in any material respect the interests of any Certificateholder, or (vi)
to amend specified provisions that are not material to holders of any class of
Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each class affected
thereby evidencing, in each case, not less than 66-2/3% (or such other
percentage specified in the related Prospectus Supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of Certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on a Certificate of any class without the consent of the holder
of such Certificate or (ii) reduce the aforesaid percentage of Certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such amendment or the exercise
of any power granted to the Master Servicer, the Special Servicer, the
Depositor, the Trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related Trust Fund
or cause such Trust Fund (or any designated portion thereof) to fail to qualify
as a REMIC.
List of Certificateholders
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be required
to request from such registrar a current list and to afford such requesting
Certificateholders access thereto promptly upon receipt.
The Trustee
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Depositor and its affiliates and
with any Master Servicer, Special Servicer or REMIC Administrator and its
affiliates.
Duties of the Trustee
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such Certificates or any underlying Mortgage Asset or related document and will
not be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or Special
Servicer in respect of the Certificates or the underlying Mortgage Assets. If no
Event of Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
Trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of this duties thereunder either directly or by or through agents or
attorneys, and the Trustee will not be responsible for any willful misconduct or
gross negligence on the part of any such agent or attorney appointed by it with
due care.
Resignation and Removal of the Trustee
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Depositor will be obligated to appoint
a successor Trustee. The Trustee may also be removed at any time by the holders
of Certificates of the applicable series evidencing not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee. Notwithstanding anything herein to the
contrary, if any entity is acting as both Trustee and REMIC Administrator, then
any resignation or removal of such entity as the Trustee will also constitute
the resignation or removal of such entity as REMIC Administrator, and the
successor trustee will serve as successor to the REMIC Administrator as well.
DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more classes of the
Certificates of any series or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Support may provide
credit enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of Credit Support covers the Offered Certificates of more than one series
and losses on the related Mortgage Assets exceed the amount of such Credit
Support, it is possible that the holders of Offered Certificates of one (or
more) such series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Certificates of one (or more) other such
series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors-Credit Support
Limitations".
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related Prospectus Supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
Letter of Credit
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or other financial institution (which may be an affiliate of the Depositor)
specified in such Prospectus Supplement (the "Letter of Credit Bank"). Under a
letter of credit, the Letter of Credit Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of some or all of the related
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws only in
the event of certain types of losses and shortfalls. The amount available under
the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the Letter of Credit Bank
under the letter of credit for each series of Certificates will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Certificates of the related series, timely
distributions of interest or distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. The related Prospectus
Supplement will describe any limitations on the draws that may be made under any
such instrument.
Reserve Funds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the Mortgage Loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds-Mortgage Loans". For purposes of the following
discussion, "Mortgage Loan" includes a mortgage loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "-Bankruptcy Laws".
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the real property at public auction to satisfy the
indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions.
United States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These principles
are generally designed to relieve borrowers from the effects of mortgage
defaults perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a nonmonetary default, such as a failure to
adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged property. Finally, some courts have addressed the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a borrower receive notice in
addition to statutorily-prescribed minimum notice. For the most part, these
cases have upheld the reasonableness of the notice provisions or have found that
a public sale under a mortgage providing for a power of sale does not involve
sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans-Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to pay taxes, to obtain casualty insurance and
to make such repairs as are necessary to render the property suitable for sale.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
Cooperative Shares. Mortgage Loans may be secured by a security interest on
the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be cancelled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
Cooperative to receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "-Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
become sufficiently involved in the management of such mortgaged property or the
operations of the borrower. Such liability may exist even if the lender did not
cause or contribute to the contamination and regardless of whether or not the
lender has actually taken possession of a mortgaged property through
foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such liability
is not limited to the original or unamortized principal balance of a loan or to
the value of the property securing a loan. Excluded from CERCLA's definition of
"owner" or "operator", however, is a person "who without participating in the
management of the facility, holds indicia of ownership primarily to protect his
security interest". This is the so-called "secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor exemption. The Act offers
substantial protection of lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. In
order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property of the borrower. The Act provides that "merely having
the capacity to influence, or unexercised right to control" operations does not
constitute participation in management. A lender will lose the protection of the
secured creditor exemption only if it exercises decision making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of operational functions of
the mortgaged property. The Act also provides that a lender will continue to
have the benefit of the secured-creditor exemption even if it forecloses on a
mortgaged property, purchases it at a foreclosure sale or accepts a deed-in-lieu
of foreclosure provided that the lender seeks to sell the mortgaged property at
the earliest practicable commercially reasonable time on commercially reasonable
terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. It should be noted, however, that liability for cleanup of
petroleum contamination may be governed by state law, which may not provide for
any specific protection of secured creditors.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf of
the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage
Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
Junior Liens; Rights of Holders of Senior Liens
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related Senior Liens may not be included in the
Mortgage Pool. The primary risk to holders of Mortgage Loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related Senior Liens to satisfy fully both the Senior
Liens and the Mortgage Loan. In the event that a holder of a Senior Lien
forecloses on a Mortgaged Property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgage Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related Mortgaged Property are insufficient to satisfy all Senior
Liens and the Mortgage Loan in the aggregate, the Trust Fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
Certificates of the related series bear (i) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (ii) the risk
of loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the Mortgage Loan may
be nonrecourse.
Subordinate Financing
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer or Special Servicer to foreclose on an affected Mortgage
Loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the Depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. Counsel
to the Depositor for each series will be Cadwalader, Wickersham & Taft, and a
copy of the legal opinion of such counsel rendered in connection with any series
of Certificates will be filed by the Depositor with the Commission on a Current
Report on Form 8-K within 15 days after the Closing Date for such series of
Certificates. This discussion is directed primarily to Certificateholders that
hold the Certificates as "capital assets" within the meaning of Section 1221 of
the Code (although portions thereof may also apply to Certificateholders who do
not hold Certificates as "capital assets") and it does not purport to discuss
all federal income tax consequences that may be applicable to the individual
circumstances of particular investors, some of which (such as banks, insurance
companies and foreign investors) may be subject to special treatment under the
Code. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
("IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein. In addition to the federal income tax consequences described
herein, potential investors are advised to consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of Offered
Certificates. See "State and Other Tax Consequences". Certificateholders are
advised to consult their tax advisors concerning the federal, state, local or
other tax consequences to them of the purchase, ownership and disposition of
Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the REMIC Administrator will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
860G (the "REMIC Provisions") of the Code, and (ii) Grantor Trust Certificates
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election (or elections) will be made
for the related Trust Fund and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. For purposes of
this tax discussion, references to a "Certificateholder" or a "holder" are to
the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements other than guaranteed
investment contracts are included in a Trust Fund, the anticipated material tax
consequences associated with such Cash Flow Agreements also will be discussed in
the related Prospectus Supplement. See "Description of the Trust Funds-Cash Flow
Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICs
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of REMIC Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Depositor for the applicable
series as specified in the related Prospectus Supplement, subject to any
qualifications set forth herein. In addition, counsel to the Depositor have
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences--REMICs," and are of the opinion that
such statements are correct in all material respects. Such statements are
intended as an explanatory discussion of the possible effects of the
classification of any Trust Fund (or applicable portion thereof) as a REMIC for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" for a REMIC within the meaning of
Section 860G(a)(3) of the Code" and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections of the Code)
otherwise would receive the same treatment as the Mortgage Loans for purposes of
all of the foregoing sections of the Code. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections of the Code. If so, the related Prospectus Supplement will describe the
Mortgage Loans that may not be so treated. The REMIC Regulations do provide,
however, that cash received from payments on Mortgage Loans held pending
distribution is considered part of the Mortgage Loans for purposes of Section
856(c)(4)(A) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes. As to
each such series of REMIC Certificates, in the opinion of counsel to the
Depositor, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest".
"Qualified stated interest" is interest that is unconditionally payable at least
annually (during the entire term of the instrument) at a single fixed rate, or
at a "qualified floating rate", an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on
the day prior to a Distribution Date, in some cases, as a consequence of this
"long first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "-Taxation
of Owners of REMIC Regular Certificates-Market Discount" below for a description
of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (i) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Loans being prepaid at a
rate equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Certificate and (iii) taking into account
events (including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"-Taxation of Owners of REMIC Regular Certificates-Premium" below. Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest would be irrevocable except with the
approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "-Taxation of Owners of REMIC Regular
Certificates-Market Discount" above. Although final Treasury Regulations issued
under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, the Committee Report states that
the same rules that apply to accrual of market discount (which rules will
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such Certificates have
original issue discount) will also apply in amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable income
or net loss of a REMIC is generally taken into account by the holder of the
REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "-Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions" and
"noneconomic" residual interests discussed below. The fact that the tax
liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal the
income from the Mortgage Loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad debt losses with
respect to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under "-Taxation
of Owners of REMIC Regular Certificates-Original Issue Discount". The issue
price of a REMIC Certificate received in exchange for an interest in the
Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Mortgage Loans and
other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to Mortgage Loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "-Taxation of Owners of
REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as to
Mortgage Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the
REMIC will have additional income in each taxable year in an amount equal to the
portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"-Taxation of Owners of REMIC Regular Certificates-Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "-Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-Taxation of Owners of REMIC
Residual Certificates-General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events. In general, the
"excess inclusions" with respect to a REMIC Residual Certificate for any
calendar quarter will be the excess, if any, of (i) the daily portions of REMIC
taxable income allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for each day during such quarter that
such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-Foreign Investors
in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On January 4, 1995, the IRS issued final regulations
(the "Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, any REMIC Residual Certificate issued after January 4, 1995 will
not be treated as a security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
such types of holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees and expenses
will be allocated to the related REMIC Residual Certificates in their entirety
and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "-Taxation of Owners of REMIC Residual Certificates-Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28% for
property held for more than one year but less than 18 months and 20% for
property held more than 18 months. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "-Taxation of Owners of REMIC Regular Certificates-Market
Discount" and "-Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property", determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the Trust Fund than any other method of
operation.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax or
Contributions Tax will be borne by the related REMIC Administrator, Master
Servicer, Special Servicer, Manager or Trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
Administrator, a Master Servicer, Special Servicer, Manager or Trustee will be
charged against the related Trust Fund resulting in a reduction in amounts
payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate) of the total anticipated
excess inclusions with respect to such REMIC Residual Certificate for periods
after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must be determined
as of the date that the REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (i) residual interests in
such entity are not held by disqualified organizations and (ii) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Pooling and Servicing Agreement, and will be discussed in any
Prospectus Supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Mortgage
Loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in such Certificate, such REMIC Residual Certificateholder should
(but may not) be treated as realizing a loss equal to the amount of such
difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-Taxation of Owners of REMIC Regular
Certificates-Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. The New Regulations,
as described below, change certain of the rules relating to certain presumptions
currently available relating to information reporting and backup withholding.
Non-U.S. Persons are urged to contact their own tax advisors regarding the
application to them of backup withholding and information reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "U.S. Person" (as defined below) and is not subject to federal
income tax as a result of any direct or indirect connection to the United States
in addition to its ownership of a REMIC Regular Certificate will not, unless
otherwise disclosed in the related Prospectus Supplement, be subject to United
States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary
with certain identification requirements (including delivery of a statement,
signed by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). For these purposes, "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (except to the extent
provided in applicable Treasury Regulations) or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income tax regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more such U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to elect to be treated as U.S. Persons). It is possible that the IRS
may assert that the foregoing tax exemption should not apply with respect to a
REMIC Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the New Regulations.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the Depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the Depositor for the applicable series as specified
in the related Prospectus Supplement, subject to any qualifications set forth
herein. In addition, counsel to the Depositor have prepared or reviewed the
statements in this Prospectus under the heading "Certain Federal Income Tax
Consequences--Grantor Trust Funds," and are of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (ii) "obligation[s]
(including any participation or Certificate of beneficial ownership therein)
which . . .[are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3) of the Code; and (iii) "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
Depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below. Under the stripped bond rules, the
holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "-Sales of Grantor Trust Certificates" below) and the yield of such Grantor
Trust Fractional Interest Certificate to such holder. Such yield would be
computed as the rate (compounded based on the regular interval between payment
dates) that, if used to discount the holder's share of future payments on the
Mortgage Loans, would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In computing yield
under the stripped bond rules, a Certificateholder's share of future payments on
the Mortgage Loans will not include any payments made in respect of any
ownership interest in the Mortgage Loans retained by the Depositor, the Master
Servicer, the Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the Mortgage Loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount" above. It is
unclear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "-Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" and
"-Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount" above. In general,
the issue price of a Mortgage Loan will be the amount received by the borrower
from the lender under the terms of the Mortgage Loan, less any "points" paid by
the borrower, and the stated redemption price of a Mortgage Loan will equal its
principal amount, unless the Mortgage Loan provides for an initial "teaser," or
below-market interest rate. The determination as to whether original issue
discount will be considered to be de minimis will be calculated using the same
test as in the REMIC discussion. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the Trustee
or Master Servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor Trust
Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "-Taxation of Owners of REMIC Regular
Interests-Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above within the exception that it is less
likely that a prepayment assumption will be used for purposes of such rules with
respect to the Mortgage Loans.
Further, under the rules described above in "-REMICs-Taxation of Owners of
REMIC Regular Certificates-Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Apply", no regulations
or published rulings under Section 1286 of the Code have been issued and some
uncertainty exists as to how it will be applied to securities such as the
Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust Strip
Certificates should consult their tax advisors concerning the method to be used
in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations have
been promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Grantor Trust Strip Certificates, due
to their similarity to other mortgage-backed securities (such as REMIC regular
interests and debt instrument subject to Section 1272(a)(6) of the Code) that
are expressly excepted from the application of the Contingent Payment
Regulations, may be excepted from such regulations. Like the OID Regulations,
the Contingent Payment Regulations do not specifically address securities, such
as the Grantor Trust Strip Certificates, that are subject to the stripped bond
rules of Section 1286 of the Code.
If the contingent payment rules similar to those under the OID regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus generally provides for
maximum tax rates of noncorporate taxpayers of 39.6% on ordinary income, 28% on
mid-term capital gains (generally, property held for more than one year but not
more than 18 months), and 20% on long-term capital gains (generally, property
held for more than 18 months). No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"-REMICs-Backup Withholding with Respect to REMIC Certificates" will also apply
to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC Regular
Certificates in "-REMICs-Foreign Investors in REMIC Certificates" above applies
to Grantor Trust Certificates except that Grantor Trust Certificates will,
unless otherwise disclosed in the related Prospectus Supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Plan Asset Regulations
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section 2510.3-101 of the regulations (the "Plan Asset
Regulations") of the United States Department of Labor (the "DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable here apply, or
unless the equity participation in the entity by "benefit plan investors" (i.e.,
Plans and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a Trust Fund will be significant
on any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Special
Servicer, any Sub-Servicer, the Trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the Mortgage Assets and other assets included in
a Trust Fund constitute Plan assets, the purchase of Certificates by a Plan, as
well as the operation of the Trust Fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates, but, on their face, do not include FAMC Certificates. Accordingly,
even if such MBS (other than, perhaps, FAMC Certificates) included in a Trust
Fund were deemed to be assets of Plan investors, the mortgages underlying such
MBS (other than, perhaps, FAMC Certificates) would not be treated as assets of
such Plans. Private label mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities are not "guaranteed
governmental mortgage pool certificates" within the meaning of the Plan Asset
Regulations. Potential Plan investors should consult their counsel and review
the ERISA discussion in the related Prospectus Supplement before purchasing any
such Certificates.
In considering an investment in the Offered Certificates, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts
certain transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." There can be no assurance that any of these class exemptions will
apply with respect to any particular Plan investment in the Certificates or,
even if it were deemed to apply, that any exemption would apply to all
prohibited transactions that may occur in connection with such investment. The
Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the availability of other exemptions with
respect to the Certificates offered thereby.
Insurance Company General Accounts
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust (such as the Trust) in which an insurance company general account has an
interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain Classes
of Certificates which do not meet the requirements of the Exemptions solely
because they (i) are subordinated to other Classes of Certificates in the Trust
and/or (ii) have not received a rating at the time of the acquisition in one of
the three highest rating categories from S&P, Moody's, DCR or Fitch. All other
conditions of the Exemptions would have to be satisfied in order for PTCE 95-60
to be available. Before purchasing such Class of Certificates, an insurance
company general account seeking to rely on Section III of PTCE 95-60 should
itself confirm that all applicable conditions and other requirements have been
satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which are to
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan Assets. On December 22, 1977, the DOL proposed such regulations.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Offered Certificates after
the date which is 18 months after the date the 401(c) Regulations become final.
Consultation With Counsel
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those Offered Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase such Offered Certificates, may be subject to
significant interpretive uncertainties. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Non-SMMEA Certificates
constitute legal investments for them. Generally, only classes of Offered
Certificates that (i) are rated in one of the two highest rating categories by
one or more Rating Agencies and (ii) are part of a series evidencing interests
in a Trust Fund consisting of loans originated by certain types of Originators
specified in SMMEA and secured by first liens on real estate, will be "mortgage
related securities" for purposes of SMMEA. Classes of Offered Certificates
qualifying as "mortgage related securities" will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, insurance companies
and pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation, to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, a number of states
enacted legislation, on or before the October 3, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in "mortgage related securities"
secured by liens on residential, or mixed residential and commercial properties,
in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Pursuant to Section 347 of the Riegle Community
Development and Regulatory Improvement Act of 1994, which amended the definition
of "mortgage related security" (effective December 31, 1996) to include, in
relevant part, Offered Certificates satisfying the rating and qualified
Originator requirements for "mortgage related securities," but evidencing
interests in a Trust Fund consisting, in whole or in part, of first liens on one
or more parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in such types of
Offered Certificates. Accordingly, the investors affected by any such state
legislation, when and if enacted, will be authorized to invest in Offered
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss.24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation, as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards concerning "safety and soundness" and
retention of credit information in 12 C.F.R. ss.1.5 concerning "safety and
soundness" and retention of credit information), certain "Type IV securities,"
defined in 12 C.F.R. ss.1.2(1) to include certain "commercial mortgage-related
securities" and "residential mortgage-related securities." As so defined,
"commercial mortgage-related security" and "residential mortgage-related
security" mean, in relevant part, "mortgage related security" within the meaning
of SMMEA, provided that, in the case of a "commercial mortgage-related
security," it "represents ownership of a promissory note or certificate of
interest or participation that is directly secured by a first lien on one or
more parcels of real estate upon which one or more commercial structures are
located and that is fully secured by interests in a pool of loans to numerous
obligors." In the absence of any rule or administrative interpretation by the
OCC defining the term "numerous obligors," no representation is made as to
whether any class of Offered Certificates will qualify as "commercial
mortgage-related securities," and thus as "Type IV securities," for investment
by national banks. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities, residual interests in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. ss.703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" (the "1998 Policy Statement") of the Federal Financial Institutions
Examination Council (the "FFIEC"), which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the Office of Thrift Supervision effective May 26,
1998, and by the NCUA effective October 1, 1998. The 1998 Policy Statement sets
forth general guidelines which depository institutions must follow in managing
risks (including market, credit, liquidity, operational (transactional), and the
legal risks) applicable to all securities (including mortgage pass-through
securities and mortgage-derivative products) used for investment purposes. Until
October 1, 1998, federal credit unions will still be subject to the FFIEC's
now-superseded "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as adopted by the NCUA with certain modifications, which
prohibited depository institutions from investing in certain "high-risk mortgage
securities," except under limited circumstances, and set forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase Offered Certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Offered Certificates of any class constitute
legal investments or are subject to investment, capital or other restrictions
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or will
be used by the Depositor to cover expenses related thereto. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters, which may include NationsBanc Montgomery Securities
LLC ("NationsBanc"), an affiliate of the Depositor;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such
Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by NationsBanc in connection with offers and sales
related to market-making transactions in Offered Certificates previously offered
hereunder in transactions with respect to which NationsBanc acts as principal.
NationsBanc may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of NationsBank
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the underwriter or underwriters by Cadwalader, Wickersham & Taft.
Certain federal income tax matters and other matters will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of Stripped Interest Certificates might, in extreme
cases fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
1998 Policy Statement...........................................................
401(c) Regulations..............................................................
Accrual Certificates............................................................
Accrual Period..................................................................
Accrued Certificate Interest....................................................
Act.............................................................................
ADA.............................................................................
ARM Loans.......................................................................
Assisted Living Facilities......................................................
Available Distribution Amount...................................................
Book-Entry Certificates.........................................................
Call Risk.......................................................................
Cash Flow Agreement.............................................................
CERCLA..........................................................................
Certificate Account.............................................................
Certificate Balance.............................................................
Certificate Owner...............................................................
Closing Date....................................................................
Code............................................................................
Commercial Properties...........................................................
Commission......................................................................
Committee Report................................................................
Companion Class.................................................................
Contributions Tax...............................................................
Controlled Amortization Class...................................................
Cooperatives....................................................................
CPR.............................................................................
Credit Support..................................................................
Crime Control Act...............................................................
Cut-off Date....................................................................
Debt Service Coverage Ratio.....................................................
Definitive Certificates.........................................................
Depositor.......................................................................
Determination Date..............................................................
Direct Participants.............................................................
Distribution Date...............................................................
Distribution Date Statement.....................................................
DOL.............................................................................
DTC.............................................................................
Due Dates.......................................................................
Due Period......................................................................
Equity Participation............................................................
ERISA...........................................................................
Exchange Act....................................................................
Extension Risk..................................................................
FAMC............................................................................
FFIEC...........................................................................
FHLMC...........................................................................
FNMA............................................................................
Garn Act........................................................................
Grantor Trust Certificates......................................................
Grantor Trust Fractional Interest Certificate...................................
Grantor Trust Fund..............................................................
Health Care-Related Facilities..................................................
HUD.............................................................................
Indirect Participants...........................................................
Insurance Proceeds..............................................................
IRS.............................................................................
Issue Premium...................................................................
Letter of Credit Bank...........................................................
Liquidation Proceeds............................................................
Loan-to-Value Ratio.............................................................
Lock-out Date...................................................................
Lock-out Period.................................................................
Manager.........................................................................
Mark-to-Market Regulations......................................................
Master Servicer.................................................................
MBS.............................................................................
MBS Administrator...............................................................
MBS Agreement...................................................................
MBS Issuer......................................................................
MBS Servicer....................................................................
MBS Trustee.....................................................................
Mortgage........................................................................
Mortgage Asset Pool.............................................................
Mortgage Asset Seller...........................................................
Mortgage Assets.................................................................
Mortgage Loans..................................................................
Mortgage Notes..................................................................
Mortgage Rate...................................................................
Mortgaged Properties............................................................
Mortgages.......................................................................
Multifamily Properties..........................................................
NationsBanc.....................................................................
NCUA............................................................................
Net Leases......................................................................
Net Operating Income............................................................
New Regulations.................................................................
Nonrecoverable Advance..........................................................
Non-SMMEA Certificates..........................................................
Notional Amount.................................................................
OCC.............................................................................
Offered Certificates............................................................
OID Regulations.................................................................
Originator......................................................................
Participants....................................................................
Parties in Interest.............................................................
Pass-Through Rate...............................................................
Percentage Interest.............................................................
Permitted Investments...........................................................
Plan Asset Regulations..........................................................
Plans...........................................................................
Pooling and Servicing Agreement.................................................
Prepayment Assumption...........................................................
Prepayment Interest Shortfall...................................................
Prepayment Period...............................................................
Prepayment Premium..............................................................
Prohibited Transactions Tax.....................................................
Prospectus Supplement...........................................................
PTCE............................................................................
Purchase Price..................................................................
Rating Agency...................................................................
RCRA............................................................................
Record Date.....................................................................
Related Proceeds................................................................
Relief Act......................................................................
REMIC...........................................................................
REMIC Administrator.............................................................
REMIC Certificates..............................................................
REMIC Provisions................................................................
REMIC Regular Certificates......................................................
REMIC Regulations...............................................................
REMIC Residual Certificates.....................................................
REO Property....................................................................
Residual Owner..................................................................
RICO............................................................................
Senior Certificates.............................................................
Senior Housing Facilities.......................................................
Senior Liens....................................................................
Skilled Nursing Facilities......................................................
SMMEA...........................................................................
SPA.............................................................................
Special Servicer................................................................
Stripped Interest Certificates..................................................
Stripped Principal Certificates.................................................
Subordinate Certificates........................................................
Sub-Servicer....................................................................
Sub-Servicing Agreement.........................................................
Superlien.......................................................................
Tax Exempt Investor.............................................................
Tiered REMICs...................................................................
Title V.........................................................................
Trust Assets....................................................................
Trust Fund......................................................................
Trustee.........................................................................
UBTI............................................................................
UCC.............................................................................
Value...........................................................................
Voting Rights...................................................................
Warranting Party................................................................
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of Form S-3)
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement............ $442,500.00
Legal Fees and Expenses.......................... 200,000.00
Accounting Fees and Expenses..................... 80,000.00
Trustee's Fees and Expenses
(including counsel fees)................ 40,000.00
Blue Sky Fees and Expenses....................... 6,000.00
Printing and Engraving Fees...................... 40,000.00
Rating Agency Fees............................... 100,000.00
Miscellaneous.................................... 12,000.00
------------
Total ........................................ $920,500.00
============
Indemnification of Directors and Officers (Item 15 of Form S-3).
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith,
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will further
provide that, with the exceptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expense incurred in connection with legal action relating to such
Pooling and Servicing Agreements and related Certificates other than such
expenses related to particular Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee of agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent and
under the circumstances permitted by subsections (a) and (b) of Section 145 of
the General Corporation Law of the State of Delaware, the Registrant (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer, or
his testator or intestate is or was a director or officer of the Registrant,
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
<PAGE>
Exhibits (Item 16 of Form S-3).
Exhibits --
1.1- -Form of Underwriting Agreement.
3.1- -Certificate of Incorporation.
3.2- -By-Laws.
4.1- -Form of Pooling and Servicing Agreement.
5.1- -Opinion of Cadwalader, Wickersham & Taft with respect to legality.
8.1- - Opinion of Cadwalader, Wickersham & Taft with respect to certain tax
matters (included with Exhibit 5.1).
23.1- -Consent of Robert W. Long, Jr., Esq.
23.2- -Consent of Cadwalader, Wickersham & Taft (included with Exhibit 5.1).
24.1- -Power of Attorney.
Undertakings (Item 17 of Form S-3)
A. Undertakings Pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included
in the post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, State of North Carolina, on the 23rd day
of June 1998.
NATIONSLINK FUNDING CORPORATION
By: /s/ William L. Maxwell
-----------------------
William L. Maxwell
Director (President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ William L. Maxwell Director (President) June 23, 1998
- -------------------------
William L. Maxwell
/s/ Richard Gross Director June 23, 1998
------------------------
Richard Gross
/s/ James E. Naumann Chief Accounting June 23, 1998
------------------------ Officer and Chief
James E. Naumann Financial Officer
<PAGE>
Index to Exhibits
Exhibit Number Exhibit
-------------- -------
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 By-laws
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to legality
8.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain tax
matters (included with Exhibit 5.1)
23.1 Consent of Robert W. Long, Jr., Esq.
23.2 Consent of Cadwalader, Wickersham & Taft (included with Exhibit 5.1)
24.1 Power of Attorney
UNDERWRITING AGREEMENT
New York, New York
_________________, 199__
To the Representatives
named in Schedule I
hereto of the Underwriters
named in Schedule II hereto
Dear Sirs:
NationsLink Funding Corporation, a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule II hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), the [respective] principal [and/or notional] amount[s] of
its securities identified in Schedule I hereto (the "Securities"), to be issued
under a pooling and servicing agreement (the "Pooling Agreement") to be dated as
of ________________, 199___, among the Company as depositor,
_____________________ as master servicer (the "Master Servicer"),
______________________ as special servicer (the "Special Servicer"),
___________________ as REMIC administrator (the "REMIC Administrator") and
___________________ as trustee (the "Trustee"). If the firm or firms listed in
Schedule II hereto include only the firm or firms listed in Schedule I hereto,
then the terms "Underwriters" and "Representatives", as used herein, each shall
be deemed to refer to such firm or firms.
1. Representations and Warranties. The Company represents and warrants to,
and agrees with, each Underwriter that:
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"), and has filed with the
Securities and Exchange Commission (the "Commission") a registration
statement on such Form (the file number of which is set forth in Schedule I
hereto), which has become effective, for the registration under the Act of
the Securities. Such registration statement, as amended to the date of this
Agreement, meets the requirements set forth in Rule 415(a)(1) under the Act
and complies in all other material respects with said Rule. The Company
proposes to file with the Commission pursuant to Rule 424 under the Act a
supplement to the form of prospectus included in such registration
statement relating to the Securities and the plan of distribution thereof
and has previously advised the Representatives of all further information
(financial and other) with respect to the Company and the Securities to be
set forth therein. Such registration statement, including the exhibits
thereto, as amended to the date of this Agreement, is hereinafter called
the "Registration Statement"; such prospectus in the form in which it
appears in the Registration Statement is hereinafter called the "Basic
Prospectus"; and such supplemented form of prospectus, in the form in which
it shall be filed with the Commission pursuant to Rule 424 (including the
Basic Prospectus as so supplemented) is hereinafter called the "Final
Prospectus." Any preliminary form of the Final Prospectus which has
heretofore been filed pursuant to Rule 424 hereinafter is called the
"Preliminary Final Prospectus." Any reference herein to the Registration
Statement, the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which
were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on or before the date of this Agreement, or the issue date
of the Basic Prospectus, any Preliminary Final Prospectus or the Final
Prospectus, as the case may be; and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration
Statement, the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus shall be deemed to refer to and include the filing of any
document under the Exchange Act after the date of this Agreement, or the
issue date of the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus, as the case may be, and deemed to be incorporated therein
by reference.
(b) As of the date hereof, when the Final Prospectus is first filed
pursuant to Rule 424 under the Act, when, prior to the Closing Date (as
hereinafter defined), any amendment to the Registration Statement becomes
effective (including the filing of any document incorporated by reference
in the Registration Statement), when any supplement to the Final Prospectus
is filed with the Commission and at the Closing Date (as hereinafter
defined), (i) the Registration Statement, as amended as of any such time,
and the Final Prospectus, as amended or supplemented as of any such time,
will comply in all material respects with the applicable requirements of
the Act and the Exchange Act and the respective rules thereunder, (ii) the
Registration Statement, as amended as of any such time, will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and (iii) the Final Prospectus, as amended or
supplemented as of any such time, will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to (A)
the information contained in or omitted from the Registration Statement or
the Final Prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of any Underwriter through the Representatives
specifically for use in connection with the preparation of the Registration
Statement and the Final Prospectus or (B) any Current Report (as defined in
Section 5(b) below), or in any amendment thereof or supplement thereto,
incorporated by reference in the Registration Statement or the Final
Prospectus (or any amendment thereof or supplement thereto).
(c) The Company has been duly incorporated and is validly existing as
a corporation under the laws of the State of Delaware and has corporate and
other power and authority to own its properties and conduct its business,
as now conducted by it, and to enter into and perform its obligations under
this Agreement and the Pooling Agreement.
(d) The Company is not aware of (i) any request by the Commission for
any further amendment of the Registration Statement or the Basic Prospectus
or for any additional information or (ii) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement.
(e) This Agreement has been duly authorized, executed and delivered by
the Company, and the Pooling Agreement, when delivered by the Company, will
have been duly authorized, executed and delivered by the Company, and will
constitute a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject, as to the
enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium, receivership and similar laws affecting
creditors' rights generally and to general principles of equity (regardless
of whether the enforcement of such remedies is considered in a proceeding
in equity or at law).
2. Purchase and Sale. Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company agrees to
sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at the [applicable] purchase price set
forth in Schedule I hereto, the principal [or notional] amount of [each class
of] the Securities set forth opposite such Underwriter's name in Schedule II
hereto.
3. Delivery and Payment. Delivery of and payment for the Securities shall
be made at the office, on the date and at the time specified in Schedule I
hereto, which date and time may be postponed by agreement between the
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the Securities being herein called the
"Closing Date"). Delivery of the Securities shall be made to the Representatives
for the respective accounts of the several Underwriters against payment by the
several Underwriters through the Representatives of the [aggregate] purchase
price thereof in the manner set forth in Schedule I hereto. If Schedule I
indicates that the Securities are to be issued in book-entry form, delivery of
the Securities shall be made through the facilities of the depository or
depositories set forth on Schedule I. Alternatively, certificates for the
Securities shall be registered in such names and in such denominations as the
Representatives may request not less than three full business days in advance of
the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in [New York, New York], not later
than [1:00 p.m., New York City] time, on the business day prior to the Closing
Date.
4. Representations, Warranties and Agreements of the Underwriters. Each
Underwriter represents and warrants to, and agrees with, the Company that:
(a) It proposes to offer the Securities for sale to the public as set
forth in the Final Prospectus, and all offers and sales of the Securities
made by it shall be so made in compliance with all applicable laws and
regulations.
(b) If any of the Securities to be acquired by it constitute "residual
interests" in a "real estate mortgage investment conduit" (a "REMIC") as
those terms are defined, respectively, in Sections 860G and 860D of the
Internal Revenue Code of 1986 (the "Code"; and such Securities, "Residual
Securities"), it will deliver on or before the Closing Date, in connection
with such acquisition, a transfer affidavit and agreement, substantially in
the form required pursuant to Section ______ of the Pooling Agreement, upon
which the Company and the Trustee may rely. In addition, it shall pay
directly or reimburse the Company upon demand for: (i) any and all taxes
(including, without limitation, penalties and interest) owed or asserted to
be owed by the Company as a result of a claim by the Internal Revenue
Service that the transfer of any Residual Securities to such Underwriter
hereunder or any transfer thereof by such Underwriter may be disregarded
for federal tax purposes and (ii) any and all losses, claims, damages and
liabilities, including, without limitation, attorney's fees and expenses,
arising out of any failure of such Underwriter to make payment or
reimbursement in connection with any such assertion as required in clause
(i) above. Furthermore, it acknowledges that on the Closing Date,
immediately after the transactions described herein, it will be the owner
of the Residual Securities, if any, acquired by it for federal tax
purposes, and it shall not assert in any proceeding that the transfer of
such Residual Securities from the Company to such Underwriter should be
disregarded for any purpose.
5. Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) Prior to the termination of the offering of the Securities, the
Company will not file any amendment of the Registration Statement or
supplement (including the Final Prospectus) to the Basic Prospectus unless
the Company has furnished the Representatives a copy for their review prior
to filing and will not file any such proposed amendment or supplement to
which the Representatives reasonably object. Subject to the foregoing
sentence, the Company will cause the Final Prospectus to be mailed to the
Commission for filing pursuant to Rule 424 by first class certified or
registered mail or by overnight courier and will cause the Final Prospectus
to be filed with the Commission pursuant to said Rule. The Company will
advise the Representatives promptly (i) when the Final Prospectus shall
have been mailed to the Commission for filing pursuant to Rule 424, (ii)
when any amendment to the Registration Statement relating to the Securities
shall have become effective, (iii) of any request by the Commission for any
amendment of the Registration Statement or amendment of or supplement to
the Final Prospectus or for any additional information relating to the
Securities, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (v) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order described in clause (iv) of the preceding sentence and,
if issued, to obtain as soon as possible the withdrawal thereof.
(b) The Company will cause or, if appropriate, will have caused any
Computational Materials and ABS Term Sheets (each as defined in Section 10
below) with respect to the Securities which are delivered by the
Underwriters to the Company pursuant to or as contemplated by Section 10 to
be filed with the Commission on a Current Report on Form 8-K (the "Current
Report") pursuant to Rule 13a-11 under the Exchange Act not later than, in
each such case, the business day immediately following [the earlier of (i)]
the day on which such Computational Materials are delivered to counsel for
the Company by the Underwriters prior to 10:30 a.m., New York City time,
[and (ii) the date hereof,] and will promptly advise the Underwriters when
each such Current Report has been so filed. Each such Current Report shall
be incorporated by reference in the Final Prospectus and the Registration
Statement. Notwithstanding the two preceding sentences, the Company shall
have no obligation to file materials provided by the Underwriters pursuant
to or as contemplated by Section 10 which, in the reasonable determination
of the Company after making reasonable efforts to consult with the
Underwriters, are not required to be filed pursuant to the No-Action
Letters (as defined in Section 10 below), or which contain erroneous
information or contain any untrue statement of a material fact or, which,
when read in conjunction with the Final Prospectus, omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; it being understood, however, that the
Company shall have no obligation to review or pass upon the accuracy or
adequacy of, or to correct, any Computational Materials or ABS Term Sheets
provided by the Underwriters to the Company pursuant to Section 10 hereof.
(c) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Final Prospectus as then amended or supplemented would include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it shall be necessary to
amend or supplement the Final Prospectus to comply with the Act or the
Exchange Act or the respective rules thereunder, the Company promptly will
prepare and file with the Commission, subject to the first sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance and will use its best efforts to cause any required
post-effective amendment to the Registration Statement containing such
amendment to be made effective as soon as possible; provided, however, that
the Company will not be required to file any such amendment or supplement
with respect to any Computational Materials and/or ABS Term Sheets
incorporated by reference in the Final Prospectus other than any amendments
or supplements of such Computational Materials and/or ABS Term Sheets that
are furnished to the Company pursuant to Section 10(d) hereof which the
Company determines to file in accordance therewith.
[(d) The Company will make generally available to its security holders
and to the Representatives as soon as practicable, but not later than 60
days after the close of the period covered thereby, an earnings statement
(in form complying with the provisions of Rule 158 of the regulations under
the Act) covering a twelve month period beginning not later than the first
day of the Company's fiscal quarter next following the "effective date" (as
defined in said Rule 158) of the Registration Statement.]
(e) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, executed copies of the Registration
Statement (including exhibits thereto) and each amendment thereto which
shall become effective on or prior to the Closing Date and, so long as
delivery of a prospectus relating to the Securities by an Underwriter or
dealer may be required by the Act, as many copies of any Preliminary Final
Prospectus and the Final Prospectus and any amendments thereof and
supplements thereto (other than exhibits to a Current Report) as the
Representatives may reasonably request. The Company will pay the expenses
of printing all documents relating to the initial offering of the
Securities, provided that any additional expenses incurred in connection
with the requirement of delivery of a market-making prospectus will be
borne by ________________________________.
(f) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Representatives may
reasonably designate, will maintain such qualifications in effect so long
as required for the distribution of the Securities and will arrange for the
determination of the legality of the Securities for purchase by
institutional investors; provided, however, that the Company shall not be
required to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general or
unlimited service of process in any jurisdiction where it is not now so
subject.
6. Conditions to the Obligations of the Underwriters. The obligations of
the Underwriters to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
as of the date hereof, as of the date of the effectiveness of any amendment to
the Registration Statement filed prior to the Closing Date (including the filing
of any document incorporated by reference therein) and as of the Closing Date,
to the accuracy of the statements of the Company made in any certificates
delivered pursuant to the provisions hereof, to the performance by the Company
of its obligations hereunder and to the following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been instituted or threatened; and
the Final Prospectus shall have been filed or mailed for filing with the
Commission within the time period prescribed by the Commission.
(b) The Company shall have furnished to the Representatives the
opinion of [Cadwalader, Wickersham & Taft], counsel for the Company and the
Underwriters, dated the Closing Date, to the effect of paragraphs (iii),
(vi), (vii), (ix), (xi), (xiv), (xv), (xvi) and (xvii) below, and the
opinion of [Robert W. Long, Jr.], special counsel to the Company, dated the
Closing Date, to the effect of paragraphs (i), (ii), (iv), (v), (viii),
(x), (xii) and (xiii) below:
(i) the Company is a duly incorporated and validly existing
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its properties and
conduct its business as described in the Final Prospectus;
(ii) the Company has no subsidiaries and is not required to be
qualified or licensed to do business as a foreign corporation in any
jurisdiction;
(iii) the Securities conform in all material respects to the
description thereof contained in the Final Prospectus;
(iv) the Pooling Agreement has been duly authorized, executed and
delivered by the Company;
(v) the Securities have been duly authorized by the Company;
(vi) upon due authorization, execution and delivery by the
parties thereto, the Pooling Agreement will constitute a legal, valid
and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as such enforceability may be
limited by (A) bankruptcy, insolvency, liquidation, receivership,
moratorium, reorganization or other similar laws affecting the
enforcement of the rights of creditors generally, and (B) general
principles of equity, whether enforcement is sought in a proceeding in
equity or at law;
(vii) the Securities, when duly and validly executed,
authenticated and delivered in accordance with the Pooling Agreement
and paid for in accordance with this Agreement, will be entitled to
the benefits of the Pooling Agreement;
(viii) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Final Prospectus,
and there is no franchise, contract or other document of a character
required to be described in the Registration Statement or Final
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required;
(ix) the Registration Statement has become effective under the
Act; to the best knowledge of such counsel no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or threatened; the
Registration Statement, the Final Prospectus and each amendment
thereof or supplement thereto (other than the financial statements and
other financial and statistical information contained therein or
incorporated by reference therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the applicable requirements of the Act and the Exchange Act and the
respective rules thereunder; and such counsel has no reason to believe
that the Registration Statement or any amendment thereof at the time
it became effective contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Final Prospectus, as amended or supplemented, contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(x) this Agreement has been duly authorized, executed and
delivered by the Company;
(xi) upon due authorization, execution and delivery by the
parties hereto, this Agreement will constitute a legal, valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be
limited by (A) bankruptcy, insolvency, liquidation, receivership,
moratorium, reorganization or other similar laws affecting the
enforcement of the rights of creditors generally, (B) general
principles of equity, whether enforcement is sought in a proceeding in
equity or at law, and (C) public policy considerations underlying the
securities laws, to the extent that such public policy considerations
limit the enforceability of any of the provisions of this Agreement
which purport to provide indemnification from securities law
liabilities;
(xii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters and such other approvals (specified
in such opinion) as have been obtained;
(xiii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach of, or constitute a default under the certificate of
incorporation or by-laws of the Company or, to the best knowledge of
such counsel, the terms of any indenture or other agreement or
instrument known to such counsel and to which the Company is a party
or by which it is bound, or any order or regulation known to such
counsel to be applicable to the Company of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Company;
(xiv) the Pooling Agreement is not required to be qualified under
the Trust Indenture Act of 1939, as amended;
(xv) neither the Company nor the Trust Fund is required to be
registered under the Investment Company Act of 1940, as amended;
(xvi) the statements in the Final Prospectus under the headings
"Certain Federal Income Tax Consequences" and "ERISA Considerations",
to the extent that they constitute matters of State of New York or
federal law or legal conclusions with respect thereto, while not
purporting to discuss all possible consequences of investment in the
Certificates, are correct in all material respects with respect to
those consequences or matters that are discussed therein; and
(xvii) assuming compliance with the provisions of the Pooling
Agreement, for federal income tax purposes, each of REMIC I and REMIC
II [as such terms are defined in the Pooling Agreement] will qualify
as a REMIC within the meaning of Sections 860A through 860G (the
"REMIC Provisions") of the Code, and (i) _______________________ will
be the "regular interests" in REMIC I, (ii) the ______________________
will be the sole class of "residual interests" in REMIC I, (iii) the
__________________________ will evidence "regular interests" in REMIC
II and (iv) the __________ ____________ will be the sole class of
"residual interests" in REMIC II, each within the meaning of the REMIC
Provisions in effect on the date hereof.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York or the United States or the laws of the State of Delaware other
than its general corporation law, to the extent deemed proper and specified
in such opinion, upon the opinion of other counsel of good standing
believed to be reliable and who are satisfactory to counsel for the
Underwriters; and (B) as to matters of fact, to the extent deemed proper,
on certificates of responsible officers of the Company and public
officials.
(c) [The Representatives shall have received copies, addressed to them
or on which they are entitled to rely, of opinions of counsel furnished to
the rating agencies rating the Securities as set forth on Schedule I hereto
addressing the characterization of the transfer by the Company to the
Trustee of its right, title and interest in and to the mortgage loans
underlying the Securities (the "Mortgage Loans") in accordance with the
Pooling Agreement, and the sale of the Securities to the Underwriters
hereunder, as a sale of the interests in the Mortgage Loan evidenced by the
Securities rather than a financing or, alternatively, an opinion with
respect to (i) the Trustee's having as a perfected first priority security
interest in the Mortgage Loans and (ii) the non-consolidation of the
Company and ______________ in the event of a conservatorship or
receivership of ________________.]
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or
President and Chief Executive Officer or an Executive Vice President or
Treasurer and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement (excluding any Current
Reports and any other documents incorporated by reference therein), the
Final Prospectus and this Agreement and that to the best of their
knowledge:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement, as amended, has been issued and no proceedings
for that purpose have been instituted or threatened; and
(iii) since the respective dates as of which information is given
in the Final Prospectus, there has been no material adverse change in
the condition (financial or other), earnings, business or properties
of the Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Final Prospectus.
(e) On the date hereof, ______________________ and/or any other firm
of certified independent public accountants acceptable to the
Representatives shall have furnished to the Representatives a letter, dated
the date hereof, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the
Act and the Exchange Act and the respective applicable published rules and
regulations thereunder, and stating in effect that using the assumptions
and methodology used by the Company, all of which shall be described in
such letter, they have recalculated such numbers and percentages set forth
in the Final Prospectus as the Representatives may reasonably request and
as are agreed to by ______________________, compared the results of their
calculations to the corresponding items in the Final Prospectus, and found
each such number and percentage set forth in the Final Prospectus to be in
agreement with the results of such calculations. To the extent historical
financial information with respect to the Company and/or historical
financial, delinquency or related information with respect to one or more
servicers is included in the Final Prospectus, such letter or letters shall
also relate to such information.
(f) The Securities shall have received the rating or ratings from the
rating agency or rating agencies set forth in Schedule I hereto.
(g) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates, opinions and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and their counsel, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any time
prior to, the Closing Date by the Representatives. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
7. Reimbursement of Underwriters' Expenses. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 6 hereof is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement for the registration of
the Securities as originally filed or in any amendment thereof, or in the Basic
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon
omission or alleged omission (in the case of any Computational Materials or ABS
Term Sheets in respect of which the Company agrees to indemnify any Underwriter,
as set forth below, when such are read in conjunction with the Final Prospectus)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein (A) in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of any Underwriter through the Representatives specifically for use in
connection with the preparation thereof or (B) in any Current Report or any
amendment or supplement thereof, except to the extent that any untrue statement
or alleged untrue statement therein results (or is alleged to have resulted)
directly from an error (a "Collateral Error") in the information concerning the
Mortgage Loans furnished by the Company to any Underwriter in writing or by
electronic transmission that was used in the preparation of any Computational
Materials or ABS Term Sheets included in such Current Report (or amendment or
supplement thereof), (ii) such indemnity with respect to the Basic Prospectus or
any Preliminary Final Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, claim, damage or liability purchased the Securities
which are the subject thereof if such person did not receive a copy of the Final
Prospectus (or the Final Prospectus as amended or supplemented) excluding
documents incorporated therein by reference at or prior to the confirmation of
the sale of such Securities to such person in any case where such delivery is
required by the Act and the untrue statement or omission of a material fact
contained in the Basic Prospectus or any Preliminary Final Prospectus was
corrected in the Final Prospectus (or the Final Prospectus as amended or
supplemented), and (iii) such indemnity with respect to any Collateral Error
shall not inure to the benefit of any Underwriter (or any person controlling any
Underwriter) from whom the person asserting any loss, claim, damage or liability
received any Computational Materials or ABS Term Sheets that were prepared on
the basis of such Collateral Error, if, prior to the time of confirmation of the
sale of the Securities to such person, the Company notified such Underwriter in
writing of the Collateral Error or provided in written or electronic form
information superseding or correcting such Collateral Error (in any such case, a
"Corrected Collateral Error"), and such Underwriter failed to notify such person
thereof or to deliver such person corrected Computational Materials and/or ABS
Term Sheets, as applicable. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the meaning of either
the Act or the Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with reference to (A) written
information relating to such Underwriter furnished to the Company by or on
behalf of such Underwriter through the Representatives specifically for use in
the preparation of the documents referred to in the foregoing indemnity, or (B)
any Computational Materials or ABS Term Sheets furnished to the Company by any
Underwriter pursuant to or as contemplated by Section 10 and incorporated by
reference in the Registration Statement or the Final Prospectus (except that no
such indemnity shall be available for any losses, claims, damages or
liabilities, or actions in respect thereof resulting from any Collateral Error,
other than a Corrected Collateral Error). This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Underwriting" or "Plan of Distribution" in any
Preliminary Final Prospectus or the Final Prospectus constitute the only
information furnished in writing by or on behalf of the several Underwriters for
inclusion in the documents referred to in the foregoing indemnity (other than
any Computational Materials and/or ABS Term Sheets furnished to the Company by
any Underwriter), and you, as the Representatives, confirm that such statements
are correct.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and, to the extent
that it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of subparagraph
(a) and the Company in the case of subparagraph (b), representing the
indemnified parties under subparagraph (a) or (b), as the case may be, who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party; and except that if clause (i) or
(iii) is applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii).
(d) To provide for just and equitable contribution in circumstances in
which the indemnification provided for in paragraph (a) or (b) of this Section 8
is due in accordance with its terms but is for any reason held by a court to be
unavailable from the Company or the Underwriters on the grounds of policy or
otherwise, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same) to which
the Company and one or more of the Underwriters may be subject, as follows:
(i) in the case of any losses, claims, damages and liabilities (or
actions in respect thereof) which do not arise out of or are not based upon
any untrue statement or omission of a material fact in any Computational
Materials or ABS Term Sheets, in such proportion so that the Underwriters
are responsible for that portion represented by the percentage that the
underwriting discount bears to the sum of such discount and the purchase
price of the Securities specified in Schedule I hereto and the Company is
responsible for the balance; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible under this
subparagraph (i) for any amount in excess of the underwriting discount
applicable to the Securities purchased by such Underwriter hereunder; and
(ii) in the case of any losses, claims, damages and liabilities (or
actions in respect thereof) which arise out of or are based upon any untrue
statement or omission of a material fact in any Computational Materials or
ABS Term Sheets, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact in such Computational Materials or ABS
Term Sheets results from information prepared by the Company on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
Notwithstanding anything to the contrary in this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
shall have the same rights to contribution as such Underwriter, and each person
who controls the Company within the meaning of either the Act or the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the preceding sentence of
this paragraph (d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this paragraph (d), notify such party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule II hereto bear to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule II hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Final Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Computational Materials and ABS Term Sheets. (a) Not later than 10:30
a.m., New York City time, on the date hereof, the Underwriters shall deliver to
the Company five complete copies of all materials provided by the Underwriters
to prospective investors in the Securities which constitute either (i)
"Computational Materials" within the meaning of the no-action letter dated May
20, 1994 issued by the Division of Corporation Finance of the Commission to
Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated,
and Kidder Structured Asset Corporation and the no-action letter dated May 27,
1994 issued by the Division of Corporation Finance of the Commission to the
Public Securities Association (together, the "Kidder Letters") or (ii) "ABS Term
Sheets" within the meaning of the no-action letter dated February 17, 1995
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association (the "PSA Letter" and together with the Kidder Letters,
the "No-Action Letters"), if the filing of such materials with the Commission is
a condition of the relief granted in such letters and, in the case of any such
materials that constitute "Collateral Term Sheets" within the meaning of the PSA
Letter, such Collateral Term Sheets have not previously been delivered to the
Company as contemplated by Section 10(b)(i) below. Each delivery of
Computational Materials and/or ABS Term Sheets to the Company pursuant to this
paragraph (a) shall be effected by delivering four copies of such materials to
counsel for the Company on behalf of the Company at the address specified in
Section 13 hereof and one copy of such materials to the Company.
(b) The Underwriters represent and warrant to and agree with the
Company, as of the date hereof and as of the Closing Date, that:
[(i) if the Underwriters have provided any Collateral Term Sheets to
potential investors in the Securities prior to the date hereof and if the
filing of such materials with the Commission is a condition of the relief
granted in the PSA Letter, then in each such case the Underwriters
delivered four copies of such materials to counsel for the Company on
behalf of the Company at the address specified in Section 13 hereof and one
copy of such materials to the Company no later than 10:30 a.m., New York
City time, on the first business day following the date on which such
materials were initially provided to a potential investor;]
(ii) the Computational Materials (either in original, aggregated or
consolidated form) and ABS Term Sheets furnished to the Company pursuant to
Section 10(a) or as contemplated in Section 10(b)(i) constitute all of the
materials relating to the Securities furnished by the Underwriters (whether
in written, electronic or other format) to prospective investors in the
Securities prior to the date hereof, [except for any Preliminary Final
Prospectus and any Computational Materials and ABS Term sheets which are
not required to be filed with the Commission in accordance with the
No-Action Letters,] and all Computational Materials and ABS Term Sheets
provided to potential investors in the Securities comply with the
requirements of the No-Action Letters;
(iii) on the respective dates any such Computational Materials and/or
ABS Term Sheets with respect to the Securities referred to in Section
10(b)(ii) were last furnished to each prospective investor, on the date of
delivery thereof to the Company pursuant to or as contemplated by this
Section 10 and on the Closing Date, such Computational Materials and/or ABS
Term Sheets did not and will not include any untrue statement of a material
fact, or, when read in conjunction with the Final Prospectus, omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(iv) at the time any Computational Materials or ABS Term Sheets with
respect to the Securities were furnished to a prospective investor and on
the date hereof, the Underwriters possessed, and on the date of delivery of
such materials to the Company pursuant to or as contemplated by this
Section 10 and on the Closing Date, the Underwriters will possess, the
capability, knowledge, expertise, resources and systems of internal control
necessary to ensure that such Computational Materials and/or ABS Term
Sheets conform to the representations and warranties of the Underwriters
contained in subparagraphs (ii) and (iii) above of this paragraph (b);
(v) all Computational Materials and ABS Term Sheets with respect to
the Securities furnished to potential investors contained and will contain
a legend, prominently displayed on the first page thereof, to the effect
that the Company has not prepared, reviewed or participated in the
preparation of such Computational Materials or ABS Term Sheets, is not
responsible for the accuracy thereof and has not authorized the
dissemination thereof;
[(vi) all Collateral Term Sheets with respect to the Securities
furnished to potential investors contained and will contain a legend,
prominently displayed on the first page thereof, indicating that the
information contained therein will be superseded by the description of the
Mortgage Loans contained in the Final Prospectus and, except in the case of
the initial Collateral Term Sheet, that such information supersedes the
information in all prior Collateral Term Sheets;] and
(vii) on and after the date hereof, the Underwriters shall not deliver
or authorize the delivery of any Computational Materials, ABS Term Sheets
or other materials relating to the Securities (whether in written,
electronic or other format) to any potential investor unless such potential
investor has received a Final Prospectus prior to or at the same time as
the delivery of such Computational Materials, ABS Term Sheets or other
materials.
Notwithstanding the foregoing, the Underwriters make no representation or
warranty as to whether any Computational Materials or ABS Term Sheets with
respect to the Securities included or will include any untrue statement
resulting directly from any Collateral Error (except any Corrected Collateral
Error, with respect to materials prepared after the receipt by the Underwriters
from the Company of notice of such Corrected Collateral Error or materials
superseding or correcting such Corrected Collateral Error).
(c) The Underwriters acknowledge and agree that the Company has not
authorized and will not authorize the distribution of any Computational
Materials or ABS Term Sheets with respect to the Securities to any
prospective investor, and agree that any such Computational Materials
and/or ABS Term Sheets furnished to prospective investors shall include a
disclaimer in the form set forth in paragraph (b)(v) above. The
Underwriters agree that they will not represent to potential investors that
any Computational Materials and/or ABS Term Sheets with respect to the
Securities were prepared or disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, it shall be necessary to amend or
supplement the Final Prospectus as a result of an untrue statement of a
material fact contained in any Computational Materials or ABS Term Sheets
provided by the Underwriters pursuant to or as contemplated by this Section
10 or the omission to state therein a material fact required, when
considered in conjunction with the Final Prospectus, to be stated therein
or necessary to make the statements therein, when read in conjunction with
the Final Prospectus, not misleading, or if it shall be necessary to amend
or supplement any Current Report to comply with the Act or the rules
thereunder, the Underwriters, at their expense, promptly will prepare and
furnish to the Company for filing with the Commission an amendment or
supplement which will correct such statement or omission or an amendment
which will effect such compliance. The Underwriters represent and warrant
to the Company, as of the date of delivery of such amendment or supplement
to the Company, that such amendment or supplement will not include any
untrue statement of a material fact or, when read in conjunction with the
Final Prospectus, omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company shall have no obligation to file such amendment or supplement if
the Company determines that (i) such amendment or supplement contains any
untrue statement of a material fact or, when read in conjunction with the
Final Prospectus, omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (it
being understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct, any such
amendment or supplement provided by the Underwriters to the Company
pursuant to this paragraph (d)) or (ii) such filing is not required under
the Act.
(e) The Underwriters (at their own expense) further agree to provide
to the Company any accountants' letters obtained relating to the
Computational Materials and/or ABS Term Sheets, which accountants' letters
shall be addressed to the Company or shall state that the Company may rely
thereon; provided that the Underwriters shall have no obligation to procure
such letter.
11. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in securities generally on the New York Stock Exchange shall have been suspended
or limited or minimum prices shall have been established on such Exchange, (ii)
a banking moratorium shall have been declared either by Federal or
___________________ authorities or (iii) there shall have occurred any outbreak
or material escalation of hostilities or other calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
the judgment of the Representatives, impracticable to market the Securities.
12. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of Sections 7
and 8 hereof and this Section 12 shall survive the termination or cancellation
of this Agreement.
13. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representatives, will be mailed, delivered
or telegraphed and confirmed to them, at the address specified in Schedule I
hereto, with a copy to: ____________________________________________, Attn:
__________________________; or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 100 North Tryon Street,
Charlotte, North Carolina 28255, Attn: __________________, with a copy to:
____________________________, Attn: _______________________.
14. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to principles of conflict of laws.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
NATIONSLINK FUNDING CORPORATION
By:_________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date specified in Schedule I
hereto.
NATIONSBANC MONTGOMERY SECURITIES LLC
[NAMES OF ADDITIONAL REPRESENTATIVES]
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:__________________________
For themselves and the other
several Underwriters, if any, named
in Schedule II to the foregoing
Agreement.
<PAGE>
SCHEDULE I
Underwriting Agreement dated ________, 199_
Registration Statement No. 33-_______
Representatives:
NationsBanc Montgomery Securities LLC
[Names of Additional Representatives]
Title, Purchase Price and Description of Securities:
Title: NationsLink Funding Corporation Mortgage Pass-Through Certificates,
Series 199_-_
================================================================================
Principal Purchase
Class Amount Price Rating
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Closing Time, Date and Location:
10:00 A.M. on ___________, 199_ at the offices of _______
______________________________.
<PAGE>
SCHEDULE II
Principal Purchase
Underwriter Class Amount Price
----------- ----- ------ -----
CERTIFICATE OF INCORPORATION
OF
NATIONSLINK FUNDING CORPORATION
ARTICLE FIRST
The name of the corporation is NationsLink Funding Corporation.
ARTICLE SECOND
The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 11209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THIRD
The nature of the business or purposes to be conducted or promoted by the
corporation is to engage solely in the following activities:
(a) to acquire, own, hold, sell, transfer, assign, issue, pledge,
finance, refinance, administer and otherwise deal with (i) mortgage-backed
securities, mortgage participation certificates, or any other certificate
or security, and the beneficial ownership interest evidenced by such
certificate or security, backed by or evidencing an interest in a pool of
single family or multifamily residential or commercial mortgage loans; (ii)
mortgage loans secured by mortgages, deeds of trust or similar first or
junior liens on single family or multifamily residential properties,
commercial properties or real estate projects under construction, whether
or not guaranteed or insured, in whole or in part, by any governmental
agency; and (iii) related insurance policies, cash, marketable securities
and any other assets designed to assure the servicing or timely
distribution of proceeds of such mortgage loans and any proceeds or further
rights associated with any of the foregoing (collectively, the "Mortgage
Assets");
(b) to establish one or more trusts (each, a "Trust") to engage in any
one or more of the activities described in (a) above, each of which Trusts
will deliver to the corporation certificates ("Trust Certificates")
representing the ownership interest in the assets of such Trust, and to
acquire, own, hold, sell, transfer, assign, pledge, finance, and otherwise
deal with any or all of the Trust Certificates in any Trust that it
establishes; and
(c) to engage in any activity and to exercise any powers permitted to
corporations under the laws of the State of Delaware that are related or
incidental to the foregoing and necessary, convenient or advisable to
accomplish the foregoing. ARTICLE FOURTH
Notwithstanding any other provision of this certificate of incorporation
and any provision of law that otherwise so empowers the corporation, without the
affirmative vote of 100% of the members of the board of directors of the
corporation, including the affirmative vote of any Independent Directors (as
defined in the by-laws), the corporation shall not do any of the following:
(a) engage in any business or activity other than those set forth in
Article Third;
(b) incur any indebtedness, or assume or guaranty any indebtedness of
any other entity, other than (i) capital stock liabilities, (ii)
indebtedness secured by a security interest in one or more mortgage-backed
certificates or securities, or mortgage loans, the terms of payment of
which indebtedness are such that payments of principal and interest payable
on such mortgage-backed certificates or securities, or such mortgage loans,
as the case may be, will, if paid in a timely manner, repay such
indebtedness when due, (iii) indebtedness to NationsBanc Mortgage Capital
Corporation or any affiliate thereof incurred or guaranteed in connection
with the corporation's acquisition of Mortgage Assets, which indebtedness
will be nonrecourse to the corporation but secured by such Mortgage Assets
purchased thereby with such indebtedness and (iv) indebtedness with respect
to which the person to whom the indebtedness is owing has delivered to the
corporation an undertaking that it will not institute against, or join any
other person in instituting against, the corporation any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding or other
proceeding under any federal or state bankruptcy or similar law, that it
will not look to property or assets of the corporation in respect to such
obligations, and that such obligations shall not constitute a claim against
the corporation in the event that the corporation's assets are insufficient
to pay in full such obligation;
(c) dissolve or liquidate, in whole or in part;
(d) consolidate or merge with or into any other entity or convey or
transfer its properties and assets substantially as an entirety to any
entity, unless:
(i) the entity (if other than the corporation) formed or
surviving the consolidation or merger or which acquires the properties
and assets of the corporation is organized and existing under the laws
of the State of Delaware, expressly assumes the due and punctual
payment of, and all obligations of the corporation in connection with,
the indebtedness of the corporation, and has a certificate of
incorporation containing provisions substantially identical to the
provisions of Article Third and this Article Fourth; and
(ii) immediately after giving effect to the transaction, no
default or event of default has occurred and is continuing under any
indebtedness of the corporation or any agreements relating to such
indebtedness;
(e) institute proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against
it, or file a petition seeking consent to reorganization or relief under
any applicable federal or state law relating to bankruptcy, or consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the corporation or a substantial part of its
property, or make any assignment for the benefit of creditors, or admit in
writing its inability to pay its debts generally as they become due, or
take corporate action in furtherance of any such action;
(f) issue any shares of stock in the corporation except to NationsBanc
Mortgage Capital Corporation or an affiliate of NationsBanc Mortgage
Capital Corporation; or
(g) amend this certificate of incorporation to alter in any manner or
delete Article Third or this Article Fourth.
ARTICLE FIFTH
The total number of shares of stock which the corporation has authority to
issue is 1,000 shares of Common Stock, with a par value of $1.00 per share.
ARTICLE SIXTH
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
Robert W. Long, Jr. NationsLink Funding Corporation
NationsBank Corporate Center
100 North Tryon Street, NC1-007-20-01
Charlotte, North Carolina 28255
ARTICLE SEVENTH
The corporation is to have perpetual existence.
ARTICLE EIGHTH
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the corporation is expressly authorized to make, alter
or repeal the by-laws of the corporation.
ARTICLE NINTH
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE TENTH
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter by amended, a director of the
corporation shall not be liable to the corporation or its director. Any repeal
or modification of this Article Tenth shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE ELEVENTH
The corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
/s/ Robert W. Long, Jr.
-----------------------
Robert W. Long, Jr.
Incorporator
BY-LAWS
OF
NATIONSLINK FUNDING CORPORATION
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware, County of New Castle. The name of the its
registered agent at such address is The Corporation Trust Company. The
registered office and/or registered agent of the corporation may be changed from
time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders shall be
held each year for the purpose of electing members of the board of directors and
conducting such other proper business as may come before the meeting. The date
and time of the annual meeting shall be determined by the president of the
corporation; provided that if the president does not act, the board of directors
shall determine the date and time of such meeting.
Section 2. Special Meeting. Special meetings of stockholders may be called
for any purpose and may be held at such time and place, within or without the
State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the president, the stockholders, or by resolution of the board of directors.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting unless notice
is waived by the stockholder. All such notices shall be delivered, either
personally or by mail, by or at the direction of the board of directors, the
president or the secretary, and if mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the stockholder at his, her or its address as the same appears on the records
of the corporation. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a quorum is once present to commence a meeting
of stockholders, it is not broken by the subsequent withdrawal of any
stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote of
the majority of shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the stockholders,
unless the question is one upon which by express provisions of any applicable
law or of the certificate of incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question. All elections for members of the board of directors shall be decided
by a plurality of the vote.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or person to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate or incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Any action taken pursuant to such written consent or
consents of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors which may
exercise all powers of the corporation and do all such lawful acts and things as
are not by statute or by the certificate of incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
Section 2. Number, Election and Term of Office. Subject to Section 14 of
this Article III, the total number of members of the board of directors shall be
established from time to time by resolution of the board, provided that such
number shall not be less than three. The members of the board of directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote in the election of
members of the board of directors. The members of the board of directors shall
be elected in this manner at the annual meeting of the stockholders, except as
provided in Section 4 of this Article III. Each member of the board of directors
elected shall hold office until a successor is duly elected and qualified or
until his or her earlier resignation or removal as hereinafter provided.
Section 3. Removal and Resignation. Any member of the board of directors or
the entire board of directors may be removed at any time, with or without cause,
by the holders or a majority of the shares then entitled to vote at an election
of members of the board of directors. Any member of the board of directors may
resign at any time upon written notice to the corporation. Such written
resignation shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the president or secretary. The
acceptance of a resignation shall not be necessary to make it effective.
Section 4. Vacancies. Subject to Section 14 of this Article III, vacancies
and newly created positions on the board of directors resulting from any
increase in the authorized number of positions on the board of directors may be
filled by a majority of the members of the board of directors then in office,
though less than a quorum, or by a sole remaining member of the board of
directors. Each member of the board of directors so chosen shall hold office
until a successor is duly elected and qualified or until his or her earlier
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this By-laws immediately
after, and at the some place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held within or without the
State of Delaware and without notice at such time and at such place as shall
from time to time be determined by resolution of the board. Special meetings of
the board of directors may be called by or at the request of the president or
any member of the board of directors on at least 24 hours notice to each member
of the board of directors, either personally, by telephone, by mail or by
facsimile transmission.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of members of the board of directors shall constitute a quorum for the
transaction of business. The vote of a majority of members of the board of
directors present at a meeting at which a quorum is present shall be the act of
the board of directors. If a quorum shall not be present at any meeting of the
board of directors, the members of the board of directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the members of the board of directors of the
corporation, which to the extent provided in such resolution or these By-laws
shall have and may exercise the powers of the board of directors in the
management and affairs of the corporation except as otherwise limited by law.
The board of directors may designate one or more members of the board of
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objection at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken by
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if, before or after the action, all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 13. Compensation. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to fix the
compensation of members of the board of directors by written resolution. Nothing
herein shall be construed to preclude any member of the board of directors from
serving the corporation in any other capacity as an officer, agent or otherwise,
and receiving compensation therefor.
Section 14. Independent Directors. Acting in accordance with the
requirements of this Section 14, the board of directors may amend the By-laws to
provide that the board of directors shall thereafter include at all times one or
more individuals who are Independent Directors (as defined in such an
amendment). Any such amendment of the By-laws in accordance with this Section 14
shall not hereafter be amended, altered or repealed without the written consent
of each Rating Agency.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a president, one or more managing
directors, one or more directors, one or more senior vice presidents, one or
more vice presidents, a secretary, a treasurer, and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the some person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier resignation or removal as
hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interest of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term by the members of the board
of directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a member of the board of
directors of the corporation.
Section 6. The President. The president shall be the chief executive
officer of the corporation and shall have the powers and perform the duties
incident to that position. The president shall preside at all meetings of the
board of directors and stockholders. Subject to the powers of the board of
directors, he or she shall be in the general and active charge of the entire
business, affairs and property of the corporation, and control over its
officers, agents and employees; shall be its chief policy making officer, and
shall see that all orders and resolutions of the board of directors are carried
into effect. The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other office or agent of the corporation. The president shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or as may be provided in these By-laws.
Section 7. Senior Vice Presidents. The senior vice president, or if there
shall be more than one, the senior vice presidents in the order determined by
the board of directors shall, in the absence or disability of the president, act
with all of the powers and be subject to all the restrictions of the president.
The senior vice presidents shall also perform such other duties and have such
other powers as the board of directors, the president or these By-laws may, from
time to time, prescribe.
Section 8. Vice Presidents. The vice president, or if there shall be more
than one, the vice presidents in the order determined by the board of directors
shall, in the absence or disability of the senior vice president, act with all
of the powers and be subject to all the restrictions of the senior vice
president. The vice presidents shall also perform such other duties and have
such other powers as the board of directors, the president or these By-laws may,
from time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these By-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
By-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such secretary or assistant secretary. The board of directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his or her signature. The assistant secretary, or
if there be more than one, the assistant secretaries in the order determined by
the board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
president, or secretary may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurers. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, whenever they may
require, an account of the treasurer's actions; shall have such powers and
perform such duties as the board of directors, the president or these By-laws
may prescribe. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 11. Managing Directors, Directors, Other Officers, Assistant
Officers and Agents. Managing directors, directors, officers, assistant officers
and agents, if any, other than those whose duties are provided for in these
By-laws, shall have such authority and perform such duties as may from time to
time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any member of the board of
directors, or to any other person whom it may select.
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification of Members of the Board of Directors
and Officers. Subject to the other provisions of this article, the corporation
shall indemnify and advance expenses to every member of the board of directors
and officer (and to such person's heirs, executors, administrators or other
legal representatives) in the manner and to the full extent and under the
circumstances permitted by applicable law as it presently exists, including
without limitation Section 145 of the General Corporation Law of the State of
Delaware, or may hereafter be amended, against any and all amounts (including
judgments, fines, payments in settlement, attorneys' fees and other expenses)
reasonably incurred by or on behalf of such person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative ("a proceeding"), in which such member
of the board of directors or officer was or is made or is threatened to be made
a party or is otherwise involved by reason of the fact that such person is or
was a member of the board of directors or officer of the corporation, or is or
was serving at the request of the corporation as a member of the board of
directors, officer, employee, fiduciary or member of any other corporation,
partnership, joint venture, trust, organization or other enterprise. The
corporation shall not be required to indemnify a person in connection with a
proceeding initiated by such person if the proceeding was not authorized by the
board of directors of the corporation.
Section 2. Advancement of Expenses of Members of the Board of Directors and
Officers. The corporation shall pay the expenses of members of the board of
directors and officers incurred in defending any proceeding in advance of its
final disposition ("advancement of expenses"); provided, however, that the
advancement of expenses incurred by a member of the board of directors or
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the member of the board of directors or
officer to repay all amounts advanced if it should be ultimately determined that
the member of the board of directors of officer is not entitled to be
indemnified under this article or otherwise.
Section 3. Claims by Officers or Members of the Board of Directors. If a
claim for indemnification or advancement of expenses by an officer or member of
the board of directors under this Article V is not paid in full within ninety
days after a written claim therefor has been received by the corporation, the
claimant may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall bear the burden
of proving that the claimant was not entitled to the requested indemnification
or advancement of expenses under applicable law.
Section 4. Indemnification of Employees. Subject to the other provisions of
this Article V, the corporation may indemnify and advance expenses to every
employee who is not a member of the board of directors or officer (and to such
person's heirs, executors, administrators or other legal representatives) in the
manner and to the full extent and under the circumstances permitted by
applicable law as it presently exists, including without limitation Section 145
of the General Corporation Law of the State of Delaware, or may hereafter be
amended against any and all amounts (including judgments, fines, payments in
settlement, attorneys' fees and other expenses) reasonably incurred by or on
behalf of such person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigatory ("a proceeding"), in which such employee was or is made or is
threatened to be made a party or is otherwise involved by reason of the fact
that such person is or was an employee of the corporation, or is or was serving
as the request of the corporation as a member of the board of directors,
officer, employee, fiduciary or member of any other corporation, partnership,
joint venture, trust, organization or other enterprise. The ultimate
determination of entitlement to indemnification of employees who are not
officers and members of the board of directors shall be made by the board of
directors or by a committee of the board of directors in such manner as the
board or such committee shall determine. The corporation shall not be required
to indemnify a person in connection with a proceeding initiated by such person
if the proceeding was not authorized by the board of directors of the
corporation.
Section 5. Advancement of Expenses of Employees. The advancement of
expenses of an employee who is not an officer or member of the board of
directors shall be made by or in the manner provided by resolution of the board
of directors or by a committee of the board of directors.
Section 6. Non-Exclusivity of Rights. The rights conferred on any person by
this Article V shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the certificate of
incorporation, these By-laws, agreement, vote of stockholders or disinterested
members of the board of directors or otherwise.
Section 7. Other Indemnification. The corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a member of the
board of directors, officer or employee of another corporation, partnership,
joint venture, trust, organization or other enterprise shall be reduced by any
amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, organization or other enterprise.
Section 8. Insurance. The board of directors may, to the full extent
permitted by applicable law as it presently exists, or may hereafter be amended
from time to time, authorize an appropriate officer or officers to purchase and
maintain at the corporation's expense insurance: (a) to indemnify the
corporation for any obligation which it incurs as a result of the
indemnification of members of the board of directors, officers and employees
under the provisions of this Article V; and (b) to indemnify or insure members
of the board of directors, officers and employees against liability in instances
in which they may not otherwise be indemnified by the corporation under the
provisions of this Article V.
Section 9. Amendment or Repeal. Any repeal or modification of the foregoing
provisions of this Article V shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by or in the name of the corporation by the
president or a vice president and the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by such holder in the
corporation. If such a certificate is countersigned (1) by a transfer agent or
an assistant transfer agent other than the corporation or its employees or (2)
by a registrar, other than the corporation or its employees, the signature of
any such president, vice president, secretary, or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation whether because of death,
resignation or otherwise before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be issued and delivered as though the person or persons who signed such
certificate or certificate or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the persons to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. Shares of stock of the corporation shall only be
transferred on the books of the corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization, and other matters as the corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates, and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the board of directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be the close of business on the next day preceding
the day on which notice is given, or if notice is waived, at the close of
business on the day next preceding the day on which the meeting was held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In the case of default in the payment of any
installment or call when such payment is due, the corporation may proceed to
collect the amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the members of the board
of directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meeting contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or any other
purpose and the members of the board of directors may modify or abolish any such
reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Execution of Instruments. All agreements indentures, mortgages,
deeds, conveyances, transfers, contracts, checks, notes, drafts, loan documents,
letters of credit, master agreements, swap agreements, guarantees of signatures,
certificates, declarations, receipts, discharges, releases, satisfactions,
settlements, petitions, schedules, amounts, affidavits, bonds, undertakings,
proxies and other instruments or documents may be signed, executed,
acknowledged, verified, attested, delivered or accepted on behalf of the
corporation by the chairman of the board, any vice chairman of the board, the
president, any managing director, any director, any senior vice president, any
vice president, any assistant vice president, or any individual who is listed on
the corporation's officer's payroll in a position equal to any of the
aforementioned officer positions, or such other officers, employees or agents as
the board of directors or any of such designated officers or individuals may
direct. The provisions of this Section 3 are supplementary to any other
provision of these By-laws and shall not be construed to authorize execution of
instruments otherwise dictated by law.
Section 4. Fiscal Year. The fiscal year of the corporation shall be the
year ending December 31.
Section 5. Corporate Seal. The board of directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 6. Voting Securities Owned By Corporation. Voting securities in any
other corporation held by the corporation shall be voted by the president, any
managing director or senior vice president, unless the board of directors
specifically confers authority to vote with respect thereof, which authority may
be general or confined to specific instances, upon some other person or officer.
Any person authorized to vote securities shall have the power to appoint
proxies, with general power of substitution.
Section 7. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 8. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 9. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these By-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
SEPARATE CONDUCT OF BUSINESS
Section 1. The corporation shall maintain separate corporate records and
books of account. The books of the corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the By-laws of the corporation.
Section 2. The corporation's cash accounts shall not be commingled with
those of any of its affiliates.
Section 3. The corporation shall, when appropriate, obtain proper
authorization from its board of directors for corporate action.
Section 4. The corporation shall conduct its business so as to not to
mislead others as to the identity of the entity with which they are concerned.
Section 5. The corporation shall provide for its operating expenses and
liabilities from its own funds, which may include funds borrowed from
affiliates.
Section 6. The corporation shall, when appropriate, obtain proper
authorization from its stockholders for corporate action.
Section 7. The corporation shall act solely in its corporate name and
through its duly authorized officers or agents in the conduct of its business.
Section 8. The corporation shall not hold itself out as being liable for
the debts of any other entity and shall not permit any affiliate to hold itself
out as liable for the debts of the corporation.
Section 9. The corporation shall maintain an arm's length relationship in
any transactions entered into or other business dealings with its affiliates.
ARTICLE IX
AMENDMENTS
Except as provided in Sections 14 and 15 of Article III, these By-laws may
be amended, altered, or repealed and new By-laws adopted at any meeting of the
board of directors by a majority vote. The fact that the power to adopt, amend,
alter or repeal the By-laws has been conferred upon the board of directors shall
not divest the stockholders of the same power.
==========================================================================
NATIONSLINK FUNDING CORPORATION,
Depositor
----------------------------------,
Mortgage Loan Seller
----------------------------------,
Master Servicer
----------------------------------,
Special Servicer
----------------------------------,
REMIC Administrator
and
----------------------------------,
Trustee
---------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ------------ --, 199-
---------------------------------
$-------------------
Mortgage Pass-Through Certificates
Series 199_-_
=============================================================================
<PAGE>
=============================================================================
Section
=============================================================================
TABLE OF CONTENTS
Section
ARTICLE I
DEFINITIONS; CERTAIN CALCULATIONS IN RESPECT OF THE MORTGAGE POOL
AND THE CERTIFICATES
1.01 Defined Terms
1.02 Certain Calculations in Respect of the Mortgage Pool
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01 Conveyance of Mortgage Loans
2.02 Acceptance of REMIC I by Trustee
2.03 Mortgage Loan Seller's Repurchase of Mortgage Loans for Document Defects
and Certain Breaches of Representations and Warranties
2.04 Representations and Warranties of the Depositor
2.05 Representations and Warranties of the Mortgage Loan Seller
2.06 Representations and Warranties of the Master Servicer
2.07 Representations and Warranties of the Special Servicer
2.08 Representations and Warranties of the Trustee and the REMIC Administrator
2.09 Issuance of the Class R-I Certificates; Creation of the REMIC I Regular
Interests
2.10 Conveyance of REMIC I Regular Interests; Acceptance of REMIC II by the
Trustee
2.11 Issuance of the REMIC II Certificates
ARTICLE III
ADMINISTRATION AND SERVICING OF THE TRUST FUND
3.01 Administration of the Mortgage Loans
3.02 Collection of Mortgage Loan Payments
3.03 Collection of Taxes, Assessments and Similar Items; Servicing Accounts;
Reserve Accounts
3.04 Certificate Account and Distribution Account
3.05 Permitted Withdrawals From the Certificate Account and the Distribution
Account
3.06 Investment of Funds in the Certificate Account and the REO Account
3.07 Maintenance of Insurance Policies; Errors and Omissions and Fidelity
Coverage
3.08 Enforcement of Due-On-Sale Clauses; Assumption Agreements; Subordinate
Financing
3.09 Realization Upon Defaulted Mortgage Loans
3.10 Trustee to Cooperate; Release of Mortgage Files
3.11 Servicing Compensation; Interest on Servicing Advances; Payment of Certain
Expenses; Obligations of the Trustee Regarding Back-up Servicing
Advances
3.12 Inspections; Collection of Financial Statements
3.13 Annual Statement as to Compliance
3.14 Reports by Independent Public Accountants
3.15 Access to Certain Information
3.16 Title to REO Property; REO Account
3.17 Management of REO Property
3.18 Sale of Mortgage Loans and REO Properties
3.19 Additional Obligations of the Master Servicer and the Special Servicer
3.20 Modifications, Waivers, Amendments and Consents
3.21 Transfer of Servicing Between Master Servicer and Special Servicer; Record
Keeping
3.22 Sub-Servicing Agreements
3.23 Designation of Special Servicer by the Majority Certificateholder of the
Controlling Class
3.24 Confidentiality
3.25 No Solicitation of Prepayments
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS AND RELATED MATTERS
4.01 Distributions on the Certificates
4.02 Statements to Certificateholders; Certain Reports by the Master Servicer
and the Special Servicer
4.03 P&I Advances
4.04 Allocation of Realized Losses and Additional Trust Fund Expenses to the
Sequential Pay Certificates
4.05 Deemed Distributions on, and Allocations of Realized Losses and Additional
Trust Fund Expenses to, the REMIC I Regular Interests
ARTICLE V
THE CERTIFICATES
5.01 The Certificates
5.02 Registration of Transfer and Exchange of Certificates
5.03 Book-Entry Certificates
5.04 Mutilated, Destroyed, Lost or Stolen Certificates
5.05 Persons Deemed Owners
5.06 Certification by Certificate Owners
ARTICLE VI
THE DEPOSITOR, THE MORTGAGE LOAN SELLER, THE MASTER SERVICER, THE SPECIAL
SERVICER AND THE REMIC ADMINISTRATOR
6.01 Liability of the Depositor, the Mortgage Loan Seller, the Master Servicer,
the Special Servicer and the REMIC Administrator
6.02 Merger, Consolidation or Conversion of the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer or the REMIC
Administrator
6.04 Master Servicer, Special Servicer and REMIC Administrator Not to Resign
6.05 Rights of the Depositor and the Trustee in Respect of the Master Servicer,
the Special Servicer and the REMIC Administrator
ARTICLE VII
DEFAULT
7.01 Events of Default
7.02 Trustee to Act; Appointment of Successor
7.03 Notification to Certificateholders
7.04 Waiver of Events of Default
7.05 Additional Remedies of Trustee Upon Event of Default
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01 Duties of Trustee
8.02 Certain Matters Affecting the Trustee
8.03 Trustee Not Liable for Validity or Sufficiency of Certificates or Mortgage
Loans
8.04 Trustee Own Certificates
8.05 Fees of Trustee; Indemnification of Trustee
8.06 Eligibility Requirements for Trustee
8.07 Resignation and Removal of the Trustee
8.08 Successor Trustee
8.09 Merger or Consolidation of Trustee or Fiscal Agent
8.10 Appointment of Co-Trustee or Separate Trustee
8.11 Appointment of Custodians
8.12 Access to Certain Information
8.13 Filings with the Securities and Exchange Commission
ARTICLE IX
TERMINATION
9.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans
9.02 Additional Termination Requirements
ARTICLE X
ADDITIONAL REMIC PROVISIONS
10.01 REMIC Administration
10.02 Depositor, Master Servicer, Special Servicer and, Trustee to Cooperate
with REMIC Administrator
10.03 Fees of the REMIC Administrator
10.04 Use of Agents
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 Amendment
11.02 Recordation of Agreement; Counterparts
11.03 Limitation on Rights of Certificateholders
11.04 Governing Law
11.05 Notices
11.06 Severability of Provisions
11.07 Successors and Assigns; Beneficiaries
11.08 Article and Section Headings
11.09 Notices to the Rating [Agencies]
<PAGE>
================================================================================
================================================================================
This Pooling and Servicing Agreement (this "Agreement"), is dated and
effective as of __________, 199___ among NATIONSLINK FUNDING CORPORATION, as
Depositor, _______________________________________________, as Mortgage Loan
Seller, __________________________________, as Master Servicer,
_________________________, as Special Servicer, ___________________________ as
Trustee and ______________________ as REMIC Administrator.
PRELIMINARY STATEMENT:
The Depositor intends to sell Certificates, to be issued hereunder in
multiple Classes, which in the aggregate will evidence the entire beneficial
ownership interest in the Trust to be created hereunder.
As provided herein, the REMIC Administrator will elect to treat the
segregated pool of assets consisting of the Mortgage Loans and certain other
related assets subject to this Agreement as a REMIC for federal income tax
purposes, and such segregated pool of assets will be designated as "REMIC I".
The Class R-I Certificates will represent the sole class of "residual interests"
in REMIC I for purposes of the REMIC Provisions under federal income tax law.
The following table irrevocably sets forth the designation, the REMIC I
Remittance Rate, and the initial Uncertificated Principal Balance for each of
the REMIC I Regular Interests. Determined solely for purposes of satisfying
Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible maturity
date" for each REMIC I Regular Interest is the first Distribution Date that is
at least two years after the end of the remaining amortization schedule of the
Mortgage Loan that has, as of the Closing Date, the longest remaining
amortization schedule, irrespective of its scheduled maturity. None of the REMIC
I Regular Interests will be certificated.
REMIC I Initial Uncertificated
Designation Remittance Rate Principal Balance
----------- --------------- -----------------
A-1-Major Variable(1)
A-1-Minor _____% per annum
A-2-Major Variable(1)
A-2-Minor _____% per annum
B-Major Variable(1)
B-Minor _____% per annum
C-Major Variable(1)
C-Minor _____% per annum
D-Major Variable(1)
D-Minor _____% per annum
E-Major Variable(1)
E-Minor _____% per annum
F-Major Variable(1)
F-Minor _____% per annum
G-Major Variable(1)
G-Minor _____% per annum
H-Major Variable(1)
H-Minor _____% per annum
J-Major Variable(1)
J-Minor _____% per annum
K-Major Variable(1)
K-Minor _____% per annum
-----------------
(1) Calculated in accordance with the definition of "REMIC I Remittance Rate".
As provided herein, the REMIC Administrator will elect to treat the
segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC
for federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC II". The Class R-II Certificates will represent the sole
class of "residual interests" in REMIC II for purposes of the REMIC Provisions
under federal income tax law. The following table irrevocably sets forth the
designation, the Pass-Through Rate, and the initial Class Principal Balance for
each of the Classes of REMIC II Regular Certificates. Determined solely for
purposes of satisfying Treasury regulation section 1.860G-1(a)(4)(iii), the
"latest possible maturity date" for each Class of REMIC II Regular Certificates
is the first Distribution Date that is at least two years after the end of the
remaining amortization schedule of the Mortgage Loan that has, as of the Closing
Date, the longest remaining amortization schedule, irrespective of its scheduled
maturity.
Initial Class
Designation Pass-Through Rate Principal Balance
----------- ----------------- -----------------
Class A-1 _____% per annum
Class A-2 _____% per annum
Class X Variable (1) N/A(2)
Class B _____% per annum
Class C _____% per annum
Class D _____% per annum
Class E _____% per annum
Class F _____% per annum
Class G _____% per annum
Class H _____% per annum
Class J _____% per annum
Class K _____% per annum
---------------------------------
(1) Calculated in accordance with the definition of "Pass-Through Rate".
(2) The Class X Certificates will not have a Class Principal
Balance; rather, such Class of Certificates will accrue interest as
provided herein on a Class Notional Amount that is, as of any date of
determination, equal to the then aggregate Uncertificated Principal
Balance of REMIC I Regular Interest A-1-Major, REMIC I Regular Interest
A-2-Major, REMIC I Regular Interest B-Major, REMIC I Regular Interest
C-Major, REMIC I Regular Interest D-Major, REMIC I Regular Interest
E-Major, REMIC I Regular Interest F-Major, REMIC I Regular Interest
G-Major, REMIC I Regular Interest H-Major, REMIC I Regular Interest
J-Major and REMIC I Regular Interest K-Major.
In consideration of the mutual agreements herein contained, the Depositor,
the Mortgage Loan Seller, the Master Servicer, the Special Servicer, the Trustee
and the REMIC Administrator agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; CERTAIN CALCULATIONS IN RESPECT OF THE MORTGAGE POOL AND
THE CERTIFICATES
SECTION 1.01 Defined Terms
Whenever used in this Agreement, including in the Preliminary Statement,
the following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.
"Accrued Certificate Interest": With respect to any Class of REMIC II
Regular Certificates, for any Distribution Date, one month's interest
(calculated on the basis of a 360-day year consisting of twelve 30-day months)
at the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date, accrued on the related Class Principal Balance or Class
Notional Amount, as the case may be, of such Class of Certificates outstanding
immediately prior to such Distribution Date. The Accrued Certificate Interest in
respect of any Class of REMIC II Regular Certificates for any Distribution Date
shall be deemed to have accrued during the applicable Interest Accrual Period.
"Acquisition Date": With respect to any REO Property, the first day on
which such REO Property is considered to be acquired by the Trust within the
meaning of Treasury Regulation Section 1.856-6(b)(1), which is the first day on
which the Trust is treated as the owner of such REO Property for federal income
tax purposes.
"Additional Information": As defined in Section 4.02(a).
"Additional Interest": With respect to any Hyper-Amortization Loan after
its Anticipated Repayment Date, all interest accrued thereon at the Excess
Interest Rate, the payment of which interest shall, under the terms of such
Mortgage Loan, be deferred until all interest accrued at the Mortgage Rate (net
of the Excess Interest Rate) and outstanding principal has been paid , together
with all interest, if any, accrued at the related Mortgage Rate on such deferred
interest.
"Additional Trust Fund Expense": Any expense incurred or shortfall
experienced with respect to the Trust Fund and not otherwise included in the
calculation of a Realized Loss, that would result in the REMIC II Regular
Certificateholders' receiving less than the full amount of principal and/or
interest to which they are entitled on any Distribution Date.
"Adjusted Net Mortgage Rate": With respect to any Mortgage Loan or REO
Loan, for any Distribution Date, (a) if the related Mortgage Note provides that
interest accrues on such Mortgage Loan or REO Loan, as the case may be, on the
basis of a 360-day year consisting of twelve 30-day months (a "30/360 basis"), a
per annum rate equal to the related Net Mortgage Rate in effect for such
Mortgage Loan as of the commencement of the related Collection Period (or, in
the case of a Hyper-Amortization Loan or successor REO Loan after its
Anticipated Repayment Date, if such rate is less, the related Net Mortgage Rate
in effect for such Mortgage Loan or REO Loan immediately prior to its
Anticipated Repayment Date), and (b) if the related Mortgage Note provides that
interest accrues on such Mortgage Loan or REO Loan, as the case may be, other
than on a 30/360 basis, the annualized rate at which interest would have to
accrue thereon on a 30/360 basis during the most recently ended calendar month
in order to produce the actual amount of interest accrued (or, if such Mortgage
Loan or REO Loan, as the case may be, is prepaid, in whole or in part, or
otherwise liquidated during such calendar month, that otherwise would have
accrued) in respect of such Mortgage Loan or REO Loan, as the case may be, at
the related Net Mortgage Rate in effect for such Mortgage Loan during such
calendar month (or, in the case of a Hyper-Amortization Loan or successor REO
Loan after its Anticipated Repayment Date, if such rate is less, the related Net
Mortgage Rate in effect for such Mortgage Loan or REO Loan immediately prior to
its Anticipated Repayment Date).
"Administrative Fee Rate": With respect to each Mortgage Loan and REO Loan,
as specified in the Mortgage Loan Schedule, the sum of the related Master
Servicing Fee Rate and the Trustee Fee Rate.
"Advance": Any P&I Advance or Servicing Advance.
"Advance Interest": Interest accrued on any Advance at the Reimbursement
Rate and payable to the Master Servicer, the Special Servicer or the Trustee, as
the case may be, all in accordance with Section 3.11(f) or Section 4.03(d), as
applicable.
"Adverse REMIC Event": With respect to each of REMIC I and REMIC II, either
(i) the endangerment of the status of such REMIC as a REMIC or (ii), except as
permitted by Section 3.17(a), the imposition of a tax upon such REMIC or any of
its assets or transactions (including, without limitation, the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the tax on certain
contributions set forth in Section 860G(d) of the Code).
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement, together with all
amendments hereof and supplements hereto.
"Annuity Factor": As defined in Section 4.01(a).
"Anticipated Repayment Date": With respect to any Hyper-Amortization Loan,
the date specified on the related Mortgage Note, as of which Additional Interest
shall begin to accrue on such Mortgage Loan, which date is prior to the Stated
Maturity Date for such Mortgage Loan.
"Applicable State Law": For purposes of Article X, the Applicable State Law
shall be (a) the laws of the State of New York, (b) the laws of the states in
which the Corporate Trust Office of the Trustee and the Primary Servicing
Offices of the Master Servicer and the Special Servicer are located, (c) the
laws of the states in which any Mortgage Loan documents are held and/or any REO
Properties are located, (d) such other state and local law whose applicability
shall have been brought to the attention of the REMIC Administrator by either
(i) an Opinion of Counsel delivered to it or (ii) written notice from the
appropriate taxing authority as to the applicability of such state law, and (e)
such other state or local law as to which the REMIC Administrator has actual
knowledge of applicability.
"Appraisal": With respect to any Mortgaged Property or REO Property as to
which an appraisal is required to be performed pursuant to the terms of this
Agreement, a narrative appraisal complying with USPAP (or, in the case of
Mortgage Loans and REO Loans with a Stated Principal Balance as of the date of
such appraisal of $1,000,000 or less, a limited appraisal and a summary report)
that indicates the "market value" of the subject property, as defined in 12
C.F.R. ss.225.62(g), and is conducted by a Qualified Appraiser.
"Appraisal Reduction Amount": With respect to any Required Appraisal Loan,
an amount (calculated as of the Determination Date immediately following the
later of (a) the date on which the most recent Appraisal that meets the
requirements of Section 3.19(b) in respect of such Required Appraisal Loan, was
obtained by the Master Servicer or the Special Servicer, as the case may be, and
(b) the earliest of the relevant dates in respect of such Required Appraisal
Loan specified in the first sentence of Section 3.19(b) hereof) equal to the
excess, if any, of (x) the sum of (i) the Stated Principal Balance of such
Required Appraisal Loan, (ii) to the extent not previously advanced by or on
behalf of the Master Servicer or the Trustee, all accrued and unpaid interest
(excluding, in the case of a Hyper-Amortization Loan after its Anticipated
Repayment Date, Additional Interest) on such Required Appraisal Loan through the
most recent Due Date prior to such Determination Date at a per annum rate equal
to the sum of the related Net Mortgage Rate and the Trustee Fee Rate, (iii) all
accrued but unpaid Master Servicing Fees and Special Servicing Fees in respect
of such Required Appraisal Loan, (iv) all related unreimbursed Advances made by
or on behalf of the Master Servicer, the Special Servicer or the Trustee in
respect of such Required Appraisal Loan, together with all unpaid Advance
Interest accrued on such Advances, and (v) all currently due but unpaid real
estate taxes and assessments, insurance premiums and, if applicable, ground
rents in respect of the related Mortgaged Property or REO Property (net of any
Escrow Payments or other reserves held by the Master Servicer or the Special
Servicer with respect to any such item), over (y) 90% of an amount equal to (i)
the Appraised Value of the related Mortgaged Property or REO Property, as
applicable, as determined by the most recent relevant Appraisal acceptable for
purposes of Section 3.19(b) hereof, net of (ii) the amount of any liens on such
property (other than in respect of items described in clause (x)(v) above) that
are prior to the lien of the Required Appraisal Loan. Notwithstanding the
foregoing, if an Appraisal is required to be obtained pursuant to Section
3.19(b) but has not been obtained within the 30-day period contemplated by such
section, then until the date such Appraisal is obtained the "Appraisal Reduction
Amount" for the subject Required Appraisal Loan will be deemed to equal 30% of
the Stated Principal Balance of such Required Appraisal Loan; provided that upon
receipt of an Appraisal acceptable for purposes of Section 3.19(b) hereof, the
Appraisal Reduction Amount for such Required Appraisal Loan will be recalculated
in accordance with the preceding sentence.
"Appraised Value": As of any date of determination, the appraised value of
a Mortgaged Property based upon the most recent Appraisal obtained pursuant to
this Agreement.
"Assignment of Leases": With respect to any Mortgaged Property, any
assignment of leases, rents and profits or similar document or instrument
executed by the Mortgagor, assigning to the mortgagee all of the income, rents
and profits derived from the ownership, operation, leasing or disposition of all
or a portion of such Mortgaged Property, in the form which was duly executed,
acknowledged and delivered, as amended, modified, renewed or extended through
the date hereof and from time to time hereafter.
"Assumed Final Distribution Date": As defined in Section 4.01(a).
"Assumed Monthly Payment": With respect to any Balloon Mortgage Loan for
its Stated Maturity Date (provided that such Mortgage Loan has not been paid in
full, and no other Liquidation Event has occurred in respect thereof, on or
before the end of the Collection Period in which such Stated Maturity Date
occurs) and for any subsequent Due Date therefor as of which such Mortgage Loan
remains outstanding and part of the Trust Fund, if no Monthly Payment (other
than a delinquent Balloon Payment) is due for such Due Date, the scheduled
monthly payment of principal and/or interest deemed to be due in respect thereof
on such Due Date equal to the amount that would have been due in respect of such
Mortgage Loan on such Due Date if it had been required to continue to accrue
interest (exclusive, in the case of a Hyper-Amortization Loan after its
Anticipated Repayment Date, of Additional Interest) in accordance with its
terms, and to pay principal in accordance with the amortization schedule (if
any), in effect immediately prior to, and without regard to the occurrence of,
its most recent scheduled maturity date (as such terms and amortization schedule
may have been modified, and such maturity date may have been extended, in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor or a modification, waiver or amendment of such Mortgage Loan granted
or agreed to by the Master Servicer or Special Servicer pursuant to Section
3.20). With respect to any REO Loan, for any Due Date therefor as of which the
related REO Property remains part of the Trust Fund, the scheduled monthly
payment of principal and/or interest deemed to be due in respect thereof on such
Due Date equal to the Monthly Payment that was due (or, in the case of a Balloon
Mortgage Loan described in the preceding sentence of this definition, the
Assumed Monthly Payment that was deemed due) in respect of the related Mortgage
Loan on the last Due Date prior to its becoming an REO Loan.
"Available Distribution Amount": With respect to any Distribution Date, an
amount equal to (a) the balance on deposit in the Distribution Account as of
11:30 a.m. (New York City time) on such Distribution Date (or such later time on
such date as of which distributions are made on the Certificates), including,
without limitation, if and to the extent on deposit therein as of such time, the
Master Servicer Remittance Amount for the related Master Servicer Remittance
Date, any P&I Advances made by the Master Servicer or the Trustee to cover
uncollected Monthly Payments due and/or Assumed Monthly Payments deemed due
during the related Collection Period, and any payments made by the Master
Servicer to cover Prepayment Interest Shortfalls incurred during the related
Collection Period, net of (b) any portion of the amounts described in clause (a)
of this definition that represents one or more of the following: (i) collected
Monthly Payments that are due on a Due Date following the end of the related
Collection Period, (ii) any payments of principal (including, without
limitation, Principal Prepayments) and interest, Liquidation Proceeds and
Insurance Proceeds received after the end of the related Collection Period,
(iii) Prepayment Premiums, (iv) any amounts payable or reimbursable to any
Person from the Distribution Account pursuant to any of clauses (ii) through
(vi) of Section 3.05(b), and (v) any amounts deposited in the Distribution
Account in error; provided that the Available Distribution Amount for the Final
Distribution Date shall be calculated without regard to clauses (b)(i) and
(b)(ii) of this definition.
"Balloon Mortgage Loan": Any Mortgage Loan that by its original terms or by
virtue of any modification entered into as of the Closing Date provides for an
amortization schedule extending beyond its Stated Maturity Date and as to which,
in accordance with such terms, the Monthly Payment due on its Stated Maturity
Date is at least two times larger than the Monthly Payment due on the Due Date
next preceding its Stated Maturity Date.
"Balloon Payment": With respect to any Balloon Mortgage Loan as of any date
of determination, the Monthly Payment payable on the Stated Maturity Date of
such Mortgage Loan.
"Bank": As defined in Section 2.08.
"Bankruptcy Code": The federal Bankruptcy Code, as amended from time to
time (Title 11 of the United States Code).
"Base Prospectus": That certain prospectus dated __________ __, 199__,
relating to trust funds established by the Depositor and publicly offered
mortgage pass-through certificates evidencing interests therein.
"Book-Entry Certificate": Any Certificate registered in the name of the
Depository or its nominee.
"Business Day": Any day other than a Saturday, a Sunday or a day on which
banking institutions in New York, New York, _____________ and the cities in
which the Primary Servicing Offices of the Master Servicer and Special Servicer
and the Corporate Trust Office of the Trustee are located, are authorized or
obligated by law or executive order to remain closed.
"CERCLA": The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Certificate": Any one of the Depositor's Mortgage Pass-Through
Certificates, Series 199___-____ as executed by the Trustee and authenticated
and delivered hereunder by the Certificate Registrar.
"Certificate Account": The segregated account or accounts created and
maintained by the Master Servicer pursuant to Section 3.04(a) on behalf of the
Trustee in trust for Certificateholders, which shall be entitled
"_________________", as Master Servicer, in trust for the registered holders of
NationsLink Funding Corporation, Mortgage Pass-Through Certificates, Series
199___-___.
"Certificate Factor": With respect to any Class of REMIC II Regular
Certificates, as of any date of determination, a fraction, expressed as a
decimal carried to eight places, the numerator of which is the then related
Class Principal Balance or Class Notional Amount, as the case may be, and the
denominator of which is the related Initial Class Principal Balance or Initial
Class Notional Amount, as the case may be.
"Certificate Notional Amount": With respect to any Class X Certificate, the
hypothetical or notional principal amount on which such Certificate accrues
interest, which, as of any date of determination, is equal to the product of (a)
the Percentage Interest evidenced by such Certificate, multiplied by (b) the
then Class Notional Amount of the Class X Certificates.
"Certificate Owner": With respect to a Book-Entry Certificate, the Person
who is the beneficial owner of such Certificate as reflected on the books of the
Depository or on the books of a Depository Participant or on the books of an
indirect participating brokerage firm for which a Depository Participant acts as
agent.
"Certificate Principal Balance": With respect to any Sequential Pay
Certificate, as of any date of determination, the then outstanding principal
amount of such Certificate equal to the product of (a) the Percentage Interest
evidenced by such Certificate, multiplied by (b) the then Class Principal
Balance of the Class of Certificates to which such Certificate belongs.
"Certificate Register" and "Certificate Registrar": The register maintained
and the registrar appointed pursuant to Section 5.02.
"Certificateholder" or "Holder": The Person in whose name a Certificate is
registered in the Certificate Register; provided that solely for the purposes of
giving any consent, approval or waiver pursuant to this Agreement, any
Certificate registered in the name of the Depositor, the Mortgage Loan Seller,
the Master Servicer, the Special Servicer, the REMIC Administrator or the
Trustee or any Affiliate of any of them shall be deemed not to be outstanding,
and the Voting Rights to which any of them is entitled shall not be taken into
account in determining whether the requisite percentage of Voting Rights
necessary to effect any such consent, approval or waiver has been obtained,
except as otherwise provided in Sections 7.04 and 11.01 or except in connection
with the Controlling Class exercising its rights under Section 3.23, or unless
such Persons collectively own an entire Class of Certificates and only the
Holders of such Class of Certificates are entitled to grant such consent,
approval or waiver. The Certificate Registrar shall be entitled to request and
rely upon a certificate of the Depositor, the Mortgage Loan Seller, the Master
Servicer, the Special Servicer or if other than the Trustee, the REMIC
Administrator, as the case may be, in determining whether a Certificate is
registered in the name of an Affiliate of such Person. All references herein to
"Holders" or "Certificateholders" shall reflect the rights of Certificate Owners
as they may indirectly exercise such rights through the Depository and the
Depository Participants, except as otherwise specified herein; provided,
however, that the parties hereto shall be required to recognize as a "Holder" or
"Certificateholder" only the Person in whose name a Certificate is registered in
the Certificate Register.
"Certificateholder Reports": As defined in Section 4.02(a).
"Class": Collectively, all of the Certificates bearing the same
alphabetical and, if applicable, numerical class designation.
"Class A Certificate": Any one of the Class A-1 or Class A-2 Certificates.
"Class A-1 Certificate": Any one of the Certificates with a "Class A-1"
designation on the face thereof, substantially in the form of Exhibit A-2
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class A-2 Certificate": Any one of the Certificates with a "Class A-2"
designation on the face thereof, substantially in the form of Exhibit A-2
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class B Certificate": Any one of the Certificates with a "Class B"
designation on the face thereof, substantially in the form of Exhibit A-3
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class C Certificate": Any one of the Certificates with a "Class C"
designation on the face thereof, substantially in the form of Exhibit A-3
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class D Certificate": Any one of the Certificates with a "Class D"
designation on the face thereof, substantially in the form of Exhibit A-3
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class E Certificate": Any one of the Certificates with a "Class E"
designation on the face thereof, substantially in the form of Exhibit A-3
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class F Certificate": Any one of the Certificates with a "Class F"
designation on the face thereof, substantially in the form of Exhibit A-4
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class G Certificate": Any one of the Certificates with a "Class G"
designation on the face thereof, substantially in the form of Exhibit A-4
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class H Certificate": Any one of the Certificates with a "Class H"
designation on the face thereof, substantially in the form of Exhibit A-4
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class J Certificate": Any one of the Certificates with a "Class J"
designation on the face thereof, substantially in the form of Exhibit A-4
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class K Certificate": Any one of the Certificates with a "Class K"
designation on the face thereof, substantially in the form of Exhibit A-4
attached hereto, and evidencing a "regular interest" in REMIC II for purposes of
the REMIC Provisions.
"Class Notional Amount": The aggregate hypothetical or notional principal
amount on which the Class X Certificates collectively accrue interest equal to
the aggregate of the Uncertificated Principal Balances of the Major REMIC I
Regular Interests outstanding from time to time (rounded to the nearest whole
dollar during the period up to and including the initial Distribution Date).
"Class Principal Balance": The aggregate principal amount of any Class of
Sequential Pay Certificates outstanding as of any date of determination. As of
the Closing Date, the Class Principal Balance of each such Class of Certificates
shall equal the Initial Class Principal Balance thereof. On each Distribution
Date, the Class Principal Balance of each Class of the Sequential Pay
Certificates shall be permanently reduced by the amount of any distributions of
principal made thereon on such Distribution Date pursuant to Section 4.01(a)
and, if and to the extent appropriate, shall be further permanently reduced on
such Distribution Date as provided in Section 4.04.
"Class R-I Certificate": Any one of the Certificates with a "Class R-I"
designation on the face thereof, substantially in the form of Exhibit A-5
attached hereto, and evidencing the sole class of "residual interests" in REMIC
I for purposes of the REMIC Provisions.
"Class R-II Certificate": Any one of the Certificates with a "Class R-II"
designation on the face thereof, substantially in the form of Exhibit A-5
attached hereto, and evidencing the sole class of "residual interests" in REMIC
II for purposes of the REMIC Provisions.
"Class X Certificate": Any one of the Certificates with a "Class X"
designation on the face thereof, substantially in the form of Exhibit A-1, and
evidencing a "regular interest" in REMIC II for purposes of the REMIC
Provisions.
"Closing Date": __________ __, 199__
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Period": With respect to any Distribution Date, the period
commencing immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs (or, in the case of
the initial Distribution Date, commencing immediately following the Cut-off
Date) and ending on and including the Determination Date in the calendar month
in which such Distribution Date occurs.
"Commission": The Securities and Exchange Commission.
"Confidential Information": As defined in Section 3.28.
["Controlling Class": As of any date of determination, the outstanding
Class of Sequential Pay Certificates with the lowest Payment Priority (the Class
A Certificates being treated as a single Class for this purpose) that has a then
outstanding Class Principal Balance at least equal to 25% of the Initial Class
Principal Balance thereof (or, if no Class of Sequential Pay Certificates has a
Class Principal Balance at least equal to 25% of the Initial Class Principal
Balance thereof, then the "Controlling Class" shall be the outstanding Class of
Sequential Pay Certificates with the then largest outstanding Class Principal
Balance).]
"Corporate Trust Office": The principal corporate trust office of the
Trustee at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of the
execution of this Agreement is located at
________________________________________________________.
"Corrected Mortgage Loan": Any Mortgage Loan that had been a Specially
Serviced Mortgage Loan but has ceased to be such in accordance with the
definition of "Specially Serviced Mortgage Loan" (other than by reason of a
Liquidation Event occurring in respect of such Mortgage Loan or a related
Mortgaged Property becoming an REO Property).
"Corresponding Major REMIC I Regular Interest": With respect to any Class
of Sequential Pay Certificates, the Major REMIC I Regular Interest that has,
without regard to the reference to "Major", the same alphabetical (and, if
applicable, numerical) designation as the Class designation for such Class of
Sequential Pay Certificates.
"Corresponding Minor REMIC I Regular Interest": With respect to any Class
of Sequential Pay Certificates, the Minor REMIC I Regular Interest that has,
without regard to the reference to "Minor", the same alphabetical (and, if
applicable, numerical) designation as the Class designation for such Class of
Sequential Pay Certificates.
"CPR": As defined in the Base Prospectus.
"Cross-Collateralized Mortgage Loan": Any Mortgage Loan that is
cross-collateralized and cross-defaulted with one or more other Mortgage Loans.
"Current Principal Distribution Amount": With respect to any Distribution
Date, an amount (calculated in accordance with Section 1.02) equal to the
aggregate of, without duplication:
(a) the principal portions of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments due or deemed
due, as the case may be, in respect of the Mortgage Loans and any
REO Loans for their respective Due Dates occurring during the
related Collection Period;
(b) all Principal Prepayments received on the Mortgage Loans during
the related Collection Period;
(c) with respect to any Balloon Mortgage Loan as to which the related
Stated Maturity Date occurred during or prior to the related
Collection Period, any payment of principal (exclusive of any
Principal Prepayment and any amount described in subclause (d)
below) that was made by or on behalf of the related Mortgagor
during the related Collection Period, net of any portion of such
payment that represents a recovery of the principal portion of
any Monthly Payment (other than a Balloon Payment) due, or the
principal portion of any Assumed Monthly Payment deemed due, in
respect of such Balloon Mortgage Loan on a Due Date during or
prior to the related Collection Period and not previously
recovered;
(d) all Liquidation Proceeds and Insurance Proceeds received on or in
respect of the Mortgage Loans during the related Collection
Period that were identified and applied by the Master Servicer as
recoveries of principal thereof, in each case net of any portion
of such amounts that represents a recovery of the principal
portion of any Monthly Payment (other than a Balloon Payment)
due, or of the principal portion of any Assumed Monthly Payment
deemed due, in respect of any such Mortgage Loan on a Due Date
during or prior to the related Collection Period and not
previously recovered; and
(e) all Liquidation Proceeds, Insurance Proceeds and REO Revenues
received on or in respect of any REO Properties during the
related Collection Period that were identified and applied by the
Master Servicer as recoveries of principal of the related REO
Loans, in each case net of any portion of such amounts that
represents a recovery of the principal portion of any Monthly
Payment (other than a Balloon Payment) due, or of the principal
portion of any Assumed Monthly Payment deemed due, in respect of
any such REO Loan or the predecessor Mortgage Loan on a Due Date
during or prior to the related Collection Period and not
previously recovered.
"Custodian": A Person who is at any time appointed by the Trustee pursuant
to Section 8.11 as a document custodian for the Mortgage Files, which Person
shall not be the Depositor, the Mortgage Loan Seller or an Affiliate of either.
"Cut-off Date": __________, 199__.
"Cut-off Date Balance": With respect to any Mortgage Loan, the outstanding
principal balance of such Mortgage Loan as of the Cut-off Date, net of all
unpaid payments of principal due in respect thereof on or before such date.
"Debt Service Coverage Ratio": [With respect to any Mortgage Loan, as of
any date of determination, and calculated without regard to any
cross-collateralization feature of such Mortgage Loan, the ratio of (x) the Net
Operating Income (before payment of any debt service on such Mortgage Loan)
generated by the related Mortgaged Property during the most recently ended
period of not more than twelve months or less than three months for which
financial statements (whether or not audited) have been received by or on behalf
of the Mortgage Loan Seller (prior to the Closing Date) or the Master Servicer
or Special Servicer (following the Closing Date) (such Net Operating Income to
be annualized if the relevant period is less than twelve months), to (y) the
product of the amount of the Monthly Payment in effect for such Mortgage Loan as
of such date of determination, multiplied by 12].
"Default Charges": Any and all Default Interest and late payment charges
paid or payable, as the context requires, in connection with a default under a
Mortgage Loan or any successor REO Loan.
"Default Interest": With respect to any Mortgage Loan (or related REO
Loan), any amounts collected thereon, other than late payment charges and
Prepayment Premiums, that represent interest (exclusive, if applicable, of
Additional Interest) in excess of interest accrued on the principal balance of
such Mortgage Loan (or REO Loan) at the related Mortgage Rate, such excess
interest arising out of a default under such Mortgage Loan.
"Defaulted Mortgage Loan": Any Specially Serviced Mortgage Loan as to which
a material default has occurred or a default in respect of any payment thereon
is reasonably foreseeable, and which the Special Servicer has determined, in its
reasonable and good faith judgment, will become the subject of a foreclosure
sale or similar proceedings (the basis for which determination shall be set
forth in an Officer's Certificate to be delivered to the Master Servicer and the
Trustee).
"Definitive Certificate": As defined in Section 5.03(a).
"Delinquent Loan Status Report": A report or reports setting forth, among
other things, those Mortgage Loans which, as of the close of business on the
last day of the most recently ended calendar month were (i) delinquent 30-59
days, (ii) delinquent 60-89 days, (iii) delinquent 90 days or more, (iv) current
but specially serviced, (v) in foreclosure but as to which the related Mortgaged
Property had not become REO Property, or (vi) related to a Mortgaged Property
which had become REO Property, substantially in the form, and including such
additional information in respect of each such Mortgage Loan, as is contemplated
on page [B-6] of the Prospectus Supplement.
"Depositor": NationsLink Funding Corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor Depository
hereafter named. The nominee of the initial Depository for purposes of
registering those Certificates that are to be Book-Entry Certificates, is Cede &
Co. The Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act.
"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Determination Date": With respect to any Distribution Date, the [10]th day
of the month in which such Distribution Date occurs, or if such [10]th day is
not a Business Day, the Business Day immediately preceding.
"Directly Operate": With respect to any REO Property, the furnishing or
rendering of services to the tenants thereof, the management or operation of
such REO Property, the holding of such REO Property primarily for sale to
customers (other than the sale of an REO Property pursuant to Section 3.18(d)),
the performance of any construction work thereon or any use of such REO Property
in a trade or business conducted by REMIC I other than through an Independent
Contractor; provided, however, that the Special Servicer (or any Sub-Servicer on
behalf of the Special Servicer) shall not be considered to Directly Operate an
REO Property solely because the Special Servicer (or any Sub-Servicer on behalf
of the Special Servicer) establishes rental terms, chooses tenants, enters into
or renews leases, deals with taxes and insurance, or makes decisions as to, or
funds, repairs or capital expenditures with respect to such REO Property
(including, without limitation, construction activity to effect repairs or in
conjunction with leasing activity).
"Disqualified Organization": Any of the following: (i) the United States or
a possession thereof, any State or any political subdivision thereof, or any
agency or instrumentality of any of the foregoing (other than an instrumentality
which is a corporation if all of its activities are subject to tax and, except
for Freddie Mac, a majority of its board of directors is not selected by any
such governmental unit), (ii) a foreign government, international organization,
or any agency or instrumentality of either of the foregoing, (iii) any
organization (except certain farmers' cooperatives described in Section 521 of
the Code) which is exempt from the tax imposed by Chapter 1 of the Code (unless
such organization is subject to the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381 of the Code or (v) any other Person so
designated by the REMIC Administrator based upon an Opinion of Counsel that the
holding of an Ownership Interest in a Residual Certificate by such Person may
cause the Trust or any Person having an Ownership Interest in any Class of
Certificates, other than such Person, to incur a liability for any federal tax
imposed under the Code that would not otherwise be imposed but for the Transfer
of an Ownership Interest in a Residual Certificate to such Person. The terms
"United States", "State" and "international organization" shall have the
meanings set forth in Section 7701 of the Code or successor provisions.
"Distributable Certificate Interest": With respect to any Class of REMIC II
Regular Certificates, for any Distribution Date, the Accrued Certificate
Interest in respect of such Class of Certificates for such Distribution Date,
reduced (to not less than zero) by that portion, if any, of the Net Aggregate
Prepayment Interest Shortfall for such Distribution Date allocated to such Class
of Certificates as set forth below. The Net Aggregate Prepayment Interest
Shortfall, if any, for each Distribution Date shall be allocated to the
respective Classes of REMIC II Regular Certificates on such Distribution Date as
follows: first, to the respective Classes of REMIC II Regular Certificates
(other than the Senior Certificates), sequentially in reverse alphabetical order
of Class designation, in each case up to an amount equal to the lesser of any
remaining unallocated portion of such Net Aggregate Prepayment Interest
Shortfall and any Accrued Certificate Interest in respect of the particular
Class of Certificates for such Distribution Date; and thereafter, if and to the
extent that any portion of such Net Aggregate Prepayment Interest Shortfall
remains unallocated, among the respective Classes of Senior Certificates, up to,
and pro rata in accordance with, the respective amounts of Accrued Certificate
Interest for each such Class of Senior Certificates for such Distribution Date.
"Distribution Account": The segregated account or accounts created and
maintained by the Trustee pursuant to Section 3.04(b) in trust for the
Certificateholders, which shall be entitled "_________________, as Trustee, in
trust for the registered holders of NationsLink Funding Corporation, Mortgage
Pass-Through Certificates, Series 1998-1".
"Distribution Date": The 20th day of any month, or if such 20th day is not
a Business Day, the Business Day immediately following, commencing in
__________, 199___.
"Distribution Date Statement": As defined in Section 4.02(a).
"Document Defect": As defined in Section 2.02(e).
"Due Date": With respect to (i) any Mortgage Loan on or prior to its Stated
Maturity Date, the day of the month set forth in the related Mortgage Note on
which each Monthly Payment on such Mortgage Loan is scheduled to be first due;
(ii) any Mortgage Loan after its Stated Maturity Date, the day of the month set
forth in the related Mortgage Note on which each Monthly Payment on such
Mortgage Loan had been scheduled to be first due; and (iii) any REO Loan, the
day of the month set forth in the related Mortgage Note on which each Monthly
Payment on the related Mortgage Loan had been scheduled to be first due.
"Eligible Account": Any of (i) an account maintained with a federal or
state chartered depository institution or trust company, including, without
limitation, the Trustee (if it meets the following rating criteria), the
long-term unsecured debt obligations of which are rated no less than "____" by
______ and "____" by _____ (if the deposits are to be held in the account for
more than 30 days), or the short-term unsecured debt obligations of which are
rated no less than "_____" by _________ and "_____" by _______ (if the deposits
are to be held in the account for 30 days or less), in each case, at any time
funds are on deposit therein, (ii) a segregated trust account or accounts
maintained with the corporate trust department of a ___________________, (iii) a
segregated trust account or accounts maintained with the corporate trust
department of a _____________________, and subject to regulations regarding
fiduciary funds on deposit therein substantially similar to 12 C.F.R. ss.
9.10(b), or (iv) any other account which would not result in the downgrade,
qualification or withdrawal of the rating then assigned by either Rating Agency
to any Class of Certificates (as confirmed in writing by each Rating Agency).
"Emergency Advance": Any Servicing Advance, whether or not it is a
Servicing Advance that, pursuant hereto, the Special Servicer is required to
request the Master Servicer to make, that must be made within 10 days of the
Special Servicer's becoming aware that it must be made in order to avoid any
material penalty, any material harm to a Mortgaged Property or any other
material adverse consequence to the Trust Fund.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"Escrow Payment": Any payment received by the Master Servicer or the
Special Servicer for the account of any Mortgagor for application toward the
payment of real estate taxes, assessments, insurance premiums and similar items
in respect of the related Mortgaged Property.
"Event of Default": One or more of the events described in Section 7.01(a).
"Excess Interest Rate": With respect to any Hyper-Amortization Loan after
its Anticipated Repayment Date, the incremental increase in the Mortgage Rate
for such Mortgage Loan resulting from the passage of such Anticipated Repayment
Date.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Exemption-Favored Party": Any of (i) NationsBank Corporation
("NationsBank"), (ii) any Person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
NationsBank and (iii) any member of a syndicate or selling group of which
NationsBank or a person described in clause (ii) is a manager or co-manager with
respect to a Class of Certificates.
"Fannie Mae": The Federal National Mortgage Association or any successor.
"FDIC": The Federal Deposit Insurance Corporation or any successor.
"Final Distribution Date": The final Distribution Date on which any
distributions are to be made on the Certificates as contemplated by Section
9.01.
"Final Recovery Determination": A determination by the Special Servicer
with respect to any defaulted Mortgage Loan or REO Property and, accordingly,
the related REO Loan (other than a Mortgage Loan or REO Property, as the case
may be, purchased by the Mortgage Loan Seller or an Affiliate of the Mortgage
Loan Seller pursuant to Section 2.03, by the Majority Certificateholder of the
Controlling Class pursuant to Section 3.18(b), by the Master Servicer or the
Special Servicer pursuant to Section 3.18(c) or by the Master Servicer or the
Majority Certificateholder of the Controlling Class pursuant to Section 9.01)
that there has been a recovery of all Insurance Proceeds, Liquidation Proceeds
and other payments or recoveries (including, without limitation, by reason of a
sale of such Mortgage Loan or REO Property pursuant to Section 3.18(d) hereof)
that the Special Servicer has determined, in accordance with the Servicing
Standard, exercised without regard to any obligation of the Master Servicer or
Special Servicer to make payments from its own funds pursuant to Section
3.07(b), will be ultimately recoverable.
"Freddie Mac": The Federal Home Loan Mortgage Corporation or any successor.
"Ground Lease": The ground lease pursuant to which any Mortgagor holds a
leasehold interest in the related Mortgaged Property.
"Group": A group of Mortgage Loans that are cross-collateralized and
cross-defaulted with each other.
"Hazardous Materials": Any dangerous, toxic or hazardous pollutants,
chemicals, wastes, or substances, including, without limitation, those so
identified pursuant to CERCLA or any other federal, state or local environmental
related laws and regulations, and specifically including, without limitation,
asbestos and asbestos-containing materials, polychlorinated biphenyls ("PCBs"),
radon gas, petroleum and petroleum products, urea formaldehyde and any
substances classified as being "in inventory", "usable work in process" or
similar classification which would, if classified as unusable, be included in
the foregoing definition.
"Health Care Loans": Those Mortgage Loans identified on the Mortgage Loan
Schedule by control numbers ___________________ and, as of the date hereof,
secured by Mortgages on Mortgaged Properties operated as health care-related
facilities.
"Historical Loan Modification Report": A report or reports setting forth,
among other things, those Mortgage Loans which, as of the close of business on
the Determination Date immediately preceding the preparation of such report or
reports, have been modified pursuant to this Agreement (i) during the Collection
Period ending on such Determination Date and (ii) since the Cut-off Date,
showing the original and the revised terms thereof, substantially in the form,
and including such additional information in respect of each such Mortgage Loan,
as is contemplated on page B-12 of the Prospectus Supplement.
"Historical Loss Report": A report or reports setting forth, among other
things, as of the close of business on the Determination Date immediately
preceding the preparation of such report or reports, (i) the amount of
Liquidation Proceeds received, and Liquidation Expenses incurred, both during
the Collection Period ending on such Determination Date and historically, and
(ii) the amount of Realized Losses occurring during such Collection Period and
historically, set forth on a Mortgage Loan-by-Mortgage Loan and REO
Property-by-REO Property basis, substantially in the form, and including such
additional information in respect of each Defaulted Mortgage Loan and REO
Property as to which a Final Recovery Determination has been made, as is
contemplated on page B-13 of the Prospectus Supplement.
"HUD-Approved Servicer": A servicer that is a mortgagee approved by the
Secretary of Housing and Urban Development pursuant to Sections 207 and 211 of
the National Housing Act.
"Hyper-Amortization Loan": A Mortgage Loan that provides for, if such
Mortgage Loan is not paid in full prior to or on its Anticipated Repayment Date,
(i) the accrual of Additional Interest thereon and (ii) the application (in
reduction of the outstanding principal of such Mortgage Loan) of an amount (in
addition to the principal portion of the required Monthly Payment) equal to the
excess (if any) of certain net cash flow from the related Mortgaged Property
over the related Monthly Payment.
"Independent": When used with respect to any specified Person, any such
Person who (i) is in fact independent of the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer, the Trustee, the REMIC
Administrator and any and all Affiliates thereof, (ii) does not have any direct
financial interest in or any material indirect financial interest in any of the
Depositor, the Mortgage Loan Seller, the Master Servicer, the Special Servicer,
the Trustee, the REMIC Administrator or any Affiliate thereof, and (iii) is not
connected with the Depositor, the Mortgage Loan Seller, the Master Servicer, the
Special Servicer, the Trustee, the REMIC Administrator or any Affiliate thereof
as an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions; provided, however, that a Person shall not
fail to be Independent of the Depositor, the Mortgage Loan Seller, the Master
Servicer, the Special Servicer, the Trustee, the REMIC Administrator or any
Affiliate thereof merely because such Person is the beneficial owner of 1% or
less of any class of securities issued by the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer, the Trustee, the REMIC
Administrator or any Affiliate thereof, as the case may be.
"Independent Contractor": Any Person that would be an "independent
contractor" with respect to REMIC I within the meaning of Section 856(d)(3) of
the Code if REMIC I were a real estate investment trust (except that the
ownership test set forth in that section shall be considered to be met by (i)
any Person that owns, directly or indirectly, 35 percent or more of any Class of
Certificates, or such other interest in any Class of Certificates as is set
forth in an Opinion of Counsel, which shall not be an expense of the Trustee,
the REMIC Administrator or the Trust, delivered to the Trustee and the REMIC
Administrator), so long as REMIC I does not receive or derive any income from
such Person and provided that the relationship between such Person and REMIC I
is at arm's length, all within the meaning of Treasury Regulation Section
1.856-4(b)(5), or (ii) any other Person upon receipt by the Trustee and the
REMIC Administrator of an Opinion of Counsel, which shall be at no expense to
the Trustee, the REMIC Administrator or the Trust, to the effect that the taking
of any action in respect of any REO Property by such Person, subject to any
conditions therein specified, that is otherwise herein contemplated to be taken
by an Independent Contractor will not cause such REO Property to cease to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code, or cause any income realized in respect of such REO Property to fail
to qualify as Rents from Real Property.
"Initial Class Notional Amount": With respect to the Class X Certificates,
the initial Class Notional Amount thereof as of the Closing Date equal to
$___________________.
"Initial Class Principal Balance": With respect to any Class of Sequential
Pay Certificates, the initial Class Principal Balance thereof as of the Closing
Date, in each case as set forth below:
Initial Class
Class Principal Balance
Class A-1 $____________
Class A-2 $____________
Class B $____________
Class C $____________
Class D $____________
Class E $____________
Class F $____________
Class G $____________
Class H $____________
Class J $____________
Class K $____________
"Initial Pool Balance": The aggregate Cut-off Date Balance of all the
Mortgage Loans included in the Trust Fund as of the Closing Date.
"Insurance Policy": With respect to any Mortgage Loan or REO Property, any
hazard insurance policy, flood insurance policy, title policy or other insurance
policy that is maintained from time to time in respect of such Mortgage Loan (or
the related Mortgaged Property) or in respect of such REO Property, as the case
may be.
"Insurance Proceeds": Proceeds paid under any Insurance Policy, to the
extent such proceeds are not applied to the restoration of the related Mortgaged
Property or REO Property or released to the Mortgagor, in either case, in
accordance with the Servicing Standard.
"Interest Accrual Period": With respect to each REMIC I Regular Interest
and each Class of REMIC II Regular Certificates, for any Distribution Date, the
calendar month immediately preceding the month in which such Distribution Date
occurs.
"Interest Only Certificate": Any Class X Certificate.
"Interested Person": The Depositor, the Mortgage Loan Seller, the Master
Servicer, the Special Servicer, any Holder of a Certificate, or any Affiliate of
any such Person.
"Investment Account": As defined in Section 3.06(a).
"IRS": The Internal Revenue Service or any successor.
"Issue Price": With respect to each Class of Certificates, the "issue
price" as defined in the Code and Treasury regulations promulgated thereunder.
"Late Collections": With respect to any Mortgage Loan, all amounts received
thereon during any Collection Period, whether as payments, Insurance Proceeds,
Liquidation Proceeds or otherwise, which represent late collections of the
principal and/or interest portions of a Monthly Payment (other than a Balloon
Payment) or an Assumed Monthly Payment in respect of such Mortgage Loan due or
deemed due, as the case may be, for a Due Date in a previous Collection Period,
or for a Due Date coinciding with or preceding the Cut-off Date, and not
previously received or recovered. With respect to any REO Loan, all amounts
received in connection with the related REO Property during any Collection
Period, whether as Insurance Proceeds, Liquidation Proceeds, REO Revenues or
otherwise, which represent late collections of the principal and/or interest
portions of a Monthly Payment (other than a Balloon Payment) or an Assumed
Monthly Payment in respect of the related Mortgage Loan or of an Assumed Monthly
Payment in respect of such REO Loan due or deemed due, as the case may be, for a
Due Date in a previous Collection Period and not previously received or
recovered. The term "Late Collections" shall specifically exclude any Default
Charges.
"Liquidation Event": With respect to any Mortgage Loan, any of the
following events: (i) such Mortgage Loan is paid in full; (ii) a Final Recovery
Determination is made with respect to such Mortgage Loan; (iii) such Mortgage
Loan is repurchased by the Mortgage Loan Seller or any Affiliate thereof
pursuant to Section 2.03; or (iv) such Mortgage Loan is purchased by the
Majority Certificateholder of the Controlling Class pursuant to Section 3.18(b),
by the Master Servicer or the Special Servicer pursuant to Section 3.18(c), or
by the Master Servicer or the Majority Certificateholder of the Controlling
Class pursuant to Section 9.01. With respect to any REO Property (and the
related REO Loan), any of the following events: (x) a Final Recovery
Determination is made with respect to such REO Property; or (y) such REO
Property is purchased by the Master Servicer or the Majority Certificateholder
of the Controlling Class pursuant to Section 9.01.
"Liquidation Expenses": All customary, reasonable and necessary "out of
pocket" costs and expenses due and owing (but not otherwise covered by Servicing
Advances) in connection with the liquidation of any Specially Serviced Mortgage
Loan or REO Property pursuant to Section 3.09 or 3.18 (including, without
limitation, legal fees and expenses, committee or referee fees and, if
applicable, brokerage commissions and conveyance taxes).
"Liquidation Fee": With respect to each Specially Serviced Mortgage Loan or
REO Property (other than any Specially Serviced Mortgage Loan or REO Property
repurchased (x) by the Mortgage Loan Seller or any Affiliate thereof pursuant to
Section 2.03 within 120 days of the Mortgage Loan Seller's notice or discovery
of the breach or Document Defect giving rise to such repurchase obligation, (y)
by the Majority Certificateholder of the Controlling Class, the Master Servicer
or the Special Servicer pursuant to Section 3.18 or (z) by the Master Servicer
or the Majority Certificateholder of the Controlling Class pursuant to Section
9.01), the fee designated as such and payable to the Special Servicer pursuant
to the fourth paragraph of Section 3.11(c).
"Liquidation Fee Rate": With respect to each Specially Serviced Mortgage
Loan or REO Property as to which a Liquidation Fee is payable, 1.0%.
"Liquidation Proceeds": All cash amounts (other than Insurance Proceeds and
REO Revenues) received by the Master Servicer or the Special Servicer in
connection with: (i) the taking of all or a part of a Mortgaged Property by
exercise of the power of eminent domain or condemnation; (ii) the liquidation of
a Mortgaged Property or other collateral constituting, or that constituted,
security for a defaulted Mortgage Loan, through trustee's sale, foreclosure
sale, REO Disposition or otherwise, exclusive of any portion thereof required to
be released to the related Mortgagor in accordance with applicable law and the
terms and conditions of the related Mortgage Note and Mortgage; (iii) the
realization upon any deficiency judgment obtained against a Mortgagor or any
guarantor; (iv) the purchase of a Defaulted Mortgage Loan by the Majority
Certificateholder of the Controlling Class pursuant to Section 3.18(b) or by the
Master Servicer or the Special Servicer pursuant to Section 3.18(c) or any other
sale thereof pursuant to Section 3.18(d); (v) the repurchase of a Mortgage Loan
by the Mortgage Loan Seller or any Affiliate thereof pursuant to Section 2.03;
or (vi) the purchase of a Mortgage Loan or REO Property by the Master Servicer
or the Majority Certificateholder of the Controlling Class pursuant to Section
9.01.
"Lost Coupon Amount": As defined in Section 4.01(a).
"Major REMIC I Regular Interests": Collectively, REMIC I Regular Interest
A-1-Major, REMIC I Regular Interest A-2-Major, REMIC I Regular Interest B-Major,
REMIC I Regular Interest C-Major, REMIC I Regular Interest D-Major, REMIC I
Regular Interest E-Major, REMIC I Regular Interest F-Major, REMIC I Regular
Interest G-Major, REMIC I Regular Interest H-Major, REMIC I Regular Interest
J-Major and REMIC I Regular Interest K-Major.
"Majority Certificateholder": With respect to any specified Class or
Classes of Certificates, as of any date of determination, any Holder or
particular group of Holders of Certificates of such Class or Classes, as the
case may be, entitled to a majority of the Voting Rights allocated to such Class
or Classes, as the case may be.
"Master Servicer":___________________________ its successor in interest or
any successor master servicer appointed as herein provided.
"Master Servicer Remittance Amount": With respect to any Master Servicer
Remittance Date, an amount equal to (a) all amounts on deposit in the
Certificate Account as of the commencement of business on such Master Servicer
Remittance Date, net of (b) any portion of the amounts described in clause (a)
of this definition that represents one or more of the following: (i) collected
Monthly Payments that are due on a Due Date following the end of the related
Collection Period, (ii) any payments of principal (including, without
limitation, Principal Prepayments) and interest (including, without limitation,
Additional Interest), Liquidation Proceeds and Insurance Proceeds received after
the end of the related Collection Period, (iii) any Prepayment Premiums received
after the end of the related Collection Period, (iv) any amounts payable or
reimbursable to any Person from the Certificate Account pursuant to any of
clauses (ii) through (xvi) of Section 3.05(a), and (v) any amounts deposited in
the Certificate Account in error; provided that, with respect to the Master
Servicer Remittance Date that occurs in the same calendar month as the Final
Distribution Date, the Master Servicer Remittance Amount will be calculated
without regard to clauses (b)(i), (b)(ii) and (b)(iii) of this definition.
"Master Servicer Remittance Date": The Business Day immediately preceding
each Distribution Date.
"Master Servicing Fee": With respect to each Mortgage Loan and REO Loan,
the fee payable to the Master Servicer pursuant to Section 3.11(a) and from
which the Standby Fee and any Primary Servicing Fees are payable.
"Master Servicing Fee Rate": With respect to each Mortgage Loan (and any
related REO Loan), the rate per annum that is 0.____ basis points (0.____% per
annum) less than the Administrative Fee Rate specified for such Mortgage Loan in
the Mortgage Loan Schedule.
"Minor REMIC I Regular Interests": Collectively, REMIC I Regular Interest
A-1-Minor, REMIC I Regular Interest A-2-Minor, REMIC I Regular Interest B-Minor,
REMIC I Regular Interest C-Minor, REMIC I Regular Interest D-Minor, REMIC I
Regular Interest E-Minor, REMIC I Regular Interest F-Minor, REMIC I Regular
Interest G-Minor, REMIC I Regular Interest H-Minor, REMIC I Regular Interest
J-Minor and REMIC I Regular Interest K-Minor.
"Modified Mortgage Loan": Any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special Servicer
pursuant to Section 3.20 in a manner that:
(A) affects the amount or timing of any payment of principal or
interest due thereon (other than, or in addition to, bringing current
Monthly Payments with respect to such Mortgage Loan);
(B) except as expressly contemplated by the related Mortgage,
results in a release of the lien of the Mortgage on any material
portion of the related Mortgaged Property without a corresponding
Principal Prepayment in an amount not less than the fair market value
(as is), as determined by an Appraisal delivered to the Special
Servicer (at the expense of the related Mortgagor and upon which the
Special Servicer may conclusively rely), of the property to be
released; or
(C) in the good faith and reasonable judgment of the Special
Servicer, otherwise materially impairs the security for such Mortgage
Loan or reduces the likelihood of timely payment of amounts due
thereon.
"Monthly Payment": With respect to any Mortgage Loan, for any Due Date as
of which such Mortgage Loan is outstanding, the scheduled monthly payment (or,
in the case of a Hyper-Amortization Loan after its Anticipated Repayment Date,
the minimum required monthly payment) of principal and/or interest on such
Mortgage Loan, including, without limitation, a Balloon Payment, that is
actually payable by the related Mortgagor from time to time under the terms of
the related Mortgage Note (as such terms may be changed or modified in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor or a modification, waiver or amendment of such Mortgage Loan granted
or agreed to by the Master Servicer or Special Servicer pursuant to Section
3.20) and applicable law; provided that the Monthly Payment due in respect of
any Hyper-Amortization Loan after its Anticipated Repayment Date shall not
include Additional Interest.
"Mortgage": With respect to any Mortgage Loan, separately and collectively,
as the context may require, each mortgage, deed of trust and/or other similar
document or instrument securing the related Mortgage Note and creating a lien on
the related Mortgaged Property.
<PAGE>
"Mortgage File": With respect to any Mortgage Loan, subject to Section
2.01(c), collectively the following documents:
(i) the original Mortgage Note, endorsed by the most recent
endorsee prior to the Trustee or, if none, by the
originator, without recourse, either in blank or to the
order of the Trustee in the following form: "Pay to the
order of [TRUSTEE], as trustee for the registered holders of
NationsLink Funding Corporation, Mortgage Pass-Through
Certificates, Series 199_-_, without recourse";
(ii) the original or a copy of the Mortgage and, if applicable,
the originals or copies of any intervening assignments
thereof showing a complete chain of assignment from the
originator of the Mortgage Loan to the most recent assignee
of record thereof prior to the Trustee, if any, in each case
with evidence of recording indicated thereon;
(iii) an original assignment of the Mortgage, in recordable form,
executed by the most recent assignee of record thereof prior
to the Trustee or, if none, by the originator, in favor of
the Trustee (in such capacity);
(iv) the original or a copy of any related Assignment of Leases
(if any such item is a document separate from the Mortgage)
and, if applicable, the originals or copies of any
intervening assignments thereof showing a complete chain of
assignment from the originator of the Mortgage Loan to the
most recent assignee of record thereof prior to the Trustee,
if any, in each case with evidence of recording thereon;
(v) an original assignment of any related Assignment of Leases
(if any such item is a document separate from the Mortgage),
in recordable form, executed by the most recent assignee of
record thereof prior to the Trustee or, if none, by the
originator, in favor of the Trustee (in such capacity),
which assignment may be included as part of the
corresponding assignment of Mortgage referred to in clause
(iii) above;
(vi) an original or copy of any related Security Agreement (if
such item is a document separate from the Mortgage) and, if
applicable, the originals or copies of any intervening
assignments thereof showing a complete chain of assignment
from the originator of the Mortgage Loan to the most recent
assignee of record thereof prior to the Trustee, if any;
(vii) an original assignment of any related Security Agreement (if
such item is a document separate from the Mortgage) executed
by the most recent assignee of record thereof prior to the
Trustee or, if none, by the originator, in favor of the
Trustee (in such capacity), which assignment may be included
as part of the corresponding assignment of Mortgage referred
to in clause (iii) above;
(viii) originals or copies of all assumption, modification, written
assurance and substitution agreements, with evidence of
recording thereon if appropriate, in those instances where
the terms or provisions of the Mortgage, Mortgage Note or
any related security document have been modified or the
Mortgage Loan has been assumed;
(ix) the original or a copy of the lender's title insurance
policy issued as of the date of the origination of the
Mortgage Loan, together with all endorsements or riders (or
copies thereof) that were issued with or subsequent to the
issuance of such policy, insuring the priority of the
Mortgage as a first lien on the Mortgaged Property;
(x) the original of any guaranty of the obligations of the
Mortgagor under the Mortgage Loan which was in the
possession of the Mortgage Loan Seller at the time the
Mortgage Files were delivered to the Trustee;
(xi) (A) file or certified copies of any UCC Financing Statements
and continuation statements which were filed in order to
perfect (and maintain the perfection of) any security
interest held by the originator of the Mortgage Loan (and
each assignee of record prior to the Trustee) in and to the
personalty of the Mortgagor at the Mortgaged Property (in
each case with evidence of filing thereon) and which were in
the possession of the Mortgage Loan Seller at the time the
Mortgage Files were delivered to the Trustee and (B) if any
such security interest is perfected and the related UCC-1,
UCC-2 or UCC-3 financing statements were in the possession
of the Mortgage Loan Seller, a UCC-2 or UCC-3 financing
statement, as applicable, executed by the most recent
assignee of record prior to the Trustee or, if none, by the
originator, evidencing the transfer of such security
interest to the Trustee (or a certified copy of such
assignment as sent for filing);
(xii) the original or a copy of the power of attorney (with
evidence of recording thereon, if appropriate) granted by
the Mortgagor if the Mortgage, Mortgage Note or other
document or instrument referred to above was signed on
behalf of the Mortgagor;
(xiii) if the Mortgagor has a leasehold interest in the related
Mortgaged Property, the original Ground Lease or a copy
thereof;
(xiv) the original or copy of any intercreditor agreement relating
to such Mortgage Loan;
(xv) the original or copy of any operating lease relating to the
related Mortgaged Property; and
(xvi) any additional documents required to be added to the
Mortgage File pursuant to this Agreement;
provided that whenever the term "Mortgage File" is used to refer to
documents actually received by the Trustee or a Custodian appointed thereby,
such term shall not be deemed to include such documents and instruments required
to be included therein unless they are actually so received.
"Mortgage Loan": Each of the mortgage loans transferred and assigned to the
Trustee pursuant to Section 2.01 and from time to time held in the Trust Fund.
As used herein, the term "Mortgage Loan" includes the related Mortgage Note,
Mortgage and other security documents contained in the related Mortgage File.
"Mortgage Loan Purchase Agreement": The Mortgage Loan Purchase Agreement,
dated as of _________ __, 199_, between ________ and NationsLink Funding
Corporation.
<PAGE>
"Mortgage Loan Schedule": The list of Mortgage Loans transferred on the
Closing Date to the Trustee as part of the Trust Fund, which list is attached
hereto as Schedule I and may be amended from time to time in accordance with
Section 2.02(e). The Mortgage Loan Schedule shall set forth, among other things,
the following information with respect to each Mortgage Loan:
(i) the loan number and control number;
(ii) the street address (including city, state and zip code) of the related
Mortgaged Property;
(iii) the Mortgage Rate in effect as of the Cut-off Date;
(iv) the original principal balance;
(v) the Cut-off Date Balance;
(vi) the (A) remaining term to stated maturity and (B) Stated Maturity Date
or, in the case of a Hyper-Amortization Loan, the Anticipated
Repayment Date;
(vii) the Due Date;
(viii) the amount of the Monthly Payment due on the first Due Date
following the Cut-off Date;
(ix) the Administrative Fee Rate (inclusive of the Primary Servicing Fee
Rate);
(x) the Primary Servicing Fee Rate;
(xi) whether the Mortgagor's interest in the related Mortgaged Property is
a leasehold estate;
(xii)whether the Mortgage Loan is a Cross-Collateralized Mortgage Loan
and, if so, a reference to the other Mortgage Loans that are
cross-collateralized with such Mortgage Loan; and
(xiii) whether the Mortgage Loan is a Hyper-Amortization Mortgage Loan.
The Mortgage Loan Schedule shall also set forth the aggregate Cut-off Date
Balance for all of the Mortgage Loans. Such list may be in the form of more than
one list, collectively setting forth all of the information required.
"Mortgage Loan Seller": _________________________________.
"Mortgage Note": The original executed note evidencing the indebtedness of
a Mortgagor under a Mortgage Loan, together with any rider, addendum or
amendment thereto.
"Mortgage Pool": Collectively, all of the Mortgage Loans and any successor
REO Loans.
"Mortgage Rate": With respect to (i) any Mortgage Loan on or prior to its
Stated Maturity Date, the annualized rate at which interest is scheduled (in the
absence of a default) to accrue on such Mortgage Loan from time to time in
accordance with the terms of the related Mortgage Note (as such may be modified
at any time following the Closing Date) and applicable law, (ii) any Mortgage
Loan after its Stated Maturity Date, the annualized rate described in clause (i)
above determined without regard to the passage of such Stated Maturity Date, and
(iii) any REO Loan, the annualized rate described in clause (i) or (ii) above,
as applicable, determined as if the related Mortgage Loan had remained
outstanding.
"Mortgaged Property": Individually and collectively, as the context may
require, each real property (together with all improvements and fixtures
thereon) subject to the lien of a Mortgage and constituting collateral for a
Mortgage Loan. With respect to any Cross-Collateralized Mortgage Loan, as the
context may require, "Mortgaged Property" may mean, collectively, all the
Mortgaged Properties securing such Cross-Collateralized Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note, including without
limitation, any Person that has acquired the related Mortgaged Property and
assumed the obligations of the original obligor under the Mortgage Note.
"Net Aggregate Prepayment Interest Shortfall": With respect to any
Distribution Date, the amount, if any, by which (a) the aggregate of all
Prepayment Interest Shortfalls incurred in connection with the receipt of
Principal Prepayments on the Mortgage Loans during the related Collection
Period, exceeds (b) the aggregate amount remitted by the Master Servicer for
deposit in the Distribution Account for such Distribution Date pursuant to
Section 3.19(e) in connection with such Prepayment Interest Shortfalls.
"Net Default Charges": With respect to any Mortgage Loan or REO Loan, any
Default Charges actually collected thereon (determined in accordance with the
allocation of amounts collected as specified in Section 1.02), net of (if, but
only if, such Default Charges are allocable to the period that such Mortgage
Loan was a Specially Serviced Mortgage Loan) any Advance Interest accrued on
Advances made in respect of such Mortgage Loan that are reimbursable from such
Default Charges in accordance with Section 3.05(a)(viii).
"Net Investment Earnings": With respect to any Investment Account for any
Collection Period, the amount, if any, by which the aggregate of all interest
and other income realized during such Collection Period on funds held in such
Investment Account, exceeds the aggregate of all losses and investment costs, if
any, incurred during such Collection Period in connection with the investment of
such funds in accordance with Section 3.06.
"Net Investment Loss": With respect to any Investment Account for any
Collection Period, the amount by which the aggregate of all losses and
investment costs, if any, incurred during such Collection Period in connection
with the investment of funds held in such Investment Account in accordance with
Section 3.06, exceeds the aggregate of all interest and other income realized
during such Collection Period on such funds.
"Net Mortgage Rate": With respect to any Mortgage Loan or REO Loan, as of
any date of determination, a rate per annum equal to the related Mortgage Rate
then in effect, minus the related Administrative Fee Rate.
["Net Operating Income": With respect to any Mortgaged Property, the total
operating revenues derived from such Mortgaged Property, minus the total fixed
and variable operating expenses incurred in respect of such Mortgaged Property
(subject to adjustments for, among other things, (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt service
on loans secured by the Mortgaged Property).]
"Nonrecoverable Advance": Any Nonrecoverable P&I Advance or Nonrecoverable
Servicing Advance.
"Nonrecoverable P&I Advance": Any P&I Advance made or proposed to be made
in respect of a Mortgage Loan or REO Loan which, as determined by the Master
Servicer or, if applicable, the Trustee, in its reasonable and good faith
judgment, will not be recoverable (together with Advance Interest accrued
thereon), or which in fact was not ultimately recovered, from late collections,
Insurance Proceeds, Liquidation Proceeds or any other recovery on or in respect
of such Mortgage Loan or REO Property (without giving effect to potential
recoveries on deficiency judgments or recoveries from guarantors).
"Nonrecoverable Servicing Advance": Any Servicing Advance made or proposed
to be made in respect of a Mortgage Loan or REO Property which, as determined by
the Master Servicer, the Special Servicer or, if applicable, the Trustee, in its
reasonable and good faith judgment, will not be recoverable (together with
Advance Interest accrued thereon), or which in fact was not ultimately
recovered, from late collections, Insurance Proceeds, Liquidation Proceeds or
any other recovery on or in respect of such Mortgage Loan or REO Property
(without giving effect to potential recoveries on deficiency judgments or
recoveries from guarantors).
"Non-Registered Certificate": Unless and until registered under the
Securities Act, any Class F, Class G, Class H, Class J, Class K or Residual
Certificate.
"Non-United States Person": Any person other than a United States Person.
"Officer's Certificate": A certificate signed by a Servicing Officer of the
Master Servicer or the Special Servicer or a Responsible Officer of the Trustee,
as the case may be.
"Operating Statement Analysis": As defined in Section 4.02(b).
"Opinion of Counsel": A written opinion of counsel (who must, in connection
with any opinion rendered pursuant hereto with respect to tax matters or a
resignation under Section 6.04, be Independent counsel, but who otherwise may be
salaried counsel for the Depositor, the Mortgage Loan Seller, the Trustee, the
REMIC Administrator, the Master Servicer or the Special Servicer), which written
opinion is acceptable and delivered to the addressee(s).
"OTS": The Office of Thrift Supervision or any successor thereto.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate as the Holder thereof and any other interest
therein, whether direct or indirect, legal or beneficial, as owner or as
pledgee.
"Pass-Through Rate": With respect to any Class of Sequential Pay
Certificates, for any Distribution Date, the fixed rate per annum specified as
such in respect of such Class of Certificates in the Preliminary Statement
hereto. With respect to the Class X Certificates, for any Distribution Date, the
excess, if any, of (a) the REMIC I Remittance Rate applicable to each Major
REMIC I Regular Interest (i.e., the Weighted Average Adjusted Net Mortgage Rate)
for such Distribution Date, over (b) the weighted average of the fixed REMIC I
Remittance Rates applicable to all the Minor REMIC I Regular Interests, weighted
on the basis of the respective Uncertificated Principal Balances of such Minor
REMIC I Regular Interests outstanding immediately prior to such Distribution
Date.
"Payment Priority": With respect to any Class of Certificates, the priority
of the Holders thereof in respect of the Holders of the other Classes of
Certificates to receive distributions out of the Available Distribution Amount
for any Distribution Date. The Payment Priority of the respective Classes of
Certificates shall be, in descending order, as follows: first, the respective
Classes of Senior Certificates, pro rata; second, the Class B Certificates;
third, the Class C Certificates; fourth, the Class D Certificates; fifth, the
Class E Certificates; sixth, the Class F Certificates; seventh, the Class G
Certificates; eighth, the Class H Certificates; ninth, the Class J Certificates;
tenth, the Class K Certificates; and last, the respective Classes of Residual
Certificates.
"Percentage Interest": With respect to any REMIC II Regular Certificate,
the portion of the relevant Class evidenced by such Certificate, expressed as a
percentage, the numerator of which is the Certificate Principal Balance or
Certificate Notional Amount, as the case may be, of such Certificate as of the
Closing Date, as specified on the face thereof, and the denominator of which is
the Initial Class Principal Balance or Initial Class Notional Amount, as the
case may be, of the relevant Class. With respect to a Residual Certificate, the
percentage interest in distributions to be made with respect to the relevant
Class, as stated on the face of such Certificate.
<PAGE>
"Permitted Investments": Any one or more of the following obligations:
(i) direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States;
(ii) repurchase obligations with respect to any security described in
clause (i) above, provided that the long-term unsecured debt obligations of
the party agreeing to repurchase such obligations are rated "___" by ______
and "____" by ____);
(iii) certificates of deposit, time deposits, demand deposits and bankers'
acceptances of any bank or trust company organized under the laws of the
United States or any state, provided that (a) the long-term unsecured debt
obligations of such bank or trust company are rated "_____" by __________
and "______" by _____ or (b) the short-term unsecured debt obligations of
such bank or trust company are rated no less than "_____" by _________ and
"_______" by ________ or (c) if both such long-term and short-term
unsecured debt obligations have been rated by [either] Rating Agency, then
each must be rated as specified in the immediately preceding clauses (a)
and (b) with respect to such Rating Agency;
(iv) commercial paper (having original maturities of not more than 365
days) of any corporation incorporated under the laws of the United States
or any state thereof rated no less than "_____" by ________ and "______" by
______; and
(v) any other obligation or security which would not result in the
downgrade, qualification or withdrawal of the rating then assigned by
either Rating Agency to any Class of Certificates, evidence of which shall
be confirmed in writing by each Rating Agency to the Trustee;
provided that no investment described hereunder shall evidence either the right
to receive (a) only interest with respect to such investment or (b) a yield to
maturity greater than 120% of the yield to maturity at par of the underlying
obligations; and provided, further, that no investment described hereunder may
be purchased at a price greater than par if such investment may be prepaid or
called at a price less than its purchase price prior to stated maturity; and
provided, further, that no investment described hereunder may be sold prior to
stated maturity if such sale would result in a loss of principal on the
instrument or a tax on "prohibited transactions" under Section 860F of the Code;
and provided, further, that each investment described hereunder shall, by its
terms, have a predetermined fixed amount of principal due at maturity (that
cannot vary or change) and either a fixed interest rate or variable interest
rate tied to a single interest rate index plus a single fixed spread; and
provided, further, that each investment described hereunder shall be a "cash
flow investment", as defined in the REMIC Provisions.
"Permitted Transferee ": Any Transferee of a Residual Certificate other
than either a Disqualified Organization or a Non-United States Person.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof.
"Phase I Environmental Assessment": [A "Phase I assessment" as described in
and meeting the criteria of Chapter 5 of the Fannie Mae Multifamily Guide, Part
II, as amended from time to time.]
"P&I Advance": As to any Mortgage Loan or REO Loan, any advance made by the
Master Servicer or the Trustee pursuant to Section 4.03.
"Plan": As defined in Section 5.02(c).
"Prepayment Assumption": The assumption that no Mortgage Loan (other than a
Hyper-Amortization Loan) is prepaid prior to its Stated Maturity Date and that
no Hyper-Amortization Loan is prepaid prior to, but each is paid in its entirety
on, its Anticipated Repayment Date, such assumption to be used for determining
the accrual of original issue discount, market discount and premium, if any, on
the Mortgage Loans, the REMIC I Regular Interests and the Certificates for
federal income tax purposes.
"Prepayment Interest Excess": With respect to any Mortgage Loan that was
subject to a Principal Prepayment in full or in part made on or prior to the
Determination Date in any calendar month but after the first day of such month,
any payment of interest (net of related Servicing Fees and exclusive of
Prepayment Premiums and, in the case of a Hyper-Amortization Loan after its
Anticipated Repayment Date, Additional Interest) actually collected from the
related Mortgagor and intended to cover the period from the commencement of such
month to the date of prepayment.
"Prepayment Interest Shortfall": With respect to any Mortgage Loan that was
subject to a Principal Prepayment in full or in part made after the
Determination Date in any calendar month, the amount of uncollected interest
(determined without regard to any Prepayment Premium that may have been
collected and exclusive of, in the case of a Hyper-Amortization Loan after its
Anticipated Repayment Date, Additional Interest) that would have accrued at a
per annum rate equal to the sum of the Net Mortgage Rate for such Mortgage Loan
plus the Trustee Fee Rate, on the amount of such Principal Prepayment during the
period commencing on the date as of which such Principal Prepayment was applied
to such Mortgage Loan and ending on the last day of such calendar month,
inclusive.
"Prepayment Premium": Any premium, penalty or fee paid or payable, as the
context requires, by a Mortgagor in connection with a Principal Prepayment on,
or other early collection of principal of, a Mortgage Loan or any successor REO
Loan.
"Primary Servicing Fee": With respect to each Mortgage Loan that is subject
to a Sub-Servicing Agreement as of the Closing Date, the monthly fee payable to
the Sub-Servicer by the Master Servicer from the Master Servicing Fee.
"Primary Servicing Fee Rate": With respect to each Mortgage Loan that is
subject to a Sub-Servicing Agreement as of the Closing Date, the rate per annum
specified as such in the Mortgage Loan Schedule.
"Primary Servicing Office": With respect to the Master Servicer, the office
thereof primarily responsible for performing its respective duties under this
Agreement, initially located in __________ and, with respect to the Special
Servicer, the office thereof primarily responsible for performing its respective
duties under this Agreement, initially located in __________.
"Principal Distribution Amount": With respect to any Distribution Date, the
aggregate of the Current Principal Distribution Amount for such Distribution
Date and, if such Distribution Date is subsequent to the initial Distribution
Date, the excess, if any, of the Principal Distribution Amount for the preceding
Distribution Date, over the aggregate distributions of principal made on the
Sequential Pay Certificates on the preceding Distribution Date.
"Principal Prepayment": Any payment of principal made by the Mortgagor on a
Mortgage Loan which is received in advance of its scheduled Due Date and which
is not accompanied by an amount of interest (without regard to any Prepayment
Premium that may have been collected) representing scheduled interest due on any
date or dates in any month or months subsequent to the month of prepayment.
"Prospectus Supplement": That certain prospectus supplement dated
__________ __, 199__, relating to the Registered Certificates, that is a
supplement to the Base Prospectus.
"Purchase Price": With respect to any Mortgage Loan, a price equal to the
unpaid principal balance of the Mortgage Loan as of the date of purchase,
together with (a) all accrued and unpaid interest (excluding, in the case of a
Hyper-Amortization Loan after its Anticipated Repayment Date, Additional
Interest) on the Mortgage Loan at the related Mortgage Rate to but not including
the Due Date in the Collection Period of purchase, (b) all related unreimbursed
Servicing Advances, and (c) if paid in connection with any repurchase of such
Mortgage Loan by the Mortgage Loan Seller or any Affiliate thereof pursuant to
Section 2.03, all accrued and unpaid Advance Interest in respect of related
Advances. With respect to any REO Property, a price equal to the unpaid
principal balance of the related REO Loan as of the date of purchase, together
with (a) all accrued and unpaid interest (excluding, in the case of a
Hyper-Amortization Loan after its Anticipated Repayment Date, Additional
Interest) on such REO Loan at the related Mortgage Rate to but not including the
Due Date in the Collection Period of purchase, (b) all related unreimbursed
Servicing Advances, and (c) if paid in connection with any repurchase of such
REO Property by the Mortgage Loan Seller or any Affiliate thereof pursuant to
Section 2.03, all accrued and unpaid Advance Interest in respect of related
Advances. The Purchase Price of any Mortgage Loan or REO Property is intended to
include, without limitation, principal and interest previously advanced with
respect thereto and not previously reimbursed.
"PV Yield Loss Amount": As defined in Section 4.01(a).
"Qualified Appraiser": In connection with the appraisal of any Mortgaged
Property or REO Property, an Independent MAI-designated appraiser with at least
five years of experience in respect of the relevant geographic location and
property type.
"Qualified Insurer": An insurance company or security or bonding company
qualified to write the related Insurance Policy in the relevant jurisdiction.
"Rating Agency": Each of _____ and _________.
"Realized Loss": With respect to each defaulted Mortgage Loan as to which a
Final Recovery Determination has been made, or with respect to any REO Loan as
to which a Final Recovery Determination has been made as to the related REO
Property, an amount (not less than zero) equal to (i) the unpaid principal
balance of such Mortgage Loan or REO Loan, as the case may be, as of the
commencement of the Collection Period in which the Final Recovery Determination
was made, plus (ii) all accrued but unpaid interest (excluding, in the case a
Hyper-Amortization Loan after its Anticipated Repayment Date, Additional
Interest) on such Mortgage Loan or REO Loan, as the case may be (without taking
into account the amounts described in subclause (iv) of this sentence), at the
related Mortgage Rate to but not including the Due Date in the Collection Period
in which the Final Recovery Determination was made, plus (iii) any related
unreimbursed Servicing Advances as of the commencement of the Collection Period
in which the Final Recovery Determination was made, together with any new
related Servicing Advances made during such Collection Period, minus (iv) all
payments and proceeds, if any, received in respect of such Mortgage Loan or REO
Loan, as the case may be, during the Collection Period in which such Final
Recovery Determination was made (net of any related Liquidation Expenses paid
therefrom).
With respect to any Mortgage Loan as to which any portion of the
outstanding principal or accrued interest owed thereunder was forgiven in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor or a modification, waiver or amendment of such Mortgage Loan granted
or agreed to by the Master Servicer or Special Servicer pursuant to Section
3.20, the amount of such principal or interest (other than any Default Interest)
so forgiven.
With respect to any Mortgage Loan as to which the Mortgage Rate thereon has
been permanently reduced and not recaptured for any period in connection with a
bankruptcy or similar proceeding involving the related Mortgagor or a
modification, waiver or amendment of such Mortgage Loan granted or agreed to by
the Master Servicer or Special Servicer pursuant to Section 3.20, the amount of
the consequent reduction, if any, in the interest portion of each successive
Monthly Payment due thereon. Each such Realized Loss shall be deemed to have
been incurred on the Due Date for each affected Monthly Payment.
"Record Date": With respect to each Class of Certificates, for any
Distribution Date, the last Business Day of the calendar month immediately
preceding the month in which such Distribution Date occurs.
"Registered Certificates": The Class X, Class A-1, Class A-2, Class
B,(Class C, Class D and Class E Certificates.
"Reimbursement Rate": The rate per annum applicable to the accrual of
Advance Interest, which rate per annum shall be equal to the "prime rate" as
published in the "Money Rates" section of The Wall Street Journal, as such
"prime rate" may change from time to time. If The Wall Street Journal ceases to
publish such "prime rate", then the Trustee, in its sole discretion, shall
select an equivalent publication that publishes such "prime rate"; and if such
"prime rate" is no longer generally published or is limited, regulated or
administered by a governmental or quasi-governmental body, then the Trustee
shall select a comparable interest rate index. In either case, such selection
shall be made by the Trustee in its sole discretion and the Trustee shall notify
the Master Servicer and the Special Servicer in writing of its selection.
"Reinvestment Yield": As defined in Section 4.01(a).
"REMIC": A "real estate mortgage investment conduit" as defined in Section
860D of the Code.
"REMIC Administrator": ________________________ its successor in interest,
or any successor REMIC administrator appointed as herein provided.
"REMIC I": The segregated pool of assets subject hereto, constituting the
primary trust created hereby and to be administered hereunder, with respect to
which a REMIC election is to be made, consisting of: (i) the Mortgage Loans as
from time to time are subject to this Agreement and all payments under and
proceeds of such Mortgage Loans received or receivable after the Cut-off Date
(other than payments of principal, interest and other amounts due and payable on
the Mortgage Loans on or before the Cut-off Date), together with all documents,
Escrow Payments and Reserve Funds delivered or caused to be delivered hereunder
with respect to such Mortgage Loans by the Mortgage Loan Seller; (ii) any REO
Property acquired in respect of a Mortgage Loan and all payments and proceeds of
such REO Property; and (iii) such funds or assets as from time to time are
deposited in the Distribution Account, the Certificate Account and the REO
Account (if established).
"REMIC I Regular Interest": Any of the 22 separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
"regular interest" in REMIC I. Each REMIC I Regular Interest shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Principal Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC I Regular Interests are set forth in the
Preliminary Statement hereto.
"REMIC I Remittance Rate": With respect to any Major REMIC I Regular
Interest, for any Distribution Date, the Weighted Average Adjusted Net Mortgage
Rate for such Distribution Date. With respect to any Minor REMIC I Regular
Interest, for any Distribution Date, the fixed rate per annum specified as such
in respect of such Minor REMIC I Regular Interest in the Preliminary Statement
hereto.
"REMIC II": The segregated pool of assets consisting of all of the REMIC I
Regular Interests, with respect to which a separate REMIC election is to be
made.
"REMIC II Certificate": Any Certificate, other than a Class R-I
Certificate.
"REMIC II Regular Certificate": Any REMIC II Certificate, other than a
Class R-II Certificate.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Sections 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
proposed, temporary and final Treasury regulations and any published rulings,
notices and announcements promulgated thereunder, as the foregoing may be in
effect from time to time.
"Rents from Real Property": With respect to any REO Property, gross income
of the character described in Section 856(d) of the Code.
"REO Account": A segregated custodial account or accounts created and
maintained by the Special Servicer pursuant to Section 3.16 on behalf of the
Trustee in trust for the Certificateholders, which shall be entitled "[SPECIAL
SERVICER], as Special Servicer, in trust for registered holders of NationsLink
Funding Corporation, Mortgage Pass-Through Certificates, Series 199__-__".
"REO Acquisition": The acquisition of any REO Property pursuant to Section
3.09.
"REO Disposition": The sale or other disposition of the REO Property
pursuant to Section 3.18(d).
"REO Extension": As defined in Section 3.16(a).
"REO Loan": The mortgage loan deemed for purposes hereof to be outstanding
with respect to each REO Property acquired in respect of any Mortgage Loan. Each
REO Loan shall be deemed to provide for monthly payments of principal and/or
interest equal to its Assumed Monthly Payment and otherwise to have the same
terms and conditions as the predecessor Mortgage Loan. Each REO Loan shall be
deemed to have an initial unpaid principal balance and Stated Principal Balance
equal to the unpaid principal balance and Stated Principal Balance,
respectively, of the predecessor Mortgage Loan as of the date of the related REO
Acquisition. In addition, all Monthly Payments (other than any Balloon Payment),
Assumed Monthly Payments (in the case of a Balloon Mortgage Loan delinquent in
respect of its Balloon Payment) and other amounts due and owing, or deemed to be
due and owing, in respect of the predecessor Mortgage Loan as of the date of the
related REO Acquisition, shall be deemed to continue to be due and owing in
respect of an REO Loan. All amounts payable or reimbursable to the Master
Servicer, the Special Servicer and/or the Trustee in respect of the related
Mortgage Loan as of the date of the related REO Acquisition, including, without
limitation, any unpaid Servicing Fees and any unreimbursed Advances, together
with any Advance Interest accrued and payable to the Master Servicer, Special
Servicer and/or the Trustee in respect of such Advances, shall continue to be
payable or reimbursable to the Master Servicer, Special Servicer and/or Trustee
as the case may be, in respect of an REO Loan.
"REO Property": A Mortgaged Property acquired by the Special Servicer on
behalf of the Trustee for the benefit of the Certificateholders pursuant to
Section 3.09 through foreclosure, acceptance of a deed-in-lieu of foreclosure or
otherwise in accordance with applicable law in connection with the default or
imminent default of a Mortgage Loan.
"REO Revenues": All income, rents, profits and proceeds derived from the
ownership, operation or leasing of any REO Property.
"REO Status Report": A report or reports substantially in the form of
Exhibit E attached hereto setting forth, among other things, with respect to
each REO Property that was included in the Trust Fund as of the close of
business on the Determination Date immediately preceding the preparation of such
report or reports, (i) the Acquisition Date of such REO Property, (ii) the
amount of income collected with respect to any REO Property (net of related
expenses) and other amounts, if any, received on such REO Property during the
Collection Period ending on such Determination Date and (iii) the value of the
REO Property based on the most recent Appraisal or other valuation thereof
available to the Master Servicer as of such Determination Date (including any
valuation prepared internally by the Special Servicer).
"REO Tax": As defined in Section 3.17(a).
"Request for Release": A request for release signed by a Servicing Officer
of, as applicable, the Master Servicer or Special Servicer in the form of
Exhibit D attached hereto.
"Required Appraisal Loan": As defined in Section 3.19(b).
"Required Claims-Paying Ratings": With respect to any insurance carrier,
claims-paying ability ratings at least equal to the following minimum ratings
assigned to such carrier by at least two of the following parties and, in any
event, by each Rating Agency that assigned a rating to the claims-paying ability
of such insurance carrier: _________ ("____" or better), _______________________
("__" or better), ____ ("___" or better), _____________________________,
_____________________________________ ("__" or better) and ______________
("____" or better); unless each of the Rating Agencies has confirmed in writing
that an insurance company with lower or fewer claims-paying ability ratings
shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the then current rating assigned by such Rating Agency to any
Class of Certificates.
"Reserve Account": The account or accounts created and maintained pursuant
to Section 3.03(d).
"Reserve Funds": With respect to any Mortgage Loan, any amounts delivered
by the related Mortgagor to be held in escrow by or on behalf of the mortgagee
representing reserves for principal and interest payments, repairs,
replacements, capital improvements (including, without limitation, tenant
improvements and leasing commissions), and/or environmental testing and
remediation with respect to the related Mortgaged Property.
"Residual Certificate": Any Class R-I or Class R-II Certificate.
"Responsible Officer": When used with respect to the Trustee, any officer
assigned to the Asset-Backed Securities Trust Services Group, any vice
president, any assistant vice president, any assistant secretary, any assistant
treasurer, or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers to whom a
particular matter is referred by the Trustee because of such officer's knowledge
of and familiarity with the particular subject. When used with respect to any
Certificate Registrar (other than the Trustee), any officer or assistant officer
thereof.
"Securities Act": The Securities Act of 1933, as amended.
"Security Agreement": With respect to any Mortgage Loan, any security
agreement, chattel mortgage or similar document or instrument, whether contained
in the related Mortgage or executed separately, creating in favor of the holder
of such Mortgage a security interest in the personal property constituting
security for repayment of such Mortgage Loan.
"Senior Certificate": Any Class A-1, Class A-2 or Class X Certificate.
"Senior Principal Distribution Cross-Over Date": The first Distribution
Date as of which the aggregate Class Principal Balance of the Class A-1 and
Class A-2 Certificates outstanding immediately prior to such Distribution Date
exceeds the sum of (a) the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date, plus
(b) the lesser of (i) the Principal Distribution Amount for such Distribution
Date and (ii) the portion of the Available Distribution Amount for such
Distribution Date that will remain after the distributions of interest to be
made on the Senior Certificates on such Distribution Date have been so made.
"Sequential Pay Certificate": Any Class A, Class B, Class C, Class D, Class
E, Class F, Class G, Class H, Class J or Class K Certificate.
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.03(a).
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred or to be incurred, as the context requires,
by the Master Servicer or the Special Servicer (or, if applicable, the Trustee)
in connection with the servicing of a Mortgage Loan after a default, delinquency
or other unanticipated event, or in connection with the administration of any
REO Property, including, but not limited to, the cost of (a) compliance with the
obligations of the Master Servicer and/or the Special Servicer set forth in
Sections 3.03(c) and 3.09, (b) the preservation, insurance, restoration,
protection and management of a Mortgaged Property, (c) obtaining any Liquidation
Proceeds or Insurance Proceeds in respect of any Mortgage Loan or REO Property,
(d) any enforcement or judicial proceedings with respect to a Mortgaged
Property, including, without limitation, foreclosures, and (e) the operation,
management, maintenance and liquidation of any REO Property; provided that
notwithstanding anything to the contrary, "Servicing Advances" shall not include
allocable overhead of the Master Servicer or the Special Servicer, such as costs
for office space, office equipment, supplies and related expenses, employee
salaries and related expenses and similar internal costs and expenses, or costs
incurred by either such party in connection with its purchase of any Mortgage
Loan or REO Property pursuant to any provision of this Agreement. All Emergency
Advances made by the Special Servicer hereunder shall be considered "Servicing
Advances" for the purposes hereof.
"Servicing Fees": With respect to each Mortgage Loan and REO Loan, the
Master Servicing Fee and the Special Servicing Fee.
"Servicing File": Any documents (other than documents required to be part
of the related Mortgage File), including, without limitation, the related
environmental site assessment report(s) referred to in Section 2.05(c)(xiv), in
the possession of the Master Servicer or the Special Servicer and relating to
the origination and servicing of any Mortgage Loan.
"Servicing Officer": Any officer or authorized signatory of the Master
Servicer or the Special Servicer involved in, or responsible for, the
administration and servicing of Mortgage Loans, whose name and specimen
signature appear on a list of such officers and authorized signatories furnished
by such party to the Trustee and the Depositor on the Closing Date, as such list
may be amended from time to time thereafter.
"Servicing Return Date": With respect to any Corrected Mortgage Loan, the
date that servicing thereof is returned by the Special Servicer to the Master
Servicer pursuant to Section 3.21(a).
"Servicing Standard": With respect to each of the Master Servicer and the
Special Servicer, to service and administer the Mortgage Loans and any REO
Properties for which such Person is responsible hereunder: (a) in accordance
with the higher standard of (i) the same manner in which, and with the same
care, skill, prudence and diligence with which, the Master Servicer or Special
Servicer, as the case may be, generally services and administers comparable
mortgage loans or assets, as applicable, for other third parties, and (ii) the
same manner in which, and with the same care, skill, prudence and diligence with
which, the Master Servicer or the Special Servicer, as the case may be,
generally services and administers comparable mortgage loans or assets, as
applicable, owned by it; (b) with a view to the timely collection of all Monthly
Payments of principal and interest under the Mortgage Loans or, if a Mortgage
Loan comes into and continues in default and if, in the good faith and
reasonable judgment of the Special Servicer, no satisfactory arrangements can be
made for the collection of the delinquent payments, the maximization of the
recovery on such Mortgage Loan to the Certificateholders (as a collective whole)
on a present value basis (the relevant discounting of anticipated collections
that will be distributable to Certificateholders to be performed at the related
Net Mortgage Rate (or, in the case of a Hyper-Amortization Loan after its
Anticipated Repayment Date, the related Net Mortgage Rate in effect immediately
prior to such Anticipated Repayment Date)); and (c) without regard to: (i) any
relationship that the Master Servicer or the Special Servicer, as the case may
be, or any Affiliate thereof may have with any related Mortgagor; (ii) the
ownership of any Certificate by the Master Servicer or the Special Servicer, as
the case may be, or by any Affiliate thereof; (iii) the Master Servicer's
obligation to make Advances; (iv) the Special Servicer's obligation to make (or
to direct the Master Servicer to make) Servicing Advances; and (v) the right of
the Master Servicer (or any Affiliate thereof) or the Special Servicer (or any
Affiliate thereof), as the case may be, to receive compensation for its services
or reimbursement of costs hereunder or with respect to any particular
transaction.
"Servicing Transfer Event": With respect to any Mortgage Loan, the
occurrence of any of the events described in clauses (a) through (h) of the
definition of "Specially Serviced Mortgage Loan".
"Single Certificate": For purposes of Section 4.02(a), a hypothetical
Certificate of any Class of REMIC II Regular Certificates evidencing a $1,000
denomination or, in the case of a Class X Certificate, a 100% Percentage
Interest in the related Class.
"Special Servicer": ________________________________, its successor in
interest, or any successor special servicer appointed as herein provided.
"Special Servicer Loan Status Report": A report or reports setting forth,
among other things, as of the close of business on the Determination Date
immediately preceding the preparation of such report or reports, (i) the
aggregate unpaid principal balance of all Specially Serviced Mortgage Loans and
(ii) a loan-by-loan listing of all Specially Serviced Mortgage Loans indicating
their status, date and reason for transfer to the Special Servicer,
substantially in the form, and including such additional information, as is
contemplated on page [ ] of the Prospectus Supplement.
"Special Servicing Fee": With respect to each Specially Serviced Mortgage
Loan and each REO Loan, the fee designated as such and payable to the Special
Servicer pursuant to the first paragraph of Section 3.11(c).
"Special Servicing Fee Rate": With respect to each Specially Serviced
Mortgage Loan and each REO Loan, 0._____% per annum.
"Specially Serviced Mortgage Loan": Any Mortgage Loan as to which any of
the following events has occurred:
(a) the related Mortgagor has failed to make when due any Balloon Payment,
which failure has continued, or the Master Servicer determines, in its
good faith and reasonable judgment, will continue, unremedied for 30
days; or
(b) the related Mortgagor has failed to make when due any Monthly Payment
(other than a Balloon Payment) or any other payment required under the
related Mortgage Note or the related Mortgage, which failure has
continued, or the Master Servicer determines, in its good faith and
reasonable judgment, will continue, unremedied for 60 days; or
(c) the Master Servicer has determined, in its good faith and reasonable
judgment, that a default in the making of a Monthly Payment
(including, without limitation, a Balloon Payment) or any other
payment required under the related Mortgage Note or the related
Mortgage is likely to occur within 30 days and is likely to remain
unremedied for at least 60 days or, in the case of a Balloon Payment,
for at least 30 days; or
(d) there shall have occurred a default under the related loan documents,
other than as described in clause (a) or (b) above, that may, in the
Master Servicer's good faith and reasonable judgment, materially
impair the value of the related Mortgaged Property as security for the
Mortgage Loan or otherwise materially and adversely affect the
interests of Certificateholders, which default has continued
unremedied for the applicable cure period under the terms of the
Mortgage Loan (or, if no cure period is specified, 60 days); or
(e) a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or
the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
related Mortgagor and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or
(f) the related Mortgagor shall have consented to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to such Mortgagor or of or relating to all or
substantially all of its property; or
(g) the related Mortgagor shall have admitted in writing its inability to
pay its debts generally as they become due, filed a petition to take
advantage of any applicable insolvency or reorganization statute, made
an assignment for the benefit of its creditors, or voluntarily
suspended payment of its obligations; or
(h) the Master Servicer shall have received notice of the commencement of
foreclosure or similar proceedings with respect to the related
Mortgaged Property;
provided that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan, when a Liquidation Event has occurred in respect of such Mortgage
Loan, when the related Mortgaged Property has become an REO Property, or at such
time as such of the following as are applicable occur with respect to the
circumstances identified above that caused the Mortgage Loan to be characterized
as a Specially Serviced Mortgage Loan (and provided that no other Servicing
Transfer Event then exists):
(w) with respect to the circumstances described in clauses (a) and (b)
above, the related Mortgagor has made three consecutive full and
timely Monthly Payments under the terms of such Mortgage Loan (as such
terms may be changed or modified in connection with a bankruptcy or
similar proceeding involving the related Mortgagor or by reason of a
modification, waiver or amendment granted or agreed to by the Special
Servicer pursuant to Section 3.20);
(x) with respect to the circumstances described in clauses (c), (e), (f)
and (g) above, such circumstances cease to exist in the good faith and
reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (d) above, such
default is cured; and
(z) with respect to the circumstances described in clause (h) above, such
proceedings are terminated.
"Standby Fee": With respect to each Mortgage Loan and each REO Loan, the
fee designated as such and payable to the Special Servicer pursuant to the
second paragraph of Section 3.11(c).
"Standby Fee Rate": With respect to each Mortgage Loan and each REO Loan,
0.02% per annum.
"Startup Day": With respect to each of REMIC I and REMIC II, the day
designated as such in Section 10.01(c).
"Stated Maturity Date": With respect to any Mortgage Loan, the Due Date on
which the last payment of principal is due and payable under the terms of the
related Mortgage Note as in effect on the Closing Date, without regard to any
change in or modification of such terms in connection with a bankruptcy or
similar proceeding involving the related Mortgagor or a modification, waiver or
amendment of such Mortgage Loan granted or agreed to by the Master Servicer or
Special Servicer pursuant to Section 3.20 and, in the case of a
Hyper-Amortization Loan, without regard to its Anticipated Repayment Date.
"Stated Principal Balance": With respect to any Mortgage Loan (and any
successor REO Loan), a principal amount initially equal to the Cut-off Date
Balance of such Mortgage Loan, that is permanently reduced on each Distribution
Date (to not less than zero) by (i) all payments (or P&I Advances in lieu
thereof) of, and all other collections allocated as provided in Section 1.02 to,
principal of or with respect to such Mortgage Loan (or successor REO Loan) that
are (or, if they had not been applied to cover any Additional Trust Fund
Expense, would have been) distributed to Certificateholders on such Distribution
Date, and (ii) the principal portion of any Realized Loss incurred in respect of
such Mortgage Loan (or successor REO Loan) during the related Collection Period.
Notwithstanding the foregoing, if a Liquidation Event occurs in respect of any
Mortgage Loan or REO Property, then the "Stated Principal Balance" of such
Mortgage Loan or of the related REO Loan, as the case may be, shall be zero
commencing as of the Distribution Date in the Collection Period next following
the Collection Period in which such Liquidation Event occurred.
"Subordinated Certificate": Any Class B, Class C, Class D, Class E, Class
F, Class G, Class H, Class J, Class K or Residual Certificate.
"Sub-Servicer": Any Person with which the Master Servicer or the Special
Servicer has entered into a Sub-Servicing Agreement.
"Sub-Servicer Termination Compensation": As defined in Section 3.22(d).
"Sub-Servicer Termination Fee": As defined in Section 3.22(d).
"Sub-Servicing Agreement": The written contract between the Master Servicer
or the Special Servicer, on the one hand, and any Sub-Servicer, on the other
hand, relating to servicing and administration of Mortgage Loans as provided in
Section 3.22.
"Tax Matters Person": With respect to each of REMIC I and REMIC II, the
Person designated as the "tax matters person" of such REMIC in the manner
provided under Treasury regulation section 1.860F-4(d) and temporary Treasury
regulation section 301.6231(a)(7)-1T. The "Tax Matters Person" for each of REMIC
I and REMIC II is the Holder of Certificates evidencing the largest Percentage
Interest in the related Class of Residual Certificates.
"Tax Returns": The federal income tax return on Internal Revenue Service
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return,
including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed
on behalf of each of REMIC I and REMIC II due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information, reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal or Applicable State Law.
"Termination Strip": As defined in Section 3.22(d).
"Transfer": Any direct or indirect transfer, sale, pledge, hypothecation,
or other form of assignment of any Ownership Interest in a Certificate.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer any Ownership
Interest in a Certificate.
"Trust": The common law trust created hereby.
"Trust Fund": Collectively, all of the assets of REMIC I and REMIC II.
"Trustee": _________________, in its capacity as Trustee hereunder, its
successor in interest, or any successor trustee appointed as herein provided.
"Trustee Fee": The fee payable to the Trustee on each Distribution Date for
its services as Trustee hereunder, in an aggregate amount equal to one month's
interest at the Trustee Fee Rate in respect of each Mortgage Loan and REO Loan,
calculated on the same basis as is applicable to the accrual of interest on such
Mortgage (i.e., on the basis of, as applicable, a 360-day year consisting of
twelve 30-day months or the actual number of days elapsed during each calendar
month in a 360-day year) and accrued on the Stated Principal Balance of such
Mortgage Loan or REO Loan, as the case may be, immediately prior to such
Distribution Date for the most recently ended calendar month.
"Trustee Fee Rate": A rate of 0.005% per annum.
"UCC": The Uniform Commercial Code in effect in the applicable
jurisdiction.
"UCC Financing Statement": A financing statement executed and filed
pursuant to the Uniform Commercial Code, as in effect in the relevant
jurisdiction.
"UCC-1", "UCC-2" and "UCC-3": UCC financing statements on Form UCC-1, Form
UCC-2 and Form UCC-3, respectively.
"Uncertificated Accrued Interest": With respect to any REMIC I Regular
Interest, for any Distribution Date, one month's interest (calculated on the
basis of a 360-day year consisting of twelve 30-day months) at the REMIC I
Remittance Rate applicable to such REMIC I Regular Interest for such
Distribution Date, accrued on the Uncertificated Principal Balance of such REMIC
I Regular Interest outstanding immediately prior to such Distribution Date. The
Uncertificated Accrued Interest in respect of any REMIC I Regular Interest for
any Distribution Date shall be deemed to have accrued during the applicable
Interest Accrual Period.
"Uncertificated Distributable Interest": With respect to any REMIC I
Regular Interest, for any Distribution Date, the Uncertificated Accrued Interest
in respect of such REMIC I Regular Interest for such Distribution Date, reduced
(to not less than zero) by the product of (i) the Net Aggregate Prepayment
Interest Shortfall, if any, for such Distribution Date, multiplied by (ii) a
fraction, the numerator of which is the Uncertificated Accrued Interest in
respect of such REMIC I Regular Interest for such Distribution Date, and the
denominator of which is the aggregate Uncertificated Accrued Interest in respect
of all the REMIC I Regular Interests for such Distribution Date.
"Uncertificated Principal Balance": The principal amount of any REMIC I
Regular Interest outstanding as of any date of determination. As of the Closing
Date, the Uncertificated Principal Balance of each REMIC I Regular Interest
shall equal the amount specified as its initial Uncertificated Principal Balance
in the Preliminary Statement hereto. On each Distribution Date, the
Uncertificated Principal Balance of each REMIC I Regular Interest shall be
permanently reduced by all distributions of principal deemed to have been made
thereon on such Distribution Date pursuant to Section 4.05(a) and, if and to the
extent appropriate, shall be further permanently reduced on such Distribution
Date as provided in Section 4.05(d).
"United States Person": A citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate
whose income from sources without the United States is includible in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust,
all within the meaning of Section 7701(a)(30) of the Code.
"USPAP": The Uniform Standards of Professional Appraisal Practices.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. At all times during the term
of this Agreement, 94.0% of the Voting Rights shall be allocated among the
Holders of the various outstanding Classes of Sequential Pay Certificates in
proportion to the respective Class Principal Balances of their Certificates, and
6.0% of the Voting Rights shall be allocated to the Holders of the Class X
Certificates. Voting Rights allocated to a Class of Certificateholders shall be
allocated among such Certificateholders in proportion to the Percentage
Interests evidenced by their respective Certificates.
"Weighted Average Adjusted Net Mortgage Rate": With respect to any
Distribution Date, the weighted average of the respective Adjusted Net Mortgage
Rates for all the Mortgage Loans and REO Loans, weighted on the basis of the
respective Stated Principal Balances of such Mortgage Loans and REO Loans
outstanding immediately prior to such Distribution Date.
"Workout Fee": With respect to each Corrected Mortgage Loan, the fee
designated as such and payable to the Special Servicer pursuant to the third
paragraph of Section 3.11(c).
"Workout Fee Rate": With respect to each Corrected Mortgage Loan as to
which a Workout Fee is payable, ___%.
SECTION 1.02 Certain Calculations in Respect of the Mortgage
Pool.
(a) All amounts collected in respect of any Group of Cross-Collateralized
Mortgage Loans in the form of payments from Mortgagors, Insurance Proceeds and
Liquidation Proceeds, shall be applied by the Master Servicer among such
Mortgage Loans in accordance with the express provisions of the related loan
documents and, in the absence of such express provisions, on a pro rata basis in
accordance with the respective amounts then "due and owing" as to each of the
Mortgage Loans constituting such Group. All amounts collected in respect of or
allocable to any particular individual Mortgage Loan (whether or not such
Mortgage Loan is a Cross-Collateralized Mortgage Loan) in the form of payments
from Mortgagors, Liquidation Proceeds or Insurance Proceeds shall be applied for
purposes of this Agreement (including, without limitation, for purposes of
determining distributions on the Certificates pursuant to Article IV and
additional compensation payable to the Master Servicer, the Special Servicer and
any Sub-Servicers) as follows: first, as a recovery of any related unreimbursed
Servicing Advances and, if applicable, unpaid Liquidation Expenses; second, as a
recovery of accrued and unpaid interest (excluding, in the case of a
Hyper-Amortization Loan after its Anticipated Repayment Date, Additional
Interest) at the related Mortgage Rate on such Mortgage Loan to but not
including, as appropriate, the date of receipt or, in the case of a full Monthly
Payment from any Mortgagor, the related Due Date; third, as a recovery of
principal of such Mortgage Loan then due and owing, including, without
limitation, by reason of acceleration of the Mortgage Loan following a default
thereunder (or, if a Liquidation Event has occurred in respect of such Mortgage
Loan, as a recovery of principal to the extent of its entire remaining unpaid
principal balance); fourth, as a recovery of amounts to be currently applied to
the payment of, or escrowed for the future payment of, real estate taxes,
assessments, insurance premiums, ground rents (if applicable) and similar items;
fifth, as a recovery of Reserve Funds to the extent then required to be held in
escrow; sixth, as a recovery of any Prepayment Premium then due and owing under
such Mortgage Loan; seventh, as a recovery of any Default Charges then due and
owing under such Mortgage Loan; eighth, as a recovery of any assumption fees and
modification fees then due and owing under such Mortgage Loan; ninth, as a
recovery of any other amounts then due and owing under such Mortgage Loan other
than remaining unpaid principal; tenth, as an early recovery of any remaining
principal of such Mortgage Loan to the extent of its entire remaining unpaid
principal balance; and, eleventh, in the case of a Hyper-Amortization Loan after
its Anticipated Repayment Date, as a recovery of accrued and unpaid Additional
Interest on such Hyper-Amortization Loan, to but not including the date of
receipt. The Master Servicer shall, to the fullest extent permitted by
applicable law and the related Mortgage Loan documents, apply all payments on
and proceeds of each Mortgage Loan to amounts actually due and owing from the
related Mortgagor in a manner consistent with the foregoing and shall maintain
accurate records of how all such payments and proceeds are actually applied and
are applied for purposes of this Agreement.
(b) Collections in respect of each REO Property (exclusive of amounts to be
applied to the payment of the costs of operating, managing, maintaining and
disposing of such REO Property) shall be applied for purposes of this Agreement
(including, without limitation for purposes of determining distributions on the
Certificates pursuant to Article IV and additional compensation payable to the
Master Servicer, the Special Servicer and any Sub-Servicers) as follows: first,
as a recovery of any related unreimbursed Servicing Advances; second, as a
recovery of accrued and unpaid interest (excluding, in the case of an REO Loan
that relates to a Hyper-Amortization Loan after its Anticipated Repayment Date,
Additional Interest) on the related REO Loan at the related Mortgage Rate to but
not including the Due Date in the Collection Period of receipt; third, as a
recovery of principal of the related REO Loan to the extent of its entire unpaid
principal balance; fourth, as a recovery of any Prepayment Premium then due and
owing under such REO Loan; fifth, as a recovery of any other amounts (including,
without limitation, Default Charges) deemed to be due and owing in respect of
the related REO Loan; and, sixth, in the case of an REO Loan that relates to a
Hyper-Amortization Loan after its Anticipated Repayment Date, as a recovery of
accrued and unpaid Additional Interest on such REO Loan to but not including the
date of receipt.
(c) For the purposes of calculating distributions pursuant to this
Agreement, Additional Interest on a Hyper-Amortization Loan or a successor REO
Loan shall be deemed not to constitute principal or any portion thereof and
shall not be added to the unpaid principal balance or Stated Principal Balance
of such Hyper-Amortization Loan or successor REO Loan. To the extent any
Additional Interest is not paid on a current basis, it shall be deemed to be
deferred interest.
(d) Insofar as amounts received in respect of any Mortgage Loan or REO
Property and allocable to fees and charges owing in respect of such Mortgage
Loan or the related REO Loan, as the case may be, that constitute additional
servicing compensation payable to the Master Servicer and/or Special Servicer
pursuant to Section 3.11, are insufficient to cover the full amount of such fees
and charges, such amounts shall be allocated between such of those fees and
charges as are payable to the Master Servicer, on the one hand, and such of
those fees and charges as are payable to the Special Servicer, on the other, pro
rata in accordance with their respective entitlements, and such payments so made
shall constitute the sole amount that will be paid to the Master Servicer and
the Special Servicer with respect thereto.
(e) The foregoing applications of amounts received in respect of any
Mortgage Loan or REO Property shall be determined by the Master Servicer and
reflected in the reports to be delivered thereby pursuant to Section 4.02(b).
<PAGE>
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01 Conveyance of Mortgage Loans.
(a) It is the intention of the parties hereto that a common law trust be
established pursuant to this Agreement. _____________________ is hereby
appointed, and does hereby agree to act, as Trustee hereunder and, in such
capacity, to hold the Trust Fund in trust for the exclusive use and benefit of
all present and future Certificateholders. It is not intended that this
Agreement create a partnership or a joint-stock association.
(b) Each of the Depositor and, at the direction of the Depositor given
pursuant to the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller,
concurrently with its execution and delivery hereof, does hereby assign,
transfer, sell and otherwise convey to the Trustee without recourse for the
benefit of the Certificateholders all the right, title and interest of the
Depositor and the Mortgage Loan Seller, respectively, in, to and under the
Mortgage Loans identified on the Mortgage Loan Schedule and all other assets
included or to be included in REMIC I. Such assignment includes (i) the Mortgage
Loans as from time to time are subject to this Agreement and all payments under
and proceeds of such Mortgage Loans received or receivable after the Cut-off
Date (other than payments of principal, interest and other amounts due and
payable on the Mortgage Loans on or before the Cut-off Date), together with all
documents delivered or caused to be delivered hereunder with respect to such
Mortgage Loans by the Mortgage Loan Seller; (ii) any REO Property acquired in
respect of a Mortgage Loan; and (iii) such funds or assets as from time to time
are deposited in the Distribution Account, the Certificate Account and the REO
Account (if established).
It is intended that the conveyance of the Mortgage Loans and the related
rights and property by the Depositor and the Mortgage Loan Seller to the
Trustee, as provided in this Section be, and be construed as, an absolute
transfer of the Mortgage Loans by the Depositor and the Mortgage Loan Seller to
the Trustee for the benefit of the Certificateholders. It is, further, not
intended that such conveyance be deemed a pledge of the Mortgage Loans by the
Depositor or the Mortgage Loan Seller to the Trustee to secure a debt or other
obligation of the Depositor or the Mortgage Loan Seller, as the case may be.
However, in the event that the Mortgage Loans are held to be property of the
Depositor or the Mortgage Loan Seller, or if for any reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (i) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (ii) the conveyance provided for in this Section shall be deemed
to be a grant by the Depositor and the Mortgage Loan Seller to the Trustee, for
the benefit of the Certificateholders, of a security interest in all of their
respective right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Notes, the Mortgages, any related insurance policies and all other documents in
the related Mortgage Files, (B) all amounts payable to the holders of the
Mortgage Loans in accordance with the terms thereof and (C) all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property, including without limitation all amounts from time
to time held or invested in the Certificate Account, the Distribution Account or
the REO Account, whether in the form of cash, instruments, securities or other
property; (iii) the possession by the Trustee or its agent of the Mortgage Notes
and such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party" or possession by a purchaser or a Person designated by such secured
party, for purposes of perfecting the security interest pursuant to the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction (including, without limitation, Section 9-305, 8-313 or 8-321
thereof); and (d) notifications to, and acknowledgments, receipts or
confirmations from, Persons holding such property shall be deemed to be
notifications to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Trustee for the purpose
of perfecting such security interest under applicable law. The Depositor, the
Mortgage Loan Seller and the Trustee shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of this Agreement. At the Depositor's direction, the Trustee shall execute and
deliver, and the Master Servicer shall (at its expense) file, all filings
necessary to maintain the effectiveness of any original filings necessary under
the Uniform Commercial Code as in effect in any jurisdiction to perfect and
maintain the Trustee's security interest in or lien on the Trust Fund, including
without limitation (A) continuation statements and (B) such other statements as
may be occasioned by any transfer of any interest of the Trustee, the Master
Servicer, the Special Servicer or the Depositor in the Trust Fund. In connection
herewith, the Trustee shall have all of the rights and remedies of a secured
party and creditor under the Uniform Commercial Code as in force in the relevant
jurisdiction.
(c) In connection with the Mortgage Loan Seller's assignment pursuant to
subsection (b) above, the Mortgage Loan Seller shall deliver to and deposit
with, or cause to be delivered to and deposited with, the Trustee or a Custodian
appointed thereby (with a copy to the Master Servicer), on or before the Closing
Date, the Mortgage File for each Mortgage Loan so assigned by the Mortgage Loan
Seller hereunder. If the Mortgage Loan Seller is unable to deliver or cause the
delivery of any original Mortgage Note, it may deliver a copy of such Mortgage
Note, together with a lost note affidavit, and shall thereby be deemed to have
satisfied the document delivery requirements of this Section 2.01(c). If the
Mortgage Loan Seller cannot so deliver, or cause to be delivered, as to any
Mortgage Loan, the original or a copy of any of the documents and/or instruments
referred to in clauses [(ii), (iv), (viii), (xi)(A) and (xii)] of the definition
of "Mortgage File", with evidence of recording or filing (as the case may be)
thereon, solely because of a delay caused by the public recording or filing
office where such document or instrument has been delivered for recordation or
filing, as the case may be, the delivery requirements of this Section 2.01(c)
shall be deemed to have been satisfied as to such missing item, and such missing
item shall be deemed to have been included in the related Mortgage File,
provided that a copy of such document or instrument (without evidence of
recording or filing thereon, but certified (which certificate may relate to
multiple documents and/or instruments) by the Mortgage Loan Seller to be a true
and complete copy of the original thereof submitted for recording or filing, as
the case may be) is delivered to the Trustee or a Custodian appointed thereby on
or before the Closing Date, and either the original of such missing document or
instrument, or a copy thereof, with evidence of recording or filing, as the case
may be, thereon, is delivered to the Trustee or such Custodian within _____ days
of the Closing Date (or within such longer period after the Closing Date as the
Trustee may consent to, which consent shall not be unreasonably withheld so long
as the Mortgage Loan Seller has provided the Trustee with evidence of such
submission for recording or filing, as the case may be, or has certified to the
Trustee as to the occurrence of such submission for recording or filing, as the
case may be, and is, as certified to the Trustee no less often than monthly, in
good faith attempting to obtain from the appropriate recording or filing office
such original or copy). If the Mortgage Loan Seller cannot or does not so
deliver, or cause to be delivered, as to any Mortgage Loan, the original of any
of the documents and/or instruments referred to in clauses [(iii), (v), and
(xi)(B)] of the definition of "Mortgage File", because such document or
instrument has been delivered for recording or filing, as the case may be, the
delivery requirements of this Section 2.01(c) shall be deemed to have been
satisfied as to such missing item, and such missing item shall be deemed to have
been included in the related Mortgage File, provided that a copy of such
document or instrument (without evidence of recording or filing thereon, but
certified (which certificate may relate to multiple documents and/or
instruments) by the Mortgage Loan Seller to be a true and complete copy of the
original thereof submitted for recording or filing, as the case may be) is
delivered to the Trustee or a Custodian appointed thereby on or before the
Closing Date, and either the original of such missing document or instrument, or
a copy thereof, with evidence of recording or filing, as the case may be,
thereon, is delivered to the Trustee or such Custodian within _____ days of the
Closing Date (or within such longer period after the Closing Date as the Trustee
may consent to, which consent shall not be unreasonably withheld so long as the
Mortgage Loan Seller has provided the Trustee with evidence of such submission
for recording or filing, as the case may be, or has certified to the Trustee as
to the occurrence of such submission for recording or filing, as the case may
be, and is, as certified to the Trustee no less often than monthly, in good
faith attempting to obtain from the appropriate recording or filing office such
original or copy). If the Mortgage Loan Seller cannot so deliver, or cause to be
delivered, as to any Mortgage Loan, the original or a copy of the related
lender's title insurance policy referred to in clause (ix) of the definition of
"Mortgage File" solely because such policy has not yet been issued, the delivery
requirements of this Section 2.01(c) shall be deemed to be satisfied as to such
missing item, and such missing item shall be deemed to have been included in the
related Mortgage File, provided that the Mortgage Loan Seller shall have
delivered to the Trustee or a Custodian appointed thereby, on or before the
Closing Date, a commitment for title insurance "marked-up" at the closing of
such Mortgage Loan, and the Mortgage Loan Seller shall deliver to the Trustee or
such Custodian, promptly following the receipt thereof, the original related
lender's title insurance policy (or a copy thereof). In addition,
notwithstanding anything to the contrary contained herein, if there exists with
respect to any Group of related Cross-Collateralized Mortgage Loans only one
original of any document referred to in the definition of "Mortgage File"
covering all the Mortgage Loans in such Group, then the inclusion of the
original of such document in the Mortgage File for any of the Mortgage Loans in
such Group shall be deemed an inclusion of such original in the Mortgage File
for each such Mortgage Loan. None of the Trustee, any Custodian, the Depositor,
the Master Servicer or the Special Servicer shall in any way be liable for any
failure by the Mortgage Loan Seller to comply with the delivery requirements of
this Section 2.01(c).
If any of the endorsements referred to in clause (i) of the definition of
"Mortgage File", any of the assignments of Mortgage referred to in clause (iii)
of the definition of "Mortgage File", any of the assignments of Assignment of
Leases referred to in clause (v) of the definition of "Mortgage File", or any of
the assignments of Security Agreement referred to in clause (vii) of the
definition of "Mortgage File" are delivered to the Trustee in blank, the Trustee
shall (without being obligated to record or file such) be responsible for
completing the related endorsement or assignment in the name of the Trustee (in
such capacity).
(d) The Mortgage Loan Seller shall, as to each Mortgage Loan, at its own
expense, promptly (and in any event within _____ days of the Closing Date)
submit or cause to be submitted for recording or filing, as the case may be, in
the appropriate public office for real property records or UCC Financing
Statements, as appropriate, each assignment referred to in clauses (iii) and (v)
of the definition of "Mortgage File" and each UCC-1, UCC-2 and UCC-3, if any,
referred to in clause (xi)(B) of the definition of "Mortgage File". Each such
assignment shall reflect that it should be returned by the public recording
office to the Trustee following recording, and each such UCC-1, UCC-2 and UCC-3
shall reflect that the file copy thereof should be returned to the Trustee
following filing. At such time as such assignments, UCC-1s, UCC-2s and UCC-3s
have been returned to the Trustee, the Trustee shall promptly forward a copy of
each thereof to the Master Servicer. If any such document or instrument is lost
or returned unrecorded or unfiled, as the case may be, because of a defect
therein, the Mortgage Loan Seller shall promptly prepare or cause the
preparation of a substitute therefor or cure or cause the curing of such defect,
as the case may be, and thereafter the Mortgage Loan Seller, shall, at its own
expense, submit the substitute or corrected documents or cause such to be
submitted for recording or filing, as appropriate.
(e) All documents and records in the Mortgage Loan Seller's possession (or
under its control) relating to the Mortgage Loans that are not required to be a
part of a Mortgage File in accordance with the definition thereof, together with
all Escrow Payments and Reserve Funds in the possession of the Mortgage Loan
Seller (or under its control) with respect to the Mortgage Loans, shall be
delivered or caused to be delivered by the Mortgage Loan Seller to the Master
Servicer, within _____ days of the Closing Date, and shall be retained by the
Master Servicer on behalf of the Trustee in trust for the benefit of the
Certificateholders.
(f) The Mortgage Loan Seller shall, as to each Mortgage Loan which is
secured by the interest of the related Mortgagor under a Ground Lease, at its
own expense, promptly (and in any event within ____ days of the Closing Date)
notify the related ground lessor of the transfer of such Mortgage Loan to the
Trust pursuant to this Agreement and inform such ground lessor that any notices
of default under the related Ground Lease should thereafter be forwarded to the
Trustee.
SECTION 2.02 Acceptance of REMIC I by Trustee.
(a) The Trustee, by the execution and delivery of this Agreement,
acknowledges receipt by it or a Custodian on its behalf, subject to any
exceptions noted on the Schedule of Exceptions to Mortgage File Delivery
attached hereto as Schedule VI, to the provisions of Section 2.01 and to the
further review provided for in this Section 2.02, of, with respect to each
Mortgage Loan, an original Mortgage Note endorsed to the Trustee, an original or
a copy of the Mortgage (with evidence of recording thereon), and an original
assignment of such Mortgage executed in favor of the Trustee (in such capacity)
and of all other assets included in REMIC I, in good faith and without notice of
any adverse claim, and declares that it or a Custodian on its behalf holds and
will hold the documents delivered or caused to be delivered by the Mortgage Loan
Seller in respect of the Mortgage Loans, and that it holds and will hold such
other assets included in REMIC I, in trust for the exclusive use and benefit of
all present and future Certificateholders.
(b) Within ___ days of the Closing Date (or, in the case of any Mortgage
Loan as to which a Servicing Transfer Event has occurred during such____-day
period of which event the Trustee has notice, within the shorter of ___ days of
the Closing Date and ____ Business Days of the Trustee's receiving such notice),
the Trustee or a Custodian on its behalf shall review each of the documents
delivered or caused to be delivered by the Mortgage Loan Seller with respect to
each Mortgage Loan pursuant to Section 2.01(c); and, promptly following such
review, the Trustee shall, subject to Section 2.02(d), certify in writing to
each of the Depositor, the Master Servicer, the Special Servicer and the
Mortgage Loan Seller that as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full), and except as specifically
identified in any exception report annexed to such certification, (i) all
documents specified in clauses [(i) through (iii), (ix)] and, if the Mortgage
Loan Schedule specifies that the related Mortgagor has a leasehold interest in
the related Mortgaged Property, (xiii) of the definition of "Mortgage File" are
in its possession or the possession of a Custodian on its behalf, or the
Mortgage Loan Seller has otherwise satisfied the delivery requirements in
respect of such documents in accordance with Section 2.01(c), (ii) all documents
received by it or any Custodian in respect of such Mortgage Loan have been
reviewed by it or by a Custodian on its behalf and appear regular on their face
and relate to such Mortgage Loan, and (iii) based on such examination and only
as to the foregoing documents, the information set forth in the Mortgage Loan
Schedule with respect to the items specified in clauses [(ii), (iii), (iv) and
(vi)(B)] of the definition of "Mortgage Loan Schedule" is correct.
(c) The Trustee or a Custodian on its behalf shall review each of the
documents relating to the Mortgage Loans received thereby subsequent to the
Closing Date; and, on or about the first anniversary of the Closing Date, the
Trustee shall, subject to Section 2.02(d), certify in writing to each of the
Depositor, the Master Servicer, the Special Servicer and, the Mortgage Loan
Seller that as to each Mortgage Loan listed on the Mortgage Loan Schedule (other
than any Mortgage Loan paid in full or otherwise liquidated), and except as
specifically identified in any exception report annexed to such certification,
(i) all documents specified in clauses [(i), (ii), (ix)] and, if the Mortgage
Loan Schedule specifies that the related Mortgagor has a leasehold interest in
the related Mortgaged Property, (xiii) of the definition of "Mortgage File" are
in its possession or the possession of a Custodian on its behalf, or the
Mortgage Loan Seller has otherwise satisfied the delivery requirements in
respect of such documents in accordance with Section 2.01(c), (ii) it or a
Custodian on its behalf has received either the original or copy of each of the
assignments specified in clauses [(iii) and (v)] of the definition of "Mortgage
File" that were delivered by the Mortgage Loan Seller with evidence of recording
thereon, (iii) all documents received by it or any Custodian in respect of such
Mortgage Loan have been reviewed by it or by such Custodian on its behalf and
appear regular on their face and relate to such Mortgage Loan, and (iv) based on
the examinations referred to in subsection (b) above and this subsection (c) and
only as to the foregoing documents, the information set forth in the Mortgage
Loan Schedule with respect to the items specified in clauses [(ii), (iii), (iv)
and (vi)(B)] of the definition of "Mortgage Loan Schedule", is correct.
(d) It is herein acknowledged that, notwithstanding any other provision
hereof, neither the Trustee nor any Custodian is under any duty or obligation
(i) to determine whether any of the documents specified in clauses [(iv) through
(viii), (x) through (xii) and (xiv) through (xv)] of the definition of "Mortgage
File" exist or are required to be delivered by the Mortgage Loan Seller in
respect of any Mortgage Loan or (ii) to inspect, review or examine any of the
documents, instruments, certificates or other papers relating to the Mortgage
Loans delivered to it to determine that the same are genuine, enforceable, in
recordable form or appropriate for the represented purpose, or that they are
other than what they purport to be on their face.
(e) If, in the process of reviewing the documents delivered or caused to be
delivered by the Mortgage Loan Seller pursuant to Section 2.01(c), the Trustee
or any Custodian discovers that any document required to have been delivered
pursuant to Section 2.01(c) has not been so delivered, or discovers that any of
the documents that were delivered has not been properly executed, contains
information that does not conform in any material respect with the corresponding
information set forth in the Mortgage Loan Schedule, or is defective on its face
(each, including, without limitation, that a document is missing, a "Document
Defect"), or if, at any other time, the Trustee or any other party hereto
discovers a Document Defect in respect of any Mortgage Loan, the party
discovering such Document Defect shall promptly so notify each of the other
parties hereto. If and when such party is notified of or discovers any error in
the Mortgage Loan Schedule, the Mortgage Loan Seller shall promptly correct such
error and distribute a new, corrected Mortgage Loan Schedule to each of the
other parties hereto. Such new, corrected Mortgage Loan Schedule shall be deemed
to amend and replace the existing Mortgage Loan Schedule.
SECTION 2.03 Mortgage Loan Seller's Repurchase of Mortgage Loans for
Document Defects and Certain Breaches of Representations and
Warranties.
(a) Within ___ days of the earlier of discovery or receipt of notice by the
Mortgage Loan Seller, of a Document Defect in respect of any Mortgage Loan or a
breach of any representation or warranty set forth in Section 2.05(c) in respect
of any Mortgage Loan, which Document Defect or breach, as the case may be,
materially and adversely affects the value of such Mortgage Loan or the
interests of the Certificateholders therein, the Mortgage Loan Seller shall cure
such Document Defect or breach, as the case may be, in all material respects or
repurchase (or, cause an Affiliate to purchase) the affected Mortgage Loan at
the applicable Purchase Price by deposit of such Purchase Price into the
Certificate Account and delivery to the Trustee of a written certification that
such deposit has been made. Notwithstanding the immediately preceding sentence,
within ____ days of the earlier of discovery or receipt of notice by the
Mortgage Loan Seller that there is a breach of the representation and warranty
set forth in Section 2.05(c)(xxxi) (i.e., that any Mortgage Loan does not
constitute a "qualified mortgage" within the meaning of Section 860G(a)(3) of
the Code), the Mortgage Loan Seller shall repurchase such Mortgage Loan at the
applicable Purchase Price by deposit of such Purchase Price into the Certificate
Account and delivery to the Trustee of a written certification that such deposit
has been made.
(b) In connection with any repurchase of a Mortgage Loan contemplated by
this Section 2.03, the Trustee, the Master Servicer and the Special Servicer
shall each tender or cause to be tendered to the Mortgage Loan Seller, upon
delivery to each of the Trustee, the Master Servicer and the Special Servicer of
a receipt executed by the Mortgage Loan Seller, all portions of the Mortgage
File and other documents and funds pertaining to such Mortgage Loan possessed by
it (or any Custodian or Sub-Servicer on its behalf), and each document that
constitutes a part of the Mortgage File that was endorsed or assigned to the
Trustee shall be endorsed or assigned, as the case may be, to or at the
direction of the Mortgage Loan Seller, in the same manner. The form, sufficiency
and expense of all such instruments and certificates shall be the responsibility
of the Mortgage Loan Seller.
(c) This Section 2.03 provides the sole remedies available to the
Certificateholders, or to the Trustee on behalf of the Certificateholders,
respecting any Document Defect or any breach of any representation or warranty
set forth in Section 2.05(c) hereof. If the Mortgage Loan Seller defaults on its
obligations to repurchase any Mortgage Loan in accordance with Section 2.03(a)
hereof, or disputes its obligation to repurchase any Mortgage Loan in accordance
with any such provision, the Trustee shall promptly notify the
Certificateholders and, subject to Sections 8.01 and 8.02 and its right to
reimbursement pursuant to Section 8.05(b), shall take such action as may be
appropriate to enforce such payment or performance, including, without
limitation, the institution and prosecution of appropriate proceedings. If it is
judicially determined or subsequently agreed that the Mortgage Loan Seller is
required to repurchase such Mortgage Loan under Section 2.03(a) or 2.03(b)
hereof, the Mortgage Loan Seller shall reimburse the Trustee for all necessary
and reasonable costs and expenses incurred in connection with such enforcement,
and otherwise the Trustee's right of reimbursement shall be limited to amounts
on deposit in the Distribution Account from time to time in accordance with
Section 8.05(b) and to such other sources of security and indemnity as shall
have been offered to the Trustee by the Certificateholders.
SECTION 2.04 Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to each of the other
parties to this Agreement and for the benefit of the Certificateholders, as of
the Closing Date, that:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(ii) The execution and delivery of this Agreement by the
Depositor, and the performance and compliance with the terms of this
Agreement by the Depositor, will not violate the Depositor's
certificate of incorporation or bylaws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material agreement or
other instrument to which it is a party or which is applicable to it or
any of its assets.
(iii) The Depositor has the full power and authority to enter into
and consummate all transactions contemplated by this Agreement, has
duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by each of the other parties hereto, constitutes a valid,
legal and binding obligation of the Depositor, enforceable against the
Depositor in accordance with the terms hereof, subject to (A)
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws affecting the enforcement of creditors' rights generally, and (B)
general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law.
(v) The Depositor is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law,
any order or decree of any court or arbiter, or any order, regulation
or demand of any federal, state or local governmental or regulatory
authority, which violation, in the Depositor's good faith and
reasonable judgment, is likely to affect materially and adversely
either the ability of the Depositor to perform its obligations under
this Agreement or the financial condition of the Depositor.
(vi) The transfer of the Mortgage Loans to the Trustee as
contemplated herein requires no regulatory approval, other than any
such approvals as have been obtained, and is not subject to any bulk
transfer or similar law in effect in any applicable jurisdiction.
(vii) No litigation is pending or, to the best of the Depositor's
knowledge, threatened against the Depositor which would prohibit the
Depositor from entering into this Agreement or, in the Depositor's good
faith and reasonable judgment, is likely to materially and adversely
affect either the ability of the Depositor to perform its obligations
under this Agreement or the financial condition of the Depositor.
(b) Upon discovery by any of the parties hereto of a breach of any of the
foregoing representations and warranties which materially and adversely affects
the interests of the Certificateholders or any party hereto, the party
discovering such breach shall give prompt written notice to each of the other
parties hereto.
SECTION 2.05 Representations and Warranties of the Mortgage Loan Seller.
(a) The Mortgage Loan Seller hereby represents and warrants to the other
parties hereto and for the benefit of the Certificateholders, as of the Closing
Date, that:
(i) The Mortgage Loan Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
_______.
(ii) The execution and delivery of this Agreement by the Mortgage
Loan Seller, and the performance and compliance with the terms of this
Agreement by the Mortgage Loan Seller, will not violate the Mortgage
Loan Seller's certificate of incorporation and by-laws or constitute a
default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any
material agreement or other instrument to which it is a party or which
is applicable to it or any of its assets.
(iii) The Mortgage Loan Seller has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by each of the other parties hereto, constitutes a valid,
legal and binding obligation of the Mortgage Loan Seller, enforceable
against the Mortgage Loan Seller in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law.
(v) The Mortgage Loan Seller is not in violation of, and its
execution and delivery of this Agreement and its performance and
compliance with the terms of this Agreement will not constitute a
violation of, any law, any order or decree of any court or arbiter, or
any order, regulation or demand of any federal, state or local
governmental or regulatory authority, which violation, in the Mortgage
Loan Seller's good faith and reasonable judgment, is likely to affect
materially and adversely either the ability of the Mortgage Loan Seller
to perform its obligations under this Agreement or the financial
condition of the Mortgage Loan Seller.
(vi) No litigation is pending or, to the best of the Mortgage Loan
Seller's knowledge, threatened against the Mortgage Loan Seller which
would prohibit the Mortgage Loan Seller from entering into this
Agreement or, in the Mortgage Loan Seller's good faith and reasonable
judgment, is likely to materially and adversely affect either the
ability of the Mortgage Loan Seller to perform its obligations under
this Agreement or the financial condition of the Mortgage Loan Seller.
(b) The Mortgage Loan Seller hereby represents and warrants with respect to
(but solely with respect to) each Mortgage Loan, to the other parties hereto and
for the benefit of the Certificateholders, as of the date hereinbelow specified
or, if no such date is specified, as of the Closing Date, that:
(i) Immediately prior to the transfer thereof by the Mortgage
Loan Seller to the Trustee, the Mortgage Loan Seller had good and
marketable title to, and was the sole owner and holder of, such
Mortgage Loan, free and clear of any and all liens, encumbrances and
other interests on, in or to such Mortgage Loan (other than, in
certain cases, the right of a sub-servicer to primary service such
Mortgage Loan).
(ii) The Mortgage Loan Seller had full right and authority to
sell, assign and transfer such Mortgage Loan to or the Trustee.
(iii) The information pertaining to such Mortgage Loan set forth
in the Mortgage Loan Schedule was true and corrmct in all material
respects as of the Cut-off Date.
(iv) Such Mortgage Loan was not, as of the Cut-off Date or at any
time during the twelve-month period prior thereto, 30 days or more
delinquent in respect of any Monthly Payment of principal and/or
interest required thereunder, without giving effect to any applicable
grace period.
(v) Each Mortgage securing such Mortgage Loan constitutes a valid
first lien upon the related Mortgaged Property, including, without
limitation, all buildings located thereon and all fixtures attached
thereto, subject only to (and such Mortgaged Property is free and
clear of all encumbrances and liens having priority over the lien of
such Mortgage, except for) (A) the lien of current real property taxes
and assessments not yet due and payable, (B) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record, (C) the right of tenants (whether under ground leases, space
leases or operating leases) at the Mortgaged Property to remain
following a foreclosure or similar proceeding (provided that such
tenants are performing under such leases), (D) exceptions and
exclusions specifically referred to in the lender's title insurance
policy issued or, as evidenced by a "marked-up" commitment, to be
issued in respect of such Mortgage Loan and (E) if such Mortgage Loan
is cross-collateralized with any other Mortgage Loan, the lien of the
Mortgage for such other Mortgage Loan (the exceptions set forth in the
foregoing clauses (A), (B), (C), (D), and (E), collectively,
"Permitted Encumbrances"). Such Permitted Encumbrances do not
materially interfere with the security intended to be provided by the
related Mortgage(s), the current use of the related Mortgaged
Property, or the current ability of such Mortgaged Property to
generate net operating income sufficient to service the Mortgage Loan.
(vi) The lien of each related Mortgage is insured by an ALTA
lender's title insurance policy, or its equivalent as adopted in the
applicable jurisdiction, issued by a nationally recognized title
insurance company, insuring the originator of the related Mortgage
Loan, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the related Mortgage Loan
after all advances of principal, subject only to Permitted
Encumbrances (or, if a title insurance policy has not yet been issued
in respect of any Mortgage Loan, a policy meeting the foregoing
description is evidenced by a commitment for title insurance
"marked-up" at the closing of such loan).
(vii) The Mortgage Loan Seller has not waived any material
default, breach, violation or event of acceleration existing under the
related Mortgage or Mortgage Note.
(viii) There is no valid offset, defense or counterclaim to such
Mortgage Loan.
(ix) The Mortgage Loan Seller has not received actual notice (A)
that there is any proceeding pending or threatened for the total or
partial condemnation of the related Mortgaged Property or (B) that
there is any material damage at the related Mortgaged Property that
materially and adversely affects the value of such Mortgaged Property.
(x) At origination, such Mortgage Loan complied in all material
respects with all requirements of federal, state and local laws,
including, without limitation, laws pertaining to usury, relating to
the origination of such Mortgage Loan.
(xi) The proceeds of such Mortgage Loan have been fully
disbursed, and there is no requirement for future advances thereunder.
(xii) The Mortgage Note and Mortgage(s) for such Mortgage Loan
and all other documents and instruments evidencing, guaranteeing,
insuring or otherwise securing such Mortgage Loan are each the legal,
valid and binding obligation of the maker thereof (subject to any
non-recourse provisions contained in any of the foregoing agreements
and any applicable state anti-deficiency legislation), enforceable in
accordance with their respective terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership,
moratorium or other laws relating to or affecting the rights of
creditors generally and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law).
(xiii) The related Mortgaged Property is: (A) if a commercial
property, insured by a fire and extended perils insurance policy,
issued by an insurer meeting the requirements of such Mortgage Loan in
an amount not less than the greater of (1) the replacement cost and
(2) the amount necessary to avoid the operation of any co-insurance
provisions with respect to such Mortgaged Property, and is also
covered (except if such Mortgaged Property is operated as a mobile
home park), by rental insurance in an amount equal to the gross
rentals for at least a 12-month period (or, in the case of a Mortgaged
Property not having an elevator, for at least a 6-month period) and
broad form boiler and machinery insurance; no such insurance policy
provides that it may be cancelled, endorsed, altered or reissued to
effect a change in coverage unless such insurer shall have first given
the mortgagee under such Mortgage Loan thirty days prior written
notice, and no notice has been received as of the date hereof; all
premiums required to be paid on such policy have been paid; the
related Mortgage obligates the Mortgagor to maintain all such
insurance and, at the Mortgagor's failure to do so, authorizes the
mortgagee under such Mortgage Loan to purchase such insurance at the
Mortgagor's cost and expense and to seek reimbursement from such
Mortgagor; and (B) if a multifamily property, insured by a fire and
extended perils insurance policy, issued by an insurer meeting the
requirements of such Mortgage Loan and covering rent loss and such
other hazards, casualties, liabilities and contingencies the Master
Servicer shall require and in such amounts and for such periods as the
Master Servicer shall require; at least thirty days prior to the
expiration date of such policy, the related Mortgage requires the
Mortgagor to deliver to the mortgagee under such Mortgage Loan a
renewal policy in form satisfactory to the Master Servicer; all
premiums required to be paid on such policy have been paid; the
Mortgage obligates the related Mortgagor to maintain all such
insurance and, upon such Mortgagor's failure to do so, authorizes the
mortgagee to purchase such insurance at the Mortgagor's cost and
expense and to seek reimbursement from such Mortgagor. In addition, if
the related Mortgaged Property is located in a federally designated
special flood hazard area, the related Mortgagor is required to
maintain flood insurance in respect thereof (exclusive of any parking
lot or unused or undeveloped portion thereof).
(xiv) In connection with or subsequent to the origination of such
Mortgage Loan, one or more environmental site assessments (or an
update of a previously conducted assessment) were performed with
respect to the related Mortgaged Property, and the Mortgage Loan
Seller, having made no independent inquiry other than reviewing the
resulting report(s) and/or employing an environmental consultant to
perform the assessment(s) referenced herein, has no knowledge of any
material and adverse environmental condition or circumstance affecting
such Mortgaged Property that was not disclosed in the related
report(s).
(xv) Except as indicated on the Mortgage Loan Schedule, such
Mortgage Loan is not cross-collateralized with other Mortgage Loans in
the Mortgage Pool. Such Mortgage Loan is not cross-collateralized with
a mortgage loan outside the Mortgage Pool.
(xvi) Except as indicated on Schedule III hereto or as contained
in the related Mortgage File, the terms of the Mortgage Note and
Mortgage(s) for such Mortgage Loan have not been impaired, waived,
altered or modified in any material respect.
(xvii) There are no delinquent taxes, ground rents, insurance
premiums, assessments, including, without limitation, assessments
payable in future installments, or other similar outstanding charges
(and, to the actual knowledge of the Mortgage Loan Seller, at
origination of such Mortgage Loan, there were no delinquent water
charges or sewer rents) affecting the related Mortgaged Property.
(xviii) The interest of the Mortgagor in the related Mortgaged
Property consists of a fee simple and/or leasehold interest in real
property.
(xix) Such Mortgage Loan is a whole loan and not a participation
interest.
(xx) The assignment of the related Mortgage to the Trustee
constitutes the legal, valid and binding assignment of such Mortgage
from the relevant assignor to the Trustee, and the assignment of the
related Assignment of Leases, if any, or of any other agreement
executed in connection with such Mortgage Loan to the Trustee
constitutes the legal, valid and binding assignment thereof from the
relevant assignor to the Trustee.
(xxi) All escrow deposits (including capital improvements and
environmental remediation reserves) relating to such Mortgage Loan
that were required to be delivered to the mortgagee under the terms of
the related loan documents, have been received and, to the extent of
any remaining balances of such escrow deposits, are in the possession,
or under the control of the Mortgage Loan Seller or its agents (which
shall include the Master Servicer).
(xxii) As of the date of origination of such Mortgage Loan and as
of the Closing Date, the related Mortgaged Property was and is free
and clear of any mechanics' and materialmen's liens or liens in the
nature thereof which create a lien prior to that created by the
related Mortgage(s).
(xxiii) No improvement that was included for the purpose of
determining the appraised value of the related Mortgaged Property at
the time of origination of such Mortgage Loan lies outside the
boundaries and building restriction lines of such property to any
material extent, and no improvements on adjoining properties
materially encroach upon such Mortgaged Property to any material
extent, and no improvement located on or forming part of such
Mortgaged Property is in material violation of any applicable zoning
laws or ordinances (except to the extent that they may constitute
legal non-conforming uses).
(xxiv) To the extent required under applicable law as of the
Closing Date and necessary for the enforceability or collectability of
the Mortgage Loan, the originator of such Mortgage Loan was authorized
to do business in the jurisdiction in which the related Mortgaged
Property is located at all times when it held the Mortgage Loan.
(xxv) There is no material default, breach or event of
acceleration existing under the related Mortgage or Mortgage Note, and
the Mortgage Loan Seller has not received actual notice of any event
(other than payments due but not yet delinquent) that, with the
passage of time or with notice and the expiration of any grace or cure
period, would constitute such a material default, breach or event of
acceleration; provided, however, that this representation and warranty
does not cover any default, breach or event of acceleration that
specifically pertains to any matter otherwise covered by any other
representation and warranty made by the Mortgage Loan Seller in any of
paragraphs (iv), (xiv), (xvii), (xxi), (xxiii) and (xxix) of this
Section 2.05(c).
(xxvi) If such Mortgage Loan is secured in whole or in part by
the interest of a Mortgagor under a Ground Lease and by the related
fee interest, such fee interest is subordinate to the related Mortgage
and the related Mortgage does not by its terms provide that it will be
subordinated to the lien of any mortgage or any other lien upon such
fee interest.
(xxvii) Such Mortgage Loan does not contain any equity
participation by the lender, provide for any contingent or additional
interest in the form of participation in the cash flow of the related
Mortgaged Property or provide for the negative amortization of
interest, except that, as identified on the Mortgage Loan Schedule,
such Mortgage Loan may provide that during the period commencing on a
specified date and continuing until such Mortgage Loan is paid in
full, additional interest will accrue (and may be compounded) on such
Mortgage Loan and shall be payable only after the outstanding
principal of the Mortgage Loan is paid in full.
(xxviii) No holder of such Mortgage Loan has, to the Mortgage
Loan Seller's knowledge, advanced funds or induced, solicited or
knowingly received any advance of funds from a party other than the
owner of the related Mortgaged Property, directly or indirectly, for
the payment of any amount required by the Mortgage Loan.
(xxix) To the Mortgage Loan Seller's knowledge, based on due
diligence customarily performed in the origination of comparable
mortgage loans, as of the date of origination of such Mortgage Loan,
(A) the related Mortgagor was in possession of all material licenses,
permits and authorizations required by applicable laws for the
ownership and operation of the related Mortgaged Property as it was
then operated and (B) all such licenses, permits and authorizations
were valid and in full force and effect.
(xxx) The related Mortgage(s) or Mortgage Note, together with
applicable state law, contains customary and enforceable provisions
(subject to the exceptions set forth in clauses (c)(v) and (c)(xii)
above) such as to render the rights and remedies of the holders
thereof adequate for the practical realization against the related
Mortgaged Property of the principal benefits of the security intended
to be provided thereby.
(xxxi) Such Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code.
(xxxii) If such Mortgage Loan is secured by a mortgage lien on
the applicable Mortgagor's leasehold interest in the related Mortgaged
Property, but not a mortgage lien on the related fee interest, then
either (A) the related ground lessor has subordinated its interest in
the related Mortgaged Property to the interest of the holder of the
Mortgage Loan or (B) the related ground lessor has granted the holder
of the Mortgage Loan the right to cure any default or breach by the
lessee. Upon the foreclosure of such Mortgage Loan (or acceptance of a
deed in lieu thereof), the related Ground Lease is assignable to the
mortgagee under the leasehold estate and its assigns without the
consent of the ground lessor thereunder.
(xxxiii) No fraud with respect to such Mortgage Loan has taken
place on the part of the Mortgage Loan Seller in connection with the
origination of such Mortgage Loan.
(xxxiv) The terms of such Mortgage Loan provide or, at lender's
option, permit, and the terms of this Agreement and any Sub-Servicing
Agreement to which such Mortgage Loan is subject provide for purposes
of calculating distributions on the Certificates and additional
compensation payable to the Master Servicer, the Special Servicer and
any related Sub-Servicer, that payments on and proceeds of such
Mortgage Loan will be applied to principal and interest at the related
Mortgage Rate (excluding, in the case of a Hyper-Amortization Loan
after its Anticipated Repayment Date, Additional Interest) due and
owing at the time such payments or proceeds are received, prior to
being applied to any Default Charges, assumption fees and modification
fees then due and owing.
(xxxv) If such Mortgage Loan is, as of the Closing Date, subject
to a Sub-Servicing Agreement, such Sub-Servicing Agreement provides
that the related Sub-Servicer is not to receive any sub-servicing
compensation with respect to such Mortgage Loan during any period that
such Mortgage Loan is a Specially Serviced Mortgage Loan or an REO
Loan (except for any Termination Strip payable to a Sub-Servicer in
connection with a termination thereof without cause as contemplated by
Section 3.22(d) hereof).
(xxxvi) The servicing and collection practices used with respect
to such Mortgage Loan have been in all material respects legal and
prudent and have met customary standards utilized by prudent
institutional multifamily and commercial mortgage loan servicers.
(xxxvii) Unless the related Mortgaged Property is owner occupied,
the Mortgage File for such Mortgage Loan contains an Assignment of
Leases either as a separate instrument or incorporated into the
related Mortgage, which creates, in favor of the holder, a valid,
perfected and enforceable lien of the same priority as the related
Mortgage, in the property and rights described therein; provided that
the enforceability of such lien is subject to applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws affecting the
enforcement of creditors' rights generally, and by the application of
the rules of equity. The Mortgage Loan Seller has the full right to
assign to the Trustee such Assignment of Leases and the lien created
thereby as described in the immediately preceding sentence. No Person
other than the Mortgagor owns any interest in any payments due under
the related leases.
(xxxviii) If the related Mortgaged Property securing such
Mortgage Loan is encumbered by secured subordinated debt, then either
(A) the subordinate debt constitutes a "cash flow" mortgage loan (that
is, payments are required to be made thereon only to the extent that
certain net cash flow from the related Mortgaged Property (calculated
in accordance with the related loan documents) is sufficient after
payments on such Mortgage Loan have been made and certain expenses
have been paid) or (B) the holder of the subordinate debt has agreed
not to foreclose on the related Mortgaged Property so long as such
Mortgage Loan is outstanding and the Special Servicer on behalf of the
Trust is not pursuing a foreclosure action.
(xxxix) If such Mortgage Loan is secured by a mortgage lien on
the applicable Mortgagor's leasehold interest under a Ground Lease,
such Ground Lease has an original term (or an original term plus one
or more optional renewal terms, which, under all circumstances, may be
exercised, and will be enforceable, by the mortgagee if it takes
possession of such leasehold interest) that extends not less than 10
years beyond the stated maturity of the related Mortgage Loan.
(xl) In the event fraud was committed by the Mortgagor in
connection with the origination thereof, such Mortgage Loan becomes a
recourse obligation of the Mortgagor.
(xli) If such Mortgage Loan is a Hyper-Amortization Loan, it
commenced amortizing on its initial scheduled Due Date and provides
that: (i) its Mortgage Rate will increase by no more than two
percentage points in connection with the passage of its Anticipated
Repayment Date; (ii) its Anticipated Repayment Date is not less than
seven years following the origination of such Mortgage Loan; (iii) any
cash flow from the related Mortgaged Property that is applied to
amortize such Mortgage Loan following its Anticipated Repayment Date
shall, to the extent such net cash flow is in excess of the Monthly
Payment payable therefrom, be net of budgeted and discretionary
(servicer approved) capital expenditures; and (iv) if the property
manager for the related Mortgaged Property can be removed by or at the
direction of the lender on the basis of a debt service coverage test,
the subject debt service coverage ratio shall be calculated without
taking account of any increase in the related Mortgage Rate on such
Mortgage Loan's Anticipated Repayment Date. No Hyper-Amortization Loan
provides that the property manager for the related Mortgaged Property
can be removed by or at the direction of the lender solely because of
the passage of the related Anticipated Repayment Date.
(xlii) At origination of such Mortgage Loan, the related
Mortgagor was not, to the best of the Mortgage Loan Seller's actual
knowledge, a debtor in any state or federal bankruptcy or insolvency
proceeding.
(xliii) If such Mortgage Loan is secured by the interest of the
related Mortgagor under a Ground Lease, then, as of the origination of
such Mortgage Loan, such Ground Lease was in full force and effect
and, to the Mortgage Loan Seller's actual knowledge, no material
default existed under such Ground Lease.
(xliv) The Mortgage Loan Seller has no actual knowledge of any
pending litigation or other legal proceedings involving the related
Mortgagor or the related Mortgaged Property that can reasonably be
expected to materially interfere with the security intended to be
provided by the related Mortgage, the current use of the related
Mortgaged Property, or the current ability of the Mortgaged Property
to generate net operating income sufficient to service the Mortgage
Loan.
(xlv) If such Mortgage Loan had a Cut-off Date Balance greater
than 1% of the Initial Pool Balance, the related Mortgagor has
covenanted in its organizational documents and/or the Mortgage Loan
documents to own no significant asset other than the related Mortgaged
Property, Mortgaged Properties securing other Mortgage Loans and
assets incidental to its ownership and operation of such Mortgaged
Property or Properties.
(xlvi) Except as identified on Schedule IV hereto, neither the
related Mortgage Note nor the related Mortgage requires the mortgagee
to release all or any material portion of the related Mortgaged
Property from the lien of the related Mortgage except upon payment in
full of all amounts due under the related Mortgage Loan.
(xlvii) Except as identified on Schedule V hereto, such Mortgage
Loan does not permit the related Mortgaged Property to be encumbered
subsequent to the Closing Date by any lien junior to or of equal
priority with the lien of the related Mortgage without the prior
written consent of the holder thereof.
(c) It is understood and agreed that the representations and warranties set
forth in this Section 2.05 shall survive delivery of the respective Mortgage
Files to the Trustee or a Custodian on its behalf and shall inure to the benefit
of the Persons for whose benefit they were made for so long as the Trust remains
in existence, notwithstanding any restrictive or qualified endorsement or
assignment. Upon discovery by any of the parties hereto of a breach of any of
the representations and warranties set forth in subsection (a) above which
materially and adversely affects the interests of the Certificateholders or any
party hereto or a breach of any of the representations and warranties set forth
in subsection (b) above which materially and adversely affects the value of any
Mortgage Loan or the interests therein of the Certificateholders, the party
discovering such breach shall give prompt written notice to each of the other
parties hereto.
SECTION 2.06 Representations and Warranties of the Master Servicer.
(a) The Master Servicer hereby represents and warrants to the other parties
hereto and for the benefit of the Certificateholders, as of the Closing Date,
that:
(i) The Master Servicer is duly organized, validly existing and in
good standing as a ________________ under the laws of the State of
_____________, and the Master Servicer is in compliance with the laws
of each State in which any Mortgaged Property is located to the extent
necessary to perform its obligations under this Agreement.
(ii) The execution and delivery of this Agreement by the Master
Servicer, and the performance and compliance with the terms of this
Agreement by the Master Servicer, will not violate the Master
Servicer's organizational documents or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material agreement or
other instrument to which it is a party or which is applicable to it or
any of its assets, which default, in the Master Servicer's good faith
and reasonable judgment, is likely to materially and adversely affect
either the ability of the Master Servicer to perform its obligations
under this Agreement or the financial condition of the Master Servicer.
(iii) The Master Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by each of the other parties hereto, constitutes a valid,
legal and binding obligation of the Master Servicer, enforceable
against the Master Servicer in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law.
(v) The Master Servicer is not in violation of, and its execution
and delivery of this Agreement and its performance and compliance with
the terms of this Agreement will not constitute a violation of, any
law, any order or decree of any court or arbiter, or any order,
regulation or demand of any federal, state or local governmental or
regulatory authority, which violation, in the Master Servicer's good
faith and reasonable judgment, is likely to affect materially and
adversely either the ability of the Master Servicer to perform its
obligations under this Agreement or the financial condition of the
Master Servicer.
(vi) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which
would prohibit the Master Servicer from entering into this Agreement
or, in the Master Servicer's good faith and reasonable judgment, is
likely to materially and adversely affect either the ability of the
Master Servicer to perform its obligations under this Agreement or the
financial condition of the Master Servicer.
(vii) Each officer or employee of the Master Servicer that has
responsibilities concerning the servicing and administration of the
Mortgage Loans is covered by errors and omissions insurance in the
amounts and with the coverage required by Section 3.07(c). None of the
Master Servicer, its general partner or any of their respective
officers or employees that is involved in the servicing or
administration of by the Mortgage Loans has been refused such coverage
or insurance.
(b) The representations and warranties of the Master Servicer set forth in
Section 2.06(a) shall survive the execution and delivery of this Agreement and
inure to the benefit of the Persons for whose benefit they were made for so long
as the Trust remains in existence. Upon discovery by any of the parties hereto
of a breach of any of such representations and warranties which materially and
adversely affects the interests of the Certificateholders or any party hereto,
the party discovering such breach shall give prompt written notice to each of
the other parties hereto.
(c) Each successor Master Servicer (if any) shall be deemed to have made,
as of the date of its succession, each of the representations set forth in
Section 2.06(a), subject to such appropriate modifications to the representation
and warranty set forth in Section 2.06(a)(i) to accurately reflect such
successor's jurisdiction of organization and whether it is a corporation,
partnership, bank, association or other type of organization, and without regard
to the references to general partner if such successor is not a partnership.
SECTION 2.07 Representations and Warranties of the Special Servicer.
(a) The Special Servicer hereby represents and warrants to the other
parties hereto and for the benefit of the Certificateholders, as of the Closing
Date, that:
(i) The Special Servicer is duly organized, validly existing and
in good standing as a ____________ under the laws of the State of
______________, and the Special Servicer is in compliance with the laws
of each State in which any Mortgaged Property is located to the extent
necessary to perform its obligations under this Agreement.
(ii) The execution and delivery of this Agreement by the Special
Servicer, and the performance and compliance with the terms of this
Agreement by the Special Servicer, will not violate the Special
Servicer's organizational documents or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material agreement or
other instrument to which it is a party or which is applicable to it or
any of its assets, which default, in the Special Servicer's good faith
and reasonable judgment, is likely to materially and adversely effect
either the ability of the Special Servicer to perform its obligations
under this Agreement or the financial condition of the Special
Servicer.
(iii) The Special Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by each of the other parties hereto, constitutes a valid,
legal and binding obligation of the Special Servicer, enforceable
against the Special Servicer in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law.
(v) The Special Servicer is not in violation of, and its execution
and delivery of this Agreement and its performance and compliance with
the terms of this Agreement will not constitute a violation of, any
law, any order or decree of any court or arbiter, or any order,
regulation or demand of any federal, state or local governmental or
regulatory authority, which violation, in the Special Servicer's good
faith and reasonable judgment, is likely to affect materially and
adversely either the ability of the Special Servicer to perform its
obligations under this Agreement or the financial condition of the
Special Servicer.
(vi) No litigation is pending or, to the best of the Special
Servicer's knowledge, threatened against the Special Servicer which
would prohibit the Special Servicer from entering into this Agreement
or, in the Special Servicer's good faith and reasonable judgment, is
likely to materially and adversely affect either the ability of the
Special Servicer to perform its obligations under this Agreement or the
financial condition of the Special Servicer.
(vii) Each officer or employee of the Special Servicer that has
responsibilities concerning the servicing and administration of the
Mortgage Loans is covered by errors and omissions insurance in the
amounts and with the coverage required by Section 3.07(c). None of the
Special Servicer, its general partner or any of their respective
officers or employees that is involved in the servicing or
administration of the Mortgage Loans has been refused such coverage or
insurance.
(b) The representations and warranties of the Special Servicer set forth in
Section 2.07(a) shall survive the execution and delivery of this Agreement and
inure to the benefit of the Persons for whose benefit they were made for so long
as the Trust remains in existence. Upon discovery by any of the parties hereto
of a breach of any of such representations and warranties which materially and
adversely affects the interests of the Certificateholders or any party hereto,
the party discovering such breach shall give prompt written notice to each of
the other parties hereto.
(c) Each successor Special Servicer (if any) shall be deemed to have made,
as of the date of its succession, each of the representations set forth in
Section 2.07(a), subject to such appropriate modifications to the representation
and warranty set forth in Section 2.07(a)(i) to accurately reflect such
successor's jurisdiction of organization and whether it is a corporation,
partnership, bank, association or other type of organization, and without regard
to the references to general partner if such successor is not a partnership.
SECTION 2.08 Representations and Warranties of the Trustee and the REMIC
Administrator.
(a) _______________________________________, [both] in its capacity as
Trustee [and in its capacity as REMIC Administrator] (the "Bank"), hereby
represents and warrants to the other parties hereto and for the benefit of the
Certificateholders, as of the Closing Date, that:
(i) The Bank is a national bank duly organized, validly existing
and in good standing under the laws of the [United States] and is,
shall be or, if necessary, shall appoint a co-trustee that is, in
compliance with the laws of each State in which any Mortgaged Property
is located to the extent necessary to ensure the enforceability of each
Mortgage Loan and to perform its obligations under this Agreement.
(ii) The execution and delivery of this Agreement by the Bank, and
the performance and compliance with the terms of this Agreement by the
Bank, do not violate the Bank's organizational documents or constitute
a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any
material agreement or other instrument to which it is a party or which
is applicable to it or any of its assets, which default, in the Bank's
good faith and reasonable judgment, is likely to materially and
adversely affect either the ability of the Bank to perform its
obligations under this Agreement or the financial condition of the
Bank.
(iii) The Bank has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this Agreement,
and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by each of the other parties hereto, constitutes a valid,
legal and binding obligation of the Bank, enforceable against the Bank
in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the enforcement of creditors' rights generally, and (B)
general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law.
(v) The Bank is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law,
any order or decree of any court or arbiter, or any order, regulation
or demand of any federal, state or local governmental or regulatory
authority, which violation, in the Bank's good faith and reasonable
judgment, is likely to affect materially and adversely either the
ability of the Bank to perform its obligations under this Agreement or
the financial condition of the Bank.
(vi) No litigation is pending or, to the best of the Bank's
knowledge, threatened against the Bank which would prohibit the Bank
from entering into this Agreement or, in the Bank's good faith and
reasonable judgment, is likely to materially and adversely affect
either the ability of the Bank to perform its obligations under this
Agreement or the financial condition of the Bank.
(b) The representations and warranties of the Bank set forth in Section
2.08(a) shall survive the execution and delivery of this Agreement and shall
inure to the benefit of the Persons for whose benefit they were made for so long
as the Trust remains in existence. Upon discovery by any of the parties hereto
of a breach of any of such representations and warranties which materially and
adversely affects the interests of the Certificateholders or any party hereto,
the party discovering such breach shall give prompt written notice to each of
the other parties hereto.
(c) Each successor Trustee or REMIC Administrator (if any and regardless of
whether the Trustee and the REMIC Administrator are different Persons) shall be
deemed to have made, as of the date of its succession, each of the
representations set forth in Section 2.08(a), subject to such appropriate
modifications to the representation and warranty set forth in Section 2.08(a)(i)
to accurately reflect such successor's jurisdiction of organization and whether
it is a corporation, partnership, bank, association or other type of
organization. In any such case, the term "Bank" shall be deemed to mean such
successor Trustee or the REMIC Administrator, as appropriate.
SECTION 2.09 Issuance of the Class R-I Certificates; Creation of the REMIC
I Regular Interests.
Concurrently with the assignment to the Trustee of the assets included in
REMIC I, and in exchange therefor, at the direction of the Depositor, the REMIC
I Regular Interests have been issued hereunder and the Trustee has executed,
authenticated and delivered to or upon the order of the Depositor, the Class R-I
Certificates in authorized denominations. The interests evidenced by the Class
R-I Certificates, together with the REMIC I Regular Interests, constitute the
entire beneficial ownership of REMIC I. The rights of the Class R-I
Certificateholders and REMIC II to receive distributions from the proceeds of
REMIC I in respect of the Class R-I Certificates and the REMIC I Regular
Interests, respectively, and all ownership interests of the Class R-I
Certificateholders and REMIC II in and to such distributions, shall be as set
forth in this Agreement.
SECTION 2.10 Conveyance of REMIC I Regular Interests; Acceptance of REMIC
II by the Trustee.
The Depositor, as of the Closing Date, and concurrently with the execution
and delivery hereof, does hereby assign without recourse all the right, title
and interest of the Depositor in and to the REMIC I Regular Interests to the
Trustee for the benefit of the Holders of the REMIC II Certificates. The Trustee
acknowledges the assignment to it of the REMIC I Regular Interests and declares
that it holds and will hold the same in trust for the exclusive use and benefit
of all present and future Holders of the REMIC II Certificates.
SECTION 2.11 Issuance of the REMIC II Certificates.
Concurrently with the assignment to the Trustee of the REMIC I Regular
Interests, and in exchange therefor, at the direction of the Depositor, the
Trustee has executed, authenticated and delivered to or upon the order of the
Depositor, the REMIC II Certificates in authorized denominations evidencing the
entire beneficial ownership of REMIC II. The rights of the respective Classes of
Holders of the REMIC II Certificates to receive distributions from the proceeds
of REMIC II in respect of their REMIC II Certificates, and all ownership
interests of the respective Classes of Holders of the REMIC II Certificates in
and to such distributions, shall be as set forth in this Agreement.
ARTICLE III
ADMINISTRATION AND SERVICING OF THE TRUST FUND
SECTION 3.01 Administration of the Mortgage Loans.
(a) Each of the Master Servicer and the Special Servicer shall service and
administer the Mortgage Loans that it is obligated to service and administer
pursuant to this Agreement on behalf of the Trustee, and in the best interests
and for the benefit of the Certificateholders, in accordance with any and all
applicable laws and the terms of this Agreement, the Insurance Policies and the
respective Mortgage Loans and, to the extent consistent with the foregoing, in
accordance with the Servicing Standard. Without limiting the foregoing, and
subject to Section 3.21, (i) the Master Servicer shall service and administer
all Mortgage Loans as to which no Servicing Transfer Event has occurred and all
Corrected Mortgage Loans, and (ii) the Special Servicer shall service and
administer (x) each Mortgage Loan (other than a Corrected Mortgage Loan) as to
which a Servicing Transfer Event has occurred, and (y) each REO Property;
provided, however, that the Master Servicer shall continue to collect
information and prepare all reports to the Trustee required hereunder with
respect to any Specially Serviced Mortgage Loans and REO Properties (and the
related REO Loans), and further to render such incidental services with respect
to any Specially Serviced Mortgage Loans and REO Properties as are specifically
provided for herein.
(b) Subject to Section 3.01(a), the Master Servicer and the Special
Servicer each shall have full power and authority, acting alone, to do or cause
to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, each of the Master Servicer and the Special
Servicer, in its own name, with respect to each of the Mortgage Loans it is
obligated to service hereunder, is hereby authorized and empowered by the
Trustee to execute and deliver, on behalf of the Certificateholders and the
Trustee or any of them: (i) any and all financing statements, continuation
statements and other documents or instruments necessary to maintain the lien
created by any Mortgage or other security document in the related Mortgage File
on the related Mortgaged Property and related collateral; (ii) in accordance
with the Servicing Standard and subject to Sections 3.08 and 3.20, any and all
modifications, waivers, amendments or consents to or with respect to any
documents contained in the related Mortgage File; and (iii) any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments. Subject to Section 3.10, the
Trustee shall, at the written request of a Servicing Officer of the Master
Servicer or the Special Servicer, furnish, or cause to be so furnished, to the
Master Servicer and the Special Servicer, as the case may be, any limited powers
of attorney and other documents necessary or appropriate to enable them to carry
out their servicing and administrative duties hereunder; provided, however, that
the Trustee shall not be held liable for any misuse of any such power of
attorney by the Master Servicer or the Special Servicer.
(c) The relationship of each of the Master Servicer and Special Servicer to
the Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(d) In the event that any two or more Mortgage Loans are
cross-collateralized with each other, the Master Servicer or Special Servicer,
as applicable, in accordance with the terms of this Agreement, shall service and
administer such Mortgage Loans as a single Mortgage Loan as and when it deems
necessary and appropriate, consistent with the Servicing Standard. If any
Cross-Collateralized Mortgage Loan becomes a Specially Serviced Mortgage Loan,
then each other Mortgage Loan that is cross-collateralized with it shall also
become a Specially Serviced Mortgage Loan. Similarly, no Cross-Collateralized
Mortgage Loan shall subsequently become a Corrected Mortgage Loan, unless and
until all Servicing Transfer Events in respect of each other Mortgage Loan that
is cross-collateralized with it, are remediated or otherwise addressed as
contemplated in the definition of "Specially Serviced Mortgage Loan".
SECTION 3.02 Collection of Mortgage Loan Payments.
Each of the Master Servicer and the Special Servicer shall make reasonable
efforts to collect all payments called for under the terms and provisions of the
Mortgage Loans it is obligated to service hereunder, and shall, to the extent
such procedures shall be consistent with this Agreement (including without
limitation, the Servicing Standard), follow such collection procedures as it
would follow were it the owner of such Mortgage Loans; provided, however, that
nothing herein contained shall be construed as an express or implied guarantee
by the Master Servicer or the Special Servicer of the collectability of the
Mortgage Loans; and, provided, further, that neither the Master Servicer nor the
Special Servicer shall, with respect to any Hyper-Amortization Loan after its
Anticipated Repayment Date, take any enforcement action with respect to the
payment of Additional Interest (other than the making of requests for its
collection), unless (i) the taking of an enforcement action with respect to the
payment of other amounts due under such Mortgage Loan is, in the good faith and
reasonable judgment of the Special Servicer, and without regard to such
Additional Interest, also necessary, appropriate and consistent with the
Servicing Standard or (ii) all other amounts due under such Mortgage Loan have
been paid, the payment of such Additional Interest has not been forgiven in
accordance with Section 3.20 and, in the good faith and reasonable judgment of
the Special Servicer, the Liquidation Proceeds expected to be recovered in
connection with such enforcement action will cover the anticipated costs of such
enforcement action and, if applicable, any associated Advance Interest.
Consistent with the foregoing, the Master Servicer or the Special Servicer each
may waive any Default Charges in connection with any specific delinquent payment
on a Mortgage Loan it is obligated to service hereunder.
_________ (_____) days prior to the maturity date of each Balloon Mortgage
Loan, the Master Servicer shall send a notice to the related Mortgagor of such
maturity date (with a copy to be sent to the Special Servicer) and shall request
confirmation that the Balloon Payment will be paid by such date.
SECTION 3.03 Collection of Taxes, Assessments and Similar Items; Servicing
Accounts; Reserve Accounts.
(a) The Master Servicer shall, as to all the Mortgage Loans, establish and
maintain one or more accounts (the "Servicing Accounts"), into which all Escrow
Payments shall be deposited and retained. Subject to any terms of the related
Mortgage Loan documents that specify the nature of the account in which Escrow
Payments shall be held, each Servicing Account shall be an Eligible Account.
Withdrawals of amounts so collected in respect of any Mortgage Loan (and
interest earned thereon) from a Servicing Account may be made only: (i) to
effect payment of real estate taxes, assessments, insurance premiums, [ground
(if applicable)] and comparable items in respect of the related Mortgaged
Property; (ii) to reimburse the Master Servicer, the Special Servicer or the
Trustee, as applicable, for any unreimbursed Servicing Advances made thereby to
cover any of the items described in the immediately preceding clause (i); (iii)
to refund to the related Mortgagor any sums as may be determined to be overages;
(iv) to pay interest, if required and as described below, to the related
Mortgagor on balances in the Servicing Account (or, if and to the extent not
payable to the related Mortgagor, to pay such interest to the Master Servicer);
or (v) to clear and terminate the Servicing Account at the termination of this
Agreement in accordance with Section 9.01. The Master Servicer shall pay or
cause to be paid to the Mortgagors interest, if any, earned on the investment of
funds in Servicing Accounts maintained thereby, if required by law or the terms
of the related Mortgage Loan. If the Master Servicer shall deposit in a
Servicing Account any amount not required to be deposited therein, it may at any
time withdraw such amount from such Servicing Account, any provision herein to
the contrary notwithstanding. The Special Servicer shall promptly deliver all
Escrow Payments received by it to the Master Servicer for deposit in the
applicable Servicing Account.
(b) The Master Servicer shall (with the cooperation of the Special Servicer
in the case of Specially Serviced Mortgage Loans), (i) maintain accurate records
with respect to each Mortgaged Property reflecting the status of real estate
taxes, assessments and other similar items that are or may become a lien thereon
and the status of insurance premiums [and any ground rents] payable in respect
thereof and (ii) use reasonable efforts to obtain, from time to time, all bills
for the payment of such items (including renewal premiums) and shall effect
payment thereof prior to the applicable penalty or termination date. For
purposes of effecting any such payment, the Master Servicer shall apply Escrow
Payments as allowed under the terms of the related Mortgage Loan or, if such
Mortgage Loan does not require the related Mortgagor to escrow for the payment
of real estate taxes, assessments, insurance premiums, [ground rents (if
applicable)] and similar items, each of the Master Servicer and the Special
Servicer shall, as to those Mortgage Loans it is obligated to service hereunder
and subject to the Servicing Standard, enforce the requirement of the related
Mortgage that the Mortgagor make payments in respect of such items at the time
they first become due.
(c) In accordance with the Servicing Standard, the Master Servicer shall,
as to all the Mortgage Loans (but at the direction of the Special Servicer in
the case of Specially Serviced Mortgage Loans), advance with respect to the
related Mortgaged Property all such funds as are necessary for the purpose of
effecting the payment of (i) real estate taxes, assessments and other similar
items, (ii) ground rents or other rents (if applicable), and (iii) premiums on
Insurance Policies, in each instance if and to the extent Escrow Payments (if
any) collected from the related Mortgagor are insufficient to pay such item when
due and the related Mortgagor has failed to pay such item on a timely basis, and
provided that the particular advance would not, if made, constitute a
Nonrecoverable Servicing Advance. All such advances shall be reimbursable in the
first instance from related collections from the Mortgagors and further as
provided in Section 3.05(a). No costs incurred by the Master Servicer or the
Special Servicer in effecting the payment of real estate taxes, assessments and
similar items and, [if applicable, ground rents] on or in respect of such
Mortgaged Properties shall, for purposes hereof, including, without limitation,
calculating monthly distributions to Certificateholders, be added to the unpaid
principal balances of the related Mortgage Loans, notwithstanding that the terms
of such Mortgage Loans so permit.
(d) The Master Servicer shall, as to all the Mortgage Loans, establish and
maintain, as applicable, one or more accounts (the "Reserve Accounts"), into
which all Reserve Funds, if any, shall be deposited and retained. Withdrawals of
amounts so deposited may be made to pay for or otherwise cover, or (if
appropriate) to reimburse the related Mortgagor in connection with, the specific
items for which such Reserve Funds were escrowed, all in accordance with the
Servicing Standard and the terms of the related Mortgage Note, Mortgage and any
agreement with the related Mortgagor governing such Reserve Funds. Subject to
the terms of the related Mortgage Note and Mortgage, all Reserve Accounts shall
be Eligible Accounts. The Special Servicer shall promptly deliver all Reserve
Funds received by it to the Master Servicer for deposit in the applicable
Reserve Account.
SECTION 3.04 Certificate Account and Distribution Account.
(a) The Master Servicer shall establish and maintain one or more accounts
(collectively, the "Certificate Account"), held on behalf of the Trustee in
trust for the benefit of the Certificateholders. The Certificate Account shall
be an Eligible Account. The Master Servicer shall deposit or cause to be
deposited in the Certificate Account, within two Business Days of receipt (in
the case of payments by Mortgagors or other collections on or in respect of the
Mortgage Loans) or as otherwise required hereunder, the following payments and
collections received or made by or on behalf of it subsequent to the Cut-off
Date (other than in respect of principal, interest and any other amounts due and
payable on the Mortgage Loans on or before the Cut-off Date, which payments
shall be delivered promptly to the Mortgage Loan Seller or its designee, with
negotiable instruments endorsed as necessary and appropriate without recourse):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest at the respective Mortgage
Rates on the Mortgage Loans and all Prepayment Premiums received in
respect of the Mortgage Loans;
(iii) to the extent allocable to the period that any Mortgage Loan is
a Specially Serviced Mortgage Loan, all payments on account of Default
Charges on such Mortgage Loan;
(iv) all Insurance Proceeds and Liquidation Proceeds (net of all
related Liquidation Expenses paid therefrom) received in respect of
any Mortgage Loan (other than Liquidation Proceeds that are received
in connection with a purchase by the Master Servicer or a Majority
Certificateholder of the Controlling Class of all of the Mortgage
Loans and any REO Properties in the Trust Fund and that are required
to be deposited in the Distribution Account pursuant to Section 9.01);
(v) any amounts required to be deposited by the Master Servicer
pursuant to Section 3.06 in connection with losses incurred with
respect to Permitted Investments of funds held in the Certificate
Account;
(vi) any amounts required to be deposited by the Master Servicer or
the Special Servicer pursuant to Section 3.07(b) in connection with
losses resulting from a deductible clause in a blanket or master
single interest policy;
(vii) any amounts required to be transferred from the REO Account
pursuant to Section 3.16(c); and
(viii) any amounts representing payments made by Mortgagors that are
allocable to cover items in respect of which Servicing Advances have
been made.
The foregoing requirements for deposit in the Certificate Account shall be
exclusive. Without limiting the generality of the foregoing, (A) actual payments
from Mortgagors in the nature of Escrow Payments, and amounts that the Master
Servicer and the Special Servicer are entitled to retain as additional servicing
compensation pursuant to Section 3.11(b) and Section 3.11(d), respectively, need
not be deposited by the Master Servicer in the Certificate Account and (B) with
respect to any amount representing a sub-servicing fee (including, without
limitation, a Primary Servicing Fee, if applicable) that otherwise would be
required to be deposited by the Master Servicer in the Certificate Account and
that, once so deposited, would have been permitted to be withdrawn immediately
from the Certificate Account pursuant to Section 3.05 as part of the payment of
the Master Servicing Fee, such amount shall be deemed to have been deposited to
and withdrawn from the Certificate Account for such purpose to the extent that
such sum has been retained by the Sub-Servicer pursuant to the related
Sub-Servicing Agreement. If the Master Servicer shall deposit in the Certificate
Account any amount not required to be deposited therein, it may at any time
withdraw such amount from the Certificate Account, any provision herein to the
contrary notwithstanding. The Master Servicer shall promptly deliver to the
Special Servicer, as additional special servicing compensation in accordance
with Section 3.11(d), assumption fees, modification fees, Net Default Charges,
charges for beneficiary statements or demands, charges for checks returned for
insufficient funds and similar fees (excluding Prepayment Premiums) received by
the Master Servicer with respect to Specially Serviced Mortgage Loans. The
Certificate Account shall be maintained as a segregated account, separate and
apart from trust funds created for mortgage pass-through certificates of other
series serviced and the other accounts of the Master Servicer.
Upon receipt of any of the amounts described in clauses (i) through (iv)
above with respect to any Mortgage Loan, the Special Servicer shall promptly,
but in no event later than two Business Days after receipt, remit such amounts
to the Master Servicer for deposit into the Certificate Account in accordance
with the second preceding paragraph, unless the Special Servicer determines,
consistent with the Servicing Standard, that a particular item should not be
deposited because of a restrictive endorsement or other appropriate reason. Any
such amounts received by the Special Servicer with respect to an REO Property
shall be deposited by the Special Servicer into the REO Account and remitted to
the Master Servicer for deposit into the Certificate Account pursuant to Section
3.16(c). With respect to any such amounts paid by check to the order of the
Special Servicer, the Special Servicer shall endorse such check to the order of
the Master Servicer and shall deliver promptly, but in no event later than two
Business Days after receipt, any such check to the Master Servicer by overnight
courier, unless the Special Servicer determines, consistent with the Servicing
Standard, that a particular item cannot be so endorsed and delivered because of
a restrictive endorsement or other appropriate reason.
(b) The Trustee shall establish and maintain one or more trust accounts
(collectively, the "Distribution Account") to be held in trust for the benefit
of the Certificateholders. The Distribution Account shall be an Eligible
Account. On each Master Servicer Remittance Date, the Master Servicer shall
deliver to the Trustee, for deposit in the Distribution Account, an aggregate
amount of immediately available funds equal to the Master Servicer Remittance
Amount for such Master Servicer Remittance Date. If, at 1:00 p.m., New York City
time, on any Master Servicer Remittance Date, the Trustee has not received the
Master Servicer Remittance Amount, the Trustee shall provide notice to the
Master Servicer in the same manner as required by Section 4.03(a) hereof with
respect to P&I Advances.
In addition, the Master Servicer shall, as and when required hereunder,
deliver to the Trustee for deposit in the Distribution Account:
(i) any P&I Advances required to be made by the Master Servicer in
accordance with Section 4.03(a);
(ii) any amounts required to be deposited by the Master Servicer
pursuant to Section 3.19(e) in connection with Prepayment Interest
Shortfalls; and
(iii) any Liquidation Proceeds paid by the Master Servicer or a
Majority Certificateholder of the Controlling Class in connection with
the purchase of all of the Mortgage Loans and any REO Properties
pursuant to Section 9.01, exclusive of the portion of such Liquidation
Proceeds required to be deposited in the Certificate Account pursuant
to Section 9.01.
The Trustee shall, upon receipt, deposit in the Distribution Account any
and all amounts received or advanced by the Trustee that are required by the
terms of this Agreement to be deposited therein.
(c) Funds in the Certificate Account may be invested in Permitted
Investments in accordance with the provisions of Section 3.06. The Master
Servicer shall give notice to the other parties hereto of the location of the
Certificate Account as of the Closing Date and of the new location of the
Certificate Account prior to any change thereof. The Trustee shall give notice
to the other parties hereto of the location of the Distribution Account as of
the Closing Date and of the new location of the Distribution Account prior to
any change thereof.
SECTION 3.05 Permitted Withdrawals From the Certificate Account and the
Distribution Account.
(a) The Master Servicer may, from time to time, make withdrawals from the
Certificate Account for any of the following purposes (the order set forth below
not constituting an order of priority for such withdrawals):
(i) to remit to the Trustee for deposit in the Distribution
Account the Master Servicer Remittance Amount for and, to the extent
permitted or required by Section 4.03(a), any P&I Advances to be made
on each Master Servicer Remittance Date;
(ii) to reimburse the Trustee or the Master Servicer, as
applicable, in that order, for unreimbursed P&I Advances made thereby
in respect of any Mortgage Loan or REO Loan, the Trustee's and the
Master Servicer's respective rights to reimbursement pursuant to this
clause (ii) with respect to any P&I Advance being payable from, and
limited to, amounts that represent Late Collections of interest and
principal (net of related Master Servicing Fees, Workout Fees and/or
Liquidation Fees payable therefrom) received in respect of the
particular Mortgage Loan or REO Loan as to which such P&I Advance was
made;
(iii) to pay to the Master Servicer earned and unpaid Master
Servicing Fees in respect of each Mortgage Loan and REO Loan, the
Master Servicer's right to payment pursuant to this clause (iii) with
respect to any Mortgage Loan or REO Loan being payable from, and
limited to, amounts received on or in respect of such Mortgage Loan
(whether in the form of payments, Liquidation Proceeds or Insurance
Proceeds) or such REO Loan (whether in the form of REO Revenues,
Liquidation Proceeds or Insurance Proceeds) that are allocable as a
recovery of interest thereon;
(iv) to pay to the Special Servicer, out of general collections
on the Mortgage Loans and any REO Properties, earned and unpaid
Special Servicing Fees in respect of each Specially Serviced Mortgage
Loan and REO Loan;
(v) to pay to the Special Servicer earned and unpaid Workout Fees
and Liquidation Fees to which it is entitled pursuant to, and from the
sources contemplated by Section 3.11(c);
(vi) to reimburse the Trustee, the Special Servicer or the Master
Servicer, as applicable, in that order, for any unreimbursed Servicing
Advances made thereby with respect to any Mortgage Loan or REO
Property, the Trustee's, the Special Servicer's and the Master
Servicer's respective rights to reimbursement pursuant to this clause
(vi) with respect to any Servicing Advance being payable from, and
limited to, (A) payments made by the related Mortgagor that are
allocable to cover the item in respect of which such Servicing Advance
was made, and (B) Liquidation Proceeds (net of Liquidation Fees
payable therefrom), Insurance Proceeds and, if applicable, REO
Revenues received in respect of the particular Mortgage Loan or REO
Property as to which such Servicing Advance was made;
(vii) to reimburse the Trustee, the Special Servicer or the
Master Servicer, as applicable, in that order, out of general
collections on the Mortgage Loans and any REO Properties, for any
unreimbursed Advances made thereby with respect to any Mortgage Loan,
REO Loan or REO Property that have been determined to be
Nonrecoverable Advances;
(viii) to pay the Trustee, the Special Servicer or the Master
Servicer, as applicable, in that order, any Advance Interest due and
owing thereto, the Trustee's, the Special Servicer's and the Master
Servicer's respective rights to payment pursuant to this clause (viii)
being payable from, and limited to, Default Charges collected in
respect of the Mortgage Loan or REO Loan as to which the related
Advances were made (but only to the extent allocable to the period
when such Mortgage Loan was a Specially Serviced Mortgage Loan or an
REO Loan);
(ix) at or following such time as the Master Servicer reimburses
itself, the Special Servicer or the Trustee, as applicable, for any
unreimbursed Advance pursuant to clause (ii), (vi) or (vii) above or
Section 3.03, and insofar as payment has not already been made
pursuant to clause (viii) above, to pay the Trustee, the Special
Servicer or the Master Servicer, as the case may be, and in that
order, out of general collections on the Mortgage Loans and any REO
Properties, any related Advance Interest accrued and payable on such
Advance;
(x) to pay the Master Servicer, as additional servicing
compensation in accordance with Sections 3.06(b) and 3.11(b), any Net
Investment Earnings in respect of amounts held in the Certificate
Account for any Collection Period;
(xi) to pay the Master Servicer, as additional servicing
compensation in accordance with Section 3.11(b), any Prepayment
Interest Excesses and, to the extent not allocable to the period that
any Mortgage Loan is a Specially Serviced Mortgage Loan or REO Loan,
any Default Charges collected on the Mortgage Loans, and to pay the
Special Servicer, as additional servicing compensation in accordance
with Section 3.11(d), any Net Default Charges collected on any
Mortgage Loan to the extent allocable to the period that such Mortgage
Loan is a Specially Serviced Mortgage Loan or REO Loan;
(xii) to reimburse, out of general collections on the Mortgage
Loans and any REO Properties, the Master Servicer, the Special
Servicer, the REMIC Administrator, the Depositor, or any of their
respective directors, officers, employees and agents any amounts
reimbursable to any such Person pursuant to Section 6.03, or to pay
directly to any third party any amount which if paid by any such
Person would be reimbursable thereto pursuant to Section 6.03;
(xiii) to pay, out of general collections on the Mortgage Loans
and any REO Properties, for (A) the reasonable costs of the advice of
counsel contemplated by Section 3.17(a), (B) the reasonable costs of
the Opinions of Counsel contemplated by Sections 3.09(b)(ii) and
3.16(a), (C) the reasonable costs of Appraisals obtained pursuant to
Section 3.11(g) or 4.03(c), (D) the reasonable costs of obtaining any
REO Extension sought by the Special Servicer as contemplated by
Section 3.16(a), and (E) the cost of recording this Agreement in
accordance with Section 11.02(a);
(xiv) to pay itself, the Special Servicer, the Majority
Certificateholder of the Controlling Class, the Mortgage Loan Seller
or any other Person, as the case may be, with respect to each Mortgage
Loan, if any, previously purchased by such Person pursuant to this
Agreement, all amounts received thereon subsequent to the date of
purchase;
(xv) to pay the Trustee or any of its respective directors,
officers, employees and agents, as the case may be, any amounts
payable or reimbursable to any such Person pursuant to Section 8.05(b)
and Section 8.13(a);
(xvi) to pay any costs and expenses contemplated in Section
3.11(h), the last sentence of Section 7.02 and the last sentence of
Section 8.08(a); and
(xvii) to clear and terminate the Certificate Account at the
termination of this Agreement pursuant to Section 9.01.
If amounts on deposit in the Certificate Account at any particular time
(after withdrawing any portion of such amounts deposited in the Certificate
Account in error) are insufficient to satisfy all payments, reimbursements and
remittances to be made therefrom as set forth in clauses (ii) through (xvi)
above, then the corresponding withdrawals from the Certificate Account shall be
made in the following priority and subject to the following rules: (A) if the
payment, reimbursement or remittance is to be made from a specific source of
funds, then such payment, reimbursement or remittance shall be made from that
specific source of funds on a pro rata basis with any and all other payments,
reimbursements and remittances to be made from such specific source of funds;
provided that where, as in clauses (ii), (vi) and (vii), an order of priority is
set forth to govern the application of funds withdrawn from the Certificate
Account pursuant to such clauses, payments, reimbursements or remittances
pursuant to any such clause shall be made in such order of priority to the
extent of available funds; and (B) if the payment, reimbursement or remittance
can be made from any funds on deposit in the Certificate Account, then
(following any withdrawals made from the Certificate Account in accordance with
the immediately preceding clause (A) above) such payment, reimbursement or
remittance shall be made from such general funds remaining on a pro rata basis
with any and all other payments, reimbursements or remittances to be made from
such general funds; provided that where, as in clauses (viii) and (ix), an order
of priority is set forth to govern the application of funds withdrawn from the
Certificate Account pursuant to such clauses, payments, reimbursements or
remittances pursuant to any such clause shall be made in such order of priority
to the extent of available funds.
The Master Servicer shall keep and maintain separate accounting records, on
a loan-by-loan and property-by-property basis when appropriate, in connection
with any withdrawal from the Certificate Account pursuant to clauses (ii)
through (xiv) above.
The Master Servicer shall pay to the Special Servicer (or to third party
contractors at the direction of the Special Servicer) from the Certificate
Account amounts permitted to be paid to it (or to such third party contractors)
therefrom promptly upon receipt of a certificate of a Servicing Officer of the
Special Servicer describing the item and amount to which the Special Servicer
(or such third party contractors) is entitled. The Master Servicer may rely
conclusively on any such certificate and shall have no duty to re-calculate the
amounts stated therein. The Special Servicer shall keep and maintain separate
accounting for each Specially Serviced Mortgage Loan and REO Property, on a
loan-by-loan and property-by-property basis, for the purpose of justifying any
request for withdrawal from the Certificate Account.
(b) The Trustee may, from time to time, make withdrawals from the
Distribution Account for any of the following purposes (the order set forth
below not constituting an order of priority for such withdrawals):
(i) to make distributions to Certificateholders on each
Distribution Date pursuant to Section 4.01;
(ii) to pay the Trustee accrued and unpaid Trustee Fees pursuant
to Section 8.05(a);
(iii) to pay the Trustee or any of its respective directors,
officers, employees and agents, as the case may be, any amounts
payable or reimbursable to any such Person pursuant to Section
8.05(b);
(iv) as contemplated by Section 11.01(g), to pay for the
reasonable costs of the Opinions of Counsel sought by the Trustee as
contemplated by Section 11.01(a) or 11.01(c) in connection with any
amendment to this Agreement requested by the Trustee which amendment
is in furtherance of the rights and interests of Certificateholders;
(v) to pay for the reasonable costs of the Opinions of Counsel
sought by the Trustee as contemplated by Section 11.02(a);
(vi) to (A) pay any and all federal, state and local taxes
imposed on REMIC I or REMIC II or on the assets or transactions of
either such REMIC, together with all incidental costs and expenses,
and any and all reasonable expenses relating to tax audits, if and to
the extent that either (1) none of the Trustee, the Master Servicer,
the Special Servicer or the REMIC Administrator is liable therefor
pursuant to Section 10.01(d) and/or Section 10.01(h) or (2) any such
Person that may be so liable has failed to timely make the required
payment, and (B) reimburse the REMIC Administrator for reasonable
expenses incurred by and reimbursable to it by the Trust pursuant to
Section 10.01(d) and/or Section 10.01(g); and
(vii) to clear and terminate the Distribution Account at the
termination of this Agreement pursuant to Smction 9.01.
SECTION 3.06 Investment of Funds in the Certificate Account and the REO
Account.
(a) The Master Servicer may direct any depository institution maintaining
the Certificate Account, and the Special Servicer may direct any depository
institution maintaining the REO Account, to invest, or if it is such depository
institution, may itself invest, the funds held therein (each such account, for
purposes of this Section 3.06, an "Investment Account") in one or more Permitted
Investments bearing interest or sold at a discount, and maturing, unless payable
on demand, no later than the Business Day immediately preceding the next
succeeding date on which such funds are required to be withdrawn from such
account pursuant to this Agreement. All such Permitted Investments shall be held
to maturity, unless payable on demand, in which case such investments may be
sold at any time. Any investment of funds in an Investment Account shall be made
in the name of the Trustee for the benefit of the Certificateholders (in its
capacity as such). The Master Servicer (with respect to Permitted Investments of
amounts in the Certificate Account) and the Special Servicer (with respect to
Permitted Investments of amounts in the REO Account), on behalf of the Trustee
for the benefit of the Certificateholders, shall (and the Trustee hereby
designates the Master Servicer and the Special Servicer, as applicable, as the
Person that shall) maintain continuous possession of any Permitted Investment
that is either (i) a "certificated security", as such term is defined in the
UCC, or (ii) other property in which a secured party may perfect its security
interest by possession under the UCC or any other applicable law. Possession of
any such Permitted Investment by the Master Servicer or the Special Servicer
shall constitute possession by a person designated by the Trustee for purposes
of Section 8-313 of the UCC and possession by the Trustee, as secured party, for
purposes of Section 9-305 of the UCC and any other applicable law. If amounts on
deposit in an Investment Account are at any time invested in a Permitted
Investment payable on demand, the Master Servicer (in the case of the
Certificate Account) or the Special Servicer (in the case of the REO Account)
shall:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on the last
day such Permitted Investment may otherwise mature hereunder
in an amount equal to the lesser of (1) all amounts then
payable thereunder and (2) the amount required to be withdrawn
on such date; and
(y) demand payment of all amounts due thereunder promptly
upon determination by the Master Servicer or the Special
Servicer, as the case may be, that such Permitted Investment
would not constitute a Permitted Investment in respect of
funds thereafter on deposit in the Investment Account.
(b) Whether or not the Master Servicer directs the investment of funds in
the Certificate Account, interest and investment income realized on funds
deposited therein, to the extent of the Net Investment Earnings, if any, for
such Investment Account for each Collection Period, shall be for the sole and
exclusive benefit of the Master Servicer and shall be subject to its withdrawal
in accordance with Section 3.05(a). Whether or not the Special Servicer directs
the investment of funds in the REO Account, interest and investment income
realized on funds deposited therein, to the extent of the Net Investment
Earnings, if any, for such Investment Account for each Collection Period, shall
be for the sole and exclusive benefit of the Special Servicer and shall be
subject to its withdrawal in accordance with Section 3.16(b). If any loss shall
be incurred in respect of any Permitted Investment on deposit in any Investment
Account, the Master Servicer (in the case of the Certificate Account) and the
Special Servicer (in the case of the REO Account) shall promptly deposit therein
from its own funds, without right of reimbursement, no later than the end of the
Collection Period during which such loss was incurred, the amount of the Net
Investment Loss, if any, for such Collection Period. The Trustee shall have no
liability whatsoever with respect to any such losses, except to the extent that
it is the obligor on any such Permitted Investment.
(c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment and the Master Servicer or the Special Servicer, as applicable, has
not taken such action, the Trustee may and, subject to Section 8.02, upon the
request of Holders of Certificates entitled to not less than 25% of the Voting
Rights allocated to any Class, shall take such action as may be appropriate to
enforce such payment or performance, including, without limitation, the
institution and prosecution of appropriate proceedings.
(d) Notwithstanding the investment of funds held in any Investment Account,
for purposes of the calculations hereunder, including, without limitation, the
calculation of the Available Distribution Amount and the Master Servicer
Remittance Amount, the amounts so invested (but not any interest earned thereon)
shall be deemed to remain on deposit in such Investment Account.
SECTION 3.07 Maintenance of Insurance Policies; Errors and Omissions and
Fidelity Coverage.
(a) Each of the Master Servicer and the Special Servicer shall, as to those
Mortgage Loans it is obligated to service hereunder, use its best efforts in
accordance with the Servicing Standard to cause the related Mortgagor to
maintain (and, if the related Mortgagor does not so maintain, the Master
Servicer (even in the case of Specially Serviced Mortgage Loans) shall itself
maintain (subject to the provisions of this Agreement regarding Nonrecoverable
Advances, and further subject to Section 3.11(h) hereof), to the extent the
Trustee, as mortgagee on behalf of the Certificateholders, has an insurable
interest and to the extent available at commercially reasonable rates) all
insurance coverage as is required under the related Mortgage (subject to
applicable law); provided that if any Mortgage permits the holder thereof to
dictate to the Mortgagor the insurance coverage to be maintained on such
Mortgaged Property, the Master Servicer or the Special Servicer, as appropriate,
shall impose such insurance requirements as are consistent with the Servicing
Standard. The Special Servicer shall cause to be maintained for each REO
Property, in each case with an insurer that possesses the Required Claims-Paying
Ratings at the time such policy is purchased, no less insurance coverage than
was previously required of the related Mortgagor under the related Mortgage and,
if the related Mortgage did not so require, hazard insurance, public liability
insurance and business interruption or rent loss insurance in such amounts as
are consistent with the Servicing Standard, and the Special Servicer shall be
reimbursed for the premium costs thereof as a Servicing Advance pursuant to and
to the extent permitted under Section 3.05(a). All such insurance policies shall
contain a "standard" mortgagee clause, with loss payable to the Master Servicer
(in the case of insurance maintained in respect of the Mortgaged Properties) or
the Special Servicer (in the case of insurance maintained in respect of REO
Properties) on behalf of the Trustee, shall be issued by an insurer authorized
under applicable law to issue such insurance, and, unless prohibited by the
related Mortgage, may contain a deductible clause (not in excess of a customary
amount). Any amounts collected by the Master Servicer or Special Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or REO Property or amounts to be released to
the related Mortgagor, in each case in accordance with the Servicing Standard)
shall be deposited in the Certificate Account, subject to withdrawal pursuant to
Section 3.05(a), in the case of amounts received in respect of a Mortgage Loan,
or in the REO Account, subject to withdrawal pursuant to Section 3.16(c), in the
case of amounts received in respect of an REO Property. Any cost incurred by the
Master Servicer or the Special Servicer, as applicable, in maintaining any such
insurance shall not, for purposes hereof, including, without limitation,
calculating monthly distributions to Certificateholders, be added to the unpaid
principal balance or Stated Principal Balance of the related Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so permit.
(b) (i) If the Master Servicer or the Special Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on any or all of the
Mortgaged Properties (in the case of the Master Servicer) or REO Properties (in
the case of the Special Servicer), then, to the extent such policy (i) is
obtained from a Qualified Insurer that possesses the Required Claims-Paying
Ratings, and (ii) provides protection equivalent to the individual policies
otherwise required, the Master Servicer or the Special Servicer, as the case may
be, shall conclusively be deemed to have satisfied its obligation to cause
hazard insurance to be maintained on the Mortgaged Properties or REO Properties,
as applicable, so covered, and the premium costs thereof shall be, if and to the
extent they are specifically attributable either to a specific Mortgaged
Property during any period that the related Mortgagor has failed to maintain the
hazard insurance required under the related Mortgage Loan in respect of such
Mortgaged Property or to a specific REO Property, a Servicing Advance
reimbursable pursuant to and to the extent permitted under Section 3.05(a);
provided that, to the extent that such premium costs are attributable to
properties other than Mortgaged Properties and/or REO Properties or are
attributable to Mortgaged Properties as to which the hazard insurance required
under the related Mortgage Loan is being maintained, they shall be borne by the
Master Servicer or Special Servicer, as the case may be, without right of
reimbursement. Such a blanket policy may contain a deductible clause (not in
excess of a customary amount), in which case the Master Servicer or the Special
Servicer, as appropriate, shall, if there shall not have been maintained on the
related Mortgaged Property or REO Property, as applicable, a hazard insurance
policy complying with the requirements of Section 3.07(a), and there shall have
been one or more losses which would have been covered by such property specific
policy (taking into account any deductible clause that would have been permitted
therein), promptly deposit into the Certificate Account from its own funds
(without right of reimbursement) the amount of such losses up to the difference
between the amount of the deductible clause in such blanket policy and the
amount of any deductible clause that would have been permitted under such
property specific policy. The Master Servicer and the Special Servicer each
agree to prepare and present, on behalf of itself, the Trustee and the
Certificateholders, claims under any such blanket policy maintained by it in a
timely fashion in accordance with the terms of such policy.
(ii) If the Master Servicer shall cause any Mortgaged Property or the
Special Servicer shall cause any REO Property to be covered by a master single
interest insurance policy naming the Master Servicer or the Special Servicer, as
applicable, on behalf of the Trustee as the loss payee, then to the extent such
policy (i) is obtained from a Qualified Insurer that possesses the Required
Claims-Paying Ratings and (ii) provides protection equivalent to the individual
policies otherwise required, the Master Servicer or the Special Servicer, as
applicable, shall conclusively be deemed to have satisfied its obligation to
cause such insurance to be maintained on such Mortgaged Property (in the case of
the Master Servicer) or REO Property (in the case of the Special Servicer). If
the Master Servicer shall cause any Mortgaged Property as to which the related
Mortgagor has failed to maintain the required insurance coverage, or the Special
Servicer shall cause any REO Property, to be covered by such master single
interest insurance policy, then the incremental costs of such insurance
applicable to such Mortgaged Property or REO Property (i.e., other than any
minimum or standby premium payable for such policy whether or not any Mortgaged
Property or REO Property is covered thereby) paid by the Master Servicer or the
Special Servicer, as applicable, shall constitute a Servicing Advance. The
Master Servicer shall, consistent with the Servicing Standard and the terms of
the related Mortgage Loan documents, pursue the related Mortgagor for the amount
of such incremental costs. All other costs associated with any such master
single interest insurance policy (including, without limitation, any minimum or
standby premium payable for such policy) shall be borne by the Master Servicer
or Special Servicer, as the case may be, without right of reimbursement. Such
master single interest insurance policy may contain a deductible clause (not in
excess of a customary amount), in which case the Master Servicer or the Special
Servicer, as applicable, shall, in the event that there shall not have been
maintained on the related Mortgaged Property or REO Property, as the case may
be, a policy otherwise complying with the provisions of Section 3.07(a), and
there shall have been one or more losses which would have been covered by such
property specific policy had it been maintained, promptly deposit into the
Certificate Account from its own funds (without right of reimbursement) the
amount not otherwise payable under the master single interest policy because of
such deductible clause, to the extent that any such deductible exceeds the
deductible limitation that pertained to the related Mortgage Loan, or, in the
absence of any such deductible limitation, the deductible limitation which is
consistent with the Servicing Standard.
(c) Each of the Master Servicer and the Special Servicer shall at all times
during the term of this Agreement keep in force with recognized insurers that
possess the Required Claims-Paying Ratings a fidelity bond in such form and
amount as would permit it to be a qualified Fannie Mae or Freddie Mac
seller-servicer of multifamily mortgage loans. Each of the Master Servicer and
the Special Servicer shall be deemed to have complied with the foregoing
provision if an Affiliate thereof has such fidelity bond coverage and, by the
terms of such fidelity bond, the coverage afforded thereunder extends to the
Master Servicer or the Special Servicer, as the case may be. Such fidelity bond
shall provide that it may not be canceled without 30 days' prior written notice
to the Trustee.
In addition, each of the Master Servicer and the Special Servicer shall at
all times during the term of this Agreement keep in force with recognized
insurers that possess the Required Claims-Paying Ratings a policy or policies of
insurance covering loss occasioned by the errors and omissions of its officers
and employees in connection with its obligation to service the Mortgage Loans
for which it is responsible hereunder, which policy or policies shall be in such
form and amount as would permit it to be a qualified Fannie Mae or Freddie Mac
seller-servicer of multifamily mortgage loans. Any such errors and omissions
policy, if required, shall provide that it may not be canceled without 30 days'
prior written notice to the Trustee.
It is understood and agreed that the Rating Agencies have affirmed in
writing that the use of certain specified insurance carriers by the Master
Servicer, the Special Servicer and/or Sub-Servicers will not, in and of itself,
cause a downgrade, qualification or change in the rating assigned to any Class
of Certificates, notwithstanding that such insurance carriers do not possess the
Required Claims-Paying Ratings as of the Closing Date. It is further understood
and agreed that if the claims-paying ratings of any such insurance carrier are
downgraded below the level assigned as of the Closing Date, such insurance
carrier promptly shall be replaced by a Qualified Insurer that possesses the
Required Claims-Paying Ratings.
(d) All insurance coverage required to be maintained under this Section
3.07 shall be obtained from Qualified Insurers.
SECTION 3.08 Enforcement of Due-On-Sale Clauses; Assumption Agreements;
Subordinate Financing.
(a) As to each Mortgage Loan which contains a provision in the
nature of a "due-on-sale" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the sale or other
transfer of an interest in the related Mortgaged Property or of a
controlling interest in the related Mortgagor; or
(ii) provides that such Mortgage Loan may not be assumed without
the consent of the mortgagee in connection with any such sale or other
transfer,
then, for so long as such Mortgage Loan is included in the Trust Fund,
each of the Master Servicer and the Special Servicer shall, on behalf of the
Trustee as the mortgagee of record, as to those Mortgage Loans it is obligated
to service hereunder, exercise (or waive its right to exercise) any right it may
have with respect to such Mortgage Loan (x) to accelerate the payments thereon,
or (y) to withhold its consent to any such sale or other transfer, in a manner
consistent with the Servicing Standard, but subject to Section 3.20(a)(iii);
provided that, notwithstanding anything to the contrary contained herein,
neither the Master Servicer nor the Special Servicer shall waive any right it
has, or grant any consent it is otherwise entitled to withhold, under any
related "due-on-sale" clause unless it first (1) shall have provided, at least
five Business Days prior to the granting of such waiver or consent, to any
single Holder that constitutes the Majority Certificateholder of the Controlling
Class and, in the case of the Master Servicer, to the Special Servicer written
notice of the matter and a written explanation of the surrounding circumstances,
(2) upon request made within such five Business Day-period, shall have discussed
the matter with any such single Holder that constitutes the Majority
Certificateholder of the Controlling Class and/or, in the case of the Master
Servicer, with the Special Servicer and (3) if the then-outstanding principal
balance of the subject Mortgage Loan (together with the then-outstanding
aggregate principal balance of all other Mortgage Loans to the same Mortgagor or
to other Mortgagors that are, to the Master Servicer's or Special Servicer's, as
applicable, actual knowledge, Affiliates of the Mortgagor under the subject
Mortgage Loan) is more than 2% of the then-outstanding aggregate principal
balance of the Mortgage Pool, shall have obtained written confirmation from each
Rating Agency that such action shall not result in a qualification, downgrade or
withdrawal of the rating then assigned by such Rating Agency to any Class of
Certificates; and provided, further, that, notwithstanding anything to the
contrary contained herein, neither the Master Servicer nor the Special Servicer
shall waive any right it has, or grant any consent it is otherwise entitled to
withhold, under any related "due-on-sale" clause governing the transfer of any
Mortgaged Property which secures, or controlling interests in any Mortgagor
under, a Group of Cross-Collateralized Mortgage Loans unless all of the
Mortgaged Properties securing, or a controlling interest in all the Mortgagors
(if more than one) under, such Group of Cross-Collateralized Mortgage Loans are
transferred simultaneously to the same transferee. In the event that the Master
Servicer or Special Servicer intends or is required, in accordance with the
preceding sentence, the Mortgage Loan documents or applicable law, to permit the
transfer of any Mortgaged Property, the Master Servicer or the Special Servicer,
as the case may be, may, if consistent with the Servicing Standard, enter into a
substitution of liability agreement, pursuant to which the original Mortgagor
and any original guarantors are released from liability, and the transferee and
any new guarantors are substituted therefor and become liable under the Mortgage
Note and any related guaranties and, in connection therewith, may require from
the related Mortgagor a reasonable and customary fee for the additional services
performed by it, together with reimbursement for any related costs and expenses
incurred by it (but only to the extent that charging such fee will not be a
"significant modification" of the Mortgage Loan, or result in the receipt by
REMIC I or REMIC II of net income from a "prohibited transaction", under the
REMIC Provisions). The Master Servicer or the Special Servicer, as the case may
be, shall promptly notify the Trustee in writing of any such agreement and
forward the original thereof to the Trustee for inclusion in the related
Mortgage File.
(b) As to each Mortgage Loan which contains a provision in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the creation of any additional
lien or other encumbrance on the related Mortgaged Property; or
(ii) requires the consent of the mortgagee to the creation of any such
additional lien or other encumbrance on the related Mortgaged
Property;
then, for so long as such Mortgage Loan is included in the Trust Fund, each of
the Master Servicer and the Special Servicer shall on behalf of the Trustee as
the mortgagee of record, as to those Mortgage Loans it is obligated to service
hereunder, exercise (or waive its right to exercise) any right it may have with
respect to such Mortgage Loan (x) to accelerate the payments thereon, or (y) to
withhold its consent to the creation of any such additional lien or other
encumbrance, in a manner consistent with the Servicing Standard, but subject to
Section 3.20(a)(iii); provided that, notwithstanding anything to the contrary
contained herein, neither the Master Servicer nor the Special Servicer shall
waive any right it has, or grant any consent it is otherwise entitled to
withhold, under any related "due-on-encumbrance" clause unless it first (1)
shall have provided, at least five Business Days prior to the granting of such
waiver or consent, to any single Holder that constitutes the Majority
Certificateholder of the Controlling Class and, in the case of the Master
Servicer, to the Special Servicer written notice of the matter and a written
explanation of the surrounding circumstances, and (2) upon request made within
such five Business Day-period, shall have discussed the matter with any such
single Holder that constitutes the Majority Certificateholder of the Controlling
Class and/or, in the case of the Master Servicer, with the Special Servicer; and
provided, further, that, notwithstanding anything to the contrary contained
herein, neither the Master Servicer nor the Special Servicer shall waive any
right it has, or grant any consent it is otherwise entitled to withhold, under
any related "due-on-encumbrance" clause until it has received written
confirmation from each Rating Agency that such action would not result in the
qualification, downgrade or withdrawal of the rating then assigned by such
Rating Agency to any Class of Certificates.
(c) Nothing in this Section 3.08 shall constitute a waiver of the Trustee's
right, as the mortgagee of record, to receive notice of any assumption of a
Mortgage Loan, any sale or other transfer of the related Mortgaged Property or
the creation of any additional lien or other encumbrance with respect to such
Mortgaged Property.
SECTION 3.09 Realization Upon Defaulted Mortgage Loans.
(a) The Special Servicer shall, subject to subsections (b) through (d) of
this Section 3.09, exercise reasonable efforts, consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert (which may include
an REO Acquisition) the ownership of properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments, and which are
not released from the Trust Fund pursuant to any other provision hereof, if the
Special Servicer determines, consistent with the Servicing Standard, that such
action would be in the best economic interest of the Trust; provided that
neither the Master Servicer nor the Special Servicer shall, with respect to any
Hyper-Amortization Loan after its Anticipated Repayment Date, take any
enforcement action with respect to the payment of Additional Interest (other
than the making of requests for its collection) unless (i) the taking of an
enforcement action with respect to the payment of other amounts due under such
Mortgage Loan is, in the good faith and reasonable judgment of the Special
Servicer, and without regard to such Additional Interest, also necessary,
appropriate and consistent with the Servicing Standard or (ii) all other amounts
due under such Mortgage Loan have been paid, the payment of such Additional
Interest has not been forgiven in accordance with Section 3.20 and, in the good
faith and reasonable judgment of the Special Servicer, the Liquidation Proceeds
expected to be recovered in connection with such enforcement action will cover
the anticipated costs of such enforcement action and, if applicable, any
associated Advance Interest. The Special Servicer shall advance or direct the
Master Servicer to advance, as contemplated by Section 3.19(d), all costs and
expenses to be incurred on behalf of the Trust in any such proceedings, subject
to each of the Master Servicer and the Special Servicer being entitled to
reimbursement for any such advance as a Servicing Advance as provided in Section
3.05(a), and further subject to the Special Servicer's being entitled to pay out
of the related Liquidation Proceeds any Liquidation Expenses incurred in respect
of any Mortgage Loan, which Liquidation Expenses were outstanding at the time
such proceeds are received. In connection with the foregoing, in the event of a
default under any Mortgage Loan or Group of Cross-Collateralized Mortgage Loans
that are secured by real properties located in multiple states, and such states
include the State of California or another state with a statute, rule or
regulation comparable to the State of California's "one action" rule, then the
Special Servicer shall consult with Independent counsel regarding the order and
manner in which the Special Servicer should foreclose upon or comparably proceed
against such properties (the cost of such consultation to be advanced by the
Master Servicer as a Servicing Advance, at the direction of the Special
Servicer, subject to the Master Servicer's being entitled to reimbursement
therefor as a Servicing Advance as provided in Section 3.05(a)). When applicable
state law permits the Special Servicer to select between judicial and
non-judicial foreclosure in respect of any Mortgaged Property, the Special
Servicer shall make such selection in a manner consistent with the Servicing
Standard. Nothing contained in this Section 3.09 shall be construed so as to
require the Special Servicer, on behalf of the Trust, to make an offer on any
Mortgaged Property at a foreclosure sale or similar proceeding that is in excess
of the fair market value of such property, as determined by the Special Servicer
in its reasonable and good faith judgment taking into account the factors
described in Section 3.18(e) and the results of any Appraisal obtained pursuant
to the following sentence or otherwise, all such offers to be made in a manner
consistent with the Servicing Standard. If and when the Special Servicer or the
Master Servicer deems it necessary and prudent for purposes of establishing the
fair market value of any Mortgaged Property securing a defaulted Mortgage Loan,
whether for purposes of making an gffer at(foreclosure or otherwise, the Special
Servicer or the Master Servicer, as the case may be, is authorized to have an
Appraisal completed with respect to such property (the cost of which Appraisal
shall be advanced by the Master Servicer as a Servicing Advance, subject to its
being entitled to reimbursement therefor as a Servicing Advance as provided in
Section 3.05(a), such Advance to be made at the direction of the Special
Servicer when the Appraisal is obtained by the Special Service).
(b) The Special Servicer shall not acquire any personal property pursuant
to this Section 3.09 (with the exception of cash or cash equivalents pledged as
collateral for a Mortgage Loan) unless either:
(i) such personal property is incident to real property (within the
meaning of Section 856(e)(1) of the Code) so acquired by the Special
Servicer; or
(ii) the Special Servicer shall have obtained an Opinion of Counsel
(the reasonable cost of which may be withdrawn from the Certificate
Account pursuant to Section 3.05(a)) to the effect that the holding of
such personal property by the Trust will not cause either of REMIC I
or REMIC II to fail to qualify as a REMIC at any time that any
Certificate is outstanding or, subject to Section 3.17, cause the
imposition of a tax on the Trust under the REMIC Provisions.
(c) Notwithstanding the foregoing provisions of this Section 3.09, neither
the Special Servicer nor the Master Servicer shall, on behalf of the Trustee,
initiate foreclosure proceedings, obtain title to a Mortgaged Property in lieu
of foreclosure or otherwise, have a receiver of rents appointed with respect to
any Mortgaged Property, or take any other action with respect to any Mortgaged
Property, if, as a result of any such action, the Trustee, on behalf of the
Certificateholders, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
(as evidenced by an Officer's Certificate to such effect delivered to the
Trustee) the Special Servicer has previously determined in accordance with the
Servicing Standard, based on a Phase I Environmental Assessment (and any
additional environmental testing that the Special Servicer deems necessary and
prudent) of such Mortgaged Property performed by an Independent Person who
regularly conducts Phase I Environmental Assessments and such additional
environmental testing, that:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such
actions as are necessary to bring the Mortgaged Property in compliance
therewith and proceeding against the Mortgaged Property is reasonably
likely to produce a greater recovery to Certificateholders on a
present value basis (the relevant discounting of anticipated
collections that will be distributable to Certificateholders to be
performed at the related Net Mortgage Rate (or, in the case of a
Hyper-Amortization Loan after its Anticipated Repayment Date, at the
related Net Mortgage Rate immediately prior to the Anticipated
Repayment Date)), taking into consideration any associated
liabilities, than not taking such actions and not proceeding against
such Mortgaged Property; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property relating to the use, management or disposal of Hazardous
Materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any applicable
environmental laws and/or regulations or, if such circumstances or
conditions are present for which any such action could be required,
that taking such actions with respect to such Mortgaged Property and
proceeding against the Mortgaged Property is reasonably likely to
produce a greater recovery to Certificateholders on a present value
basis (the relevant discounting of anticipated collections that will
be distributable to Certificateholders to be performed at the related
Net Mortgage Rate (or, in the in the case of a Hyper-Amortization Loan
after its Anticipated Repayment Date, at the related Net Mortgage Rate
immediately prior to the Anticipated Repayment Date)), taking into
consideration any associated liabilities, than not taking such actions
and not proceeding against such Mortgaged Property.
The cost of such Phase I Environmental Assessment and any such additional
environmental testing, as well as the cost of any remedial, corrective or other
further action contemplated by clause (i) and/or clause (ii) of the preceding
paragraph, shall be advanced by the Master Servicer at the direction of the
Special Servicer given in accordance with the Servicing Standard; provided,
however, that the Master Servicer shall not be obligated in connection therewith
to advance any funds which, if so advanced, would constitute a Nonrecoverable
Servicing Advance. Amounts so advanced shall be subject to reimbursement as
Servicing Advances in accordance with Section 3.05(a).
(d) If the environmental testing contemplated by Section 3.09(c) above
establishes that either of the conditions set forth in clauses (i) and (ii) of
the first sentence thereof has not been satisfied with respect to any Mortgaged
Property securing a defaulted Mortgage Loan, the Special Servicer shall take
such action as is in accordance with the Servicing Standard (other than
proceeding against the Mortgaged Property, but including the sale of the
affected Mortgage Loan) and, at such time as it deems appropriate, may, on
behalf of the Trustee, release all or a portion of such Mortgaged Property from
the lien of the related Mortgage; provided that prior to the release of all or a
portion of the related Mortgaged Property from the lien of the related Mortgage,
(i) the Special Servicer shall have notified the Trustee in writing of its
intention to so release all or a portion of such Mortgaged Property, (ii) the
Trustee shall have notified the Certificateholders in writing of the Special
Servicer's intention to so release all or a portion of such Mortgaged Property
and (iii) the Holders of Certificates entitled to a majority of the Voting
Rights shall not have objected to such release within 30 days of the Trustee's
distributing such notice.
(e) The Special Servicer shall provide written reports to the Trustee and
the Master Servicer monthly regarding any actions taken by the Special Servicer
with respect to any Mortgaged Property securing a defaulted Mortgage Loan as to
which the environmental testing contemplated in subsection (c) above has
revealed that either of the conditions set forth in clauses (i) and (ii) of the
first sentence thereof has not been satisfied or that any remedial, corrective
or other further action contemplated by either such clause is required, in each
case until the earliest to occur of (i) satisfaction of both such conditions and
completion of all such remedial, corrective or other further action, (ii)
repurchase of the related Mortgage Loan by the Mortgage Loan Seller and (iii)
release of the lien of the related Mortgage on such Mortgaged Property. The
Trustee shall forward copies of all such reports to the Certificateholders and
the Rating Agencies promptly following the receipt thereof.
(f) The Special Servicer shall file the information returns with respect to
the receipt of any mortgage interest received in a trade or business, the
reports of foreclosures and abandonments and reports relating to any
cancellation of indebtedness income with respect to any Mortgaged Property
required by Sections 6050H, 6050J and 6050P of the Code and deliver to the
Trustee an Officer's Certificate stating that such reports have been filed. Such
reports shall be in form and substance sufficient to meet the reporting
requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
(g) The Special Servicer shall have the right to determine, in accordance
with the Servicing Standard, the advisability of the maintenance of an action to
obtain a deficiency judgment if the state in which the Mortgaged Property is
located and the terms of the Mortgage Loan permit such an action. The Master
Servicer, at the direction of the Special Servicer, shall advance the costs
incurred in any such deficiency action, subject to its being entitled to
reimbursement therefor as a Servicing Advance as provided in Section 3.05(a).
(h) The Special Servicer shall maintain accurate records, certified by a
Servicing Officer, of each Final Recovery Determination in respect of any
Mortgage Loan or REO Property and the basis thereof. [Each Final Recovery
Determination shall be evidenced by an Officer's Certificate delivered to the
Trustee, the Master Servicer and the Rating Agencies no later than the ______
Business Day following such Final Recovery Determination.]
SECTION 3.10 Trustee to Cooperate; Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer or Special Servicer of a notification that payment in full shall
be escrowed in a manner customary for such purposes, the Master Servicer or
Special Servicer, as the case may be, shall immediately notify the Trustee and
request delivery of the related Mortgage File by delivering thereto a Request
for Release in the form of Exhibit D attached hereto signed by a Servicing
Officer of the Master Servicer or Special Servicer, as applicable. Any such
Request for Release shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required to
be deposited in the Certificate Account pursuant to Section 3.04(a) have been or
will be so deposited. Upon receipt of such notice and request conforming in all
material respects to the provisions hereof, the Trustee shall promptly release,
or cause any related Custodian to release, the related Mortgage File to the
Master Servicer or Special Servicer, as applicable. No expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Certificate Account.
(b) If from time to time, and as appropriate for servicing or foreclosure
of any Mortgage Loan, the Master Servicer or the Special Servicer shall
otherwise require any Mortgage File (or any portion thereof), then, upon request
of the Master Servicer or the Special Servicer and receipt therefrom of a
Request for Release in the form of Exhibit D attached hereto signed by a
Servicing Officer thereof, the Trustee shall release, or cause any related
Custodian to release, such Mortgage File (or portion thereof) to the Master
Servicer or the Special Servicer, as the case may be. Upon return of such
Mortgage File (or portion thereof) to the Trustee or the related Custodian, or
the delivery to the Trustee of a certificate of a Servicing Officer of the
Special Servicer stating that such Mortgage Loan was liquidated and that all
amounts received or to be received in connection with such liquidation which are
required to be deposited into the Certificate Account pursuant to Section
3.04(a) have been or will be so deposited, or that such Mortgage Loan has become
an REO Property, the Request for Release shall be released by the Trustee to the
Master Servicer or the Special Servicer, as applicable.
(c) The Trustee, if requested, shall promptly execute and deliver to the
Special Servicer any court pleadings, requests for trustee's sale or other
documents furnished by the Special Servicer and certified by it as being
necessary to the foreclosure or trustee's sale in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any Mortgagor
on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Mortgage Note or Mortgage
or otherwise available at law or in equity or for any other purpose necessary or
advisable in the reasonable, good faith judgment of the Special Servicer;
provided, however, that the Special Servicer shall be responsible for the
preparation of all such documents and pleadings; and when submitted to the
Trustee for signature, such documents or pleadings shall be accompanied by a
certificate of a Servicing Officer requesting that such pleadings or documents
be executed by the Trustee and certifying as to the reason such documents or
pleadings are required and that the execution and delivery thereof by the
Trustee will not invalidate or otherwise affect the lien of the Mortgage, except
for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
SECTION 3.11 Servicing Compensation; Interest on Servicing Advances;
Payment of Certain Expenses; Obligations of the Trustee
Regarding Back-up Servicing Advances.
(a) As compensation for its activities hereunder, the Master Servicer shall
be entitled to receive the Master Servicing Fee with respect to each Mortgage
Loan (including, without limitation, each Specially Serviced Mortgage Loan) and
REO Loan. As to each such Mortgage Loan and REO Loan, the Master Servicing Fee
shall accrue at the applicable Master Servicing Fee Rate on the basis of the
same principal amount and for the same number of days respecting which any
related interest payment due on such Mortgage Loan or deemed to be due on such
REO Loan is computed under the terms of the related Mortgage Note (as such terms
may be changed or modified at any time following the Closing Date) and
applicable law, and without giving effect to any Additional Interest that may
accrue on any Hyper-Amortization Loan after its Anticipated Repayment Date. The
Master Servicing Fee with respect to any Mortgage Loan or REO Loan shall cease
to accrue if a Liquidation Event occurs in respect thereof. Earned but unpaid
Master Servicing Fees shall be payable monthly, on a loan-by-loan basis, from
payments of interest on each Mortgage Loan and REO Revenues allocable as
interest on each REO Loan. The Master Servicer shall be entitled to recover
unpaid Master Servicing Fees in respect of any Mortgage Loan or REO Loan out of
Insurance Xroceeds or Liquidation Proceeds, to the extent permitted by Section
3.05(a). The right to receive the Master Servicing Fee may not be transferred in
whole or in part except in connection with the transfer of all of the Master
Servicer's responsibilities and obligations under this Agreement or except as
provided in Section 3.22(d). The Master Servicer shall, monthly out of its
Master Servicing Fee, pay to any Sub-Servicer retained by the Master Servicer
such Sub-Servicer's sub-servicing fee (including, without limitation, any
Primary Servicing Fee, if applicable), to the extent such Sub-Servicer is
entitled thereto under the applicable Sub-Servicing Agreement.
(b) The Master Servicer shall be entitled to receive as additional
servicing compensation:
(i) Default Charges, assumption fees, modification fees, charges for
beneficiary statements or demands and any similar fees (excluding
Prepayment Premiums), in each case to the extent actually paid by a
Mortgagor with respect to a Mortgage Loan that is not a Specially
Serviced Mortgage Loan;
(ii) amounts collected for checks returned for insufficient funds, to
the extent actually paid by a Mortgagor with respect to any Mortgage
Loan;
(iii) any Prepayment Interest Excesses collected on the Mortgage
Loans;
(iv) interest or other income earned on deposits in the Certificate
Account, in accordance with Section 3.06(b) (but only to the extent of
the Net Investment Earnings, if any, with respect to the Certificate
Account for each Collection Period); and
(v) to the extent not required to be paid to any Mortgagor under
applicable law or under the related Mortgage, any interest or other
income earned on deposits in the Servicing Accounts maintained by the
Master Servicer;
provided that with respect to the items of additional servicing compensation set
forth in clauses (i) and (ii) above, the Master Servicer shall, in turn, pay the
amounts described therein to the related Sub-Servicer to the extent such
Sub-Servicer is entitled thereto under the applicable Sub-Servicing Agreement.
The Master Servicer shall be required to pay out of its own funds all
expenses incurred by it in connection with its servicing activities hereunder
(including, without limitation, payment of any amounts due and owing to any
Sub-Servicer retained by it and the premiums for any blanket policy insuring
against hazard losses pursuant to Section 3.07(b)), if and to the extent such
expenses are not payable directly out of the Certificate Account, and the Master
Servicer shall not be entitled to reimbursement therefor except as expressly
provided in this Agreement.
(c) As compensation for its activities hereunder, the Special Servicer
shall be entitled to receive the Special Servicing Fee with respect to each
Specially Serviced Mortgage Loan and each REO Loan. As to each Specially
Serviced Mortgage Loan and REO Loan, the Special Servicing Fee shall accrue from
time to time at the Special Servicing Fee Rate on the basis of the same
principal amount and for the same number of days respecting which any related
interest payment due on such Mortgage Loan or deemed to be due on such REO Loan
is computed under the terms of the related Mortgage Note (as such terms may be
modified at any time following the Closing Date) and applicable law, and without
giving effect to any Additional Interest that may accrue on any
Hyper-Amortization Loan after its Anticipated Repayment Date. The Special
Servicing Fee with respect to any Specially Serviced Mortgage Loan or REO Loan
shall cease to accrue as of the date a Liquidation Event occurs in respect
thereof or it becomes a Corrected Mortgage Loan. Earned but unpaid Special
Servicing Fees shall be payable monthly out of general collections on the
Mortgage Loans and any REO Properties on deposit in the Certificate Account
pursuant to Section 3.05(a).
As further compensation for its activities hereunder, the Special Servicer
shall be entitled to receive the Standby Fee with respect to each Mortgage Loan
and each REO Loan. As to each Mortgage Loan and each REO Loan, the Standby Fee
shall accrue from time to time at the Standby Fee Rate on the basis of the same
principal amount and for the same number of days respecting which any related
interest payment due on such Mortgage Loan or deemed to be due on such REO Loan
is computed under the terms of the related Mortgage Note (as such terms may be
modified at any time following the Closing Date) and applicable law, and without
giving effect to any Additional Interest that may accrue on any
Hyper-Amortization Loan after its Anticipated Repayment Date. Standby Fees shall
be payable monthly by the Master Servicer on a loan-by-loan basis out of its
Master Servicing Fees received with respect to each Mortgage Loan and each REO
Loan.
As further compensation for its activities hereunder, the Special Servicer
shall be entitled to receive the Workout Fee with respect to each Corrected
Mortgage Loan, unless the basis on which such Mortgage Loan became a Corrected
Mortgage Loan was the remediation of a circumstance or condition relating to the
Mortgage Loan Seller's obligation to repurchase such Mortgage Loan pursuant to
Section 2.03, in which case, if such Mortgage Loan is repurchased within the
______ day period described in Section 2.03(a), no Workout Fee will be payable
from or based upon the receipt of, any Purchase Price paid by the Mortgage Loan
Seller in satisfaction of such repurchase obligation. Furthermore, no Workout
Fees will be payable from or based upon the receipt of any Liquidation Proceeds
paid by any Majority Certificateholder of the Controlling Class or the Master
Servicer in connection with the purchase of all the Mortgage Loans and any REO
Properties in the Trust Fund pursuant to Section 9.01 hereof. As to each
Corrected Mortgage Loan, subject to the exceptions provided for in the two
preceding sentences, the Workout Fee shall be payable from, and shall be
calculated by application of the Workout Fee Rate to, each collection of
interest (other than Default Interest and, in the case of a Hyper-Amortization
Loan after its Anticipated Repayment Date, Additional Interest) and principal
received on such Mortgage Loan for so long as it remains a Corrected Mortgage
Loan. The Workout Fee with respect to any Corrected Mortgage Loan will cease to
be payable if a Servicing Transfer Event occurs with respect thereto or if the
related Mortgaged Property becomes an REO Property; provided that a new Workout
Fee will become payable if and when such Mortgage Loan again becomes a Corrected
Mortgage Loan. If the Special Servicer is terminated other than for cause or
resigns in accordance with clause (ii) of the first paragraph of Section 6.04,
it shall retain the right to receive any and all Workout Fees payable in respect
of Mortgage Loans that became Corrected Mortgage Loans during the period that it
acted as Special Servicer and were still such at the time of such termination or
resignation (and the successor Special Servicer shall not be entitled to any
portion of such Workout Fees), in each case until the Workout Fee for any such
Mortgage Loan ceases to be payable in accordance with the preceding sentence.
As further compensation for its activities hereunder, the Special Servicer
shall also be entitled to receive a Liquidation Fee with respect to each
Specially Serviced Mortgage Loan or REO Property as to which it receives any
full or discounted payoff from the related Mortgagor or any Liquidation Proceeds
(other than in connection with the purchase of any such Specially Serviced
Mortgage Loan or REO Property by the Special Servicer pursuant to Section 3.18,
by the Master Servicer or the Majority Certificateholder of the Controlling
Class pursuant to Section 3.18 or Section 9.01, or by the Mortgage Loan Seller
pursuant to Section 2.03 within _____ days of its discovery or notice of the
breach or Document Defect that gave rise to the repurchase obligation, and other
than in connection with the condemnation or other governmental taking of a
Mortgaged Property or REO Property). As to each such Specially Serviced Mortgage
Loan or REO Property, the Liquidation Fee shall be payable from, and shall be
calculated by application of the Liquidation Fee Rate to, such full or
discounted payoff and/or Liquidation Proceeds (excluding any portion of such
payoff and/or proceeds that represents accrued but unpaid Additional Interest
with respect to a Hyper-Amortization Loan after its Anticipated Repayment Date
or accrued but unpaid Default Interest); provided that no Liquidation Fee will
be payable with respect to any such Specially Serviced Mortgage Loan that
becomes a Corrected Mortgage Loan; and provided, further, that (without limiting
the Special Servicer's right to any Workout Fee that is properly payable
therefrom), no Liquidation Fee will be payable from, or based upon the receipt
of, Liquidation Proceeds collected as a result of any purchase of a Specially
Serviced Mortgage Loan or REO Property described in the parenthetical to the
first sentence of this paragraph or in connection with a condemnation or other
governmental taking of a Mortgaged Property or REO Property.
Notwithstanding anything to the contrary herein, a Liquidation Fee and a
Workout Fee relating to the same Mortgage Loan shall not be paid from the same
proceeds on or with respect to such Mortgage Loan.
The Special Servicer's right to receive the Special Servicing Fee, the
Standby Fee, the Workout Fee and/or the Liquidation Fee may not be transferred
in whole or in part except in connection with the transfer of all of the Special
Servicer's responsibilities and obligations under this Agreement.
(d) The Special Servicer shall be entitled to receive as additional special
servicing compensation:
(i) (A) to the extent allocable to the period when any Mortgage Loan
is a Specially Serviced Mortgage Loan or to the extent allocable to an
REO Loan, any Net Default Charges actually collected on such Mortgage
Loan or REO Loan, as the case may be, and (B) assumption fees,
modification fees, charges for beneficiary statements or demands and
any similar fees (excluding Prepayment Premiums) actually collected on
or with respect to Specially Serviced Mortgage Loans or REO Loans; and
(ii) interest or other income earned on deposits in the REO Account,
if established, in accordance with Section 3.06(b) (but only to the
extent of the Net Investment Earnings, if any, with respect to the REO
Account for each Collection Period).
To the extent the amounts described in clause (i)(B) of the preceding
paragraph are collected by the Master Servicer, the Master Servicer shall
promptly pay such amounts to the Special Servicer and shall not be required to
deposit such amounts in the Certificate Account pursuant to Section 3.04(a).
Additional servicing compensation to which the Master Servicer (or, if so
provided by the applicable Sub-Servicing Agreement, any Sub-Servicer retained
thereby) is entitled pursuant to Section 3.11(b) in the form of assumption fees,
modification fees, charges for beneficiary statements or demands and any similar
fees (excluding Prepayment Premiums) collected by the Special Servicer on
Mortgage Loans that are not Specially Serviced Mortgage Loans or REO Loans, or
in the form of amounts collected for checks returned for insufficient funds with
respect to any Mortgage Loans (including, without limitation, Specially Serviced
Mortgage Loans), shall be paid promptly to the Master Servicer by the Special
Servicer.
The Special Servicer shall be required to pay out of its own funds all
overhead, general and administrative expenses incurred by it in connection with
its servicing activities hereunder (including, without limitation, payment of
any amounts due and owing to any Sub-Servicers retained by it and the premiums
for any blanket policy obtained by it insuring against hazard losses pursuant to
Section 3.07(b)), if and to the extent such expenses are not payable directly
out of the Certificate Account or the REO Account and the Master Servicer is not
required to advance such expenses at the direction of the Special Servicer, and
the Special Servicer shall not be entitled to reimbursement except as expressly
provided in this Agreement.
(e) If the Master Servicer or Special Servicer is required under this
Agreement to make a Servicing Advance, but neither does so within 15 days after
such Servicing Advance is required to be made, the Trustee shall, if it has
actual knowledge of such failure on the part of the Master Servicer or Special
Servicer, as the case may be, give notice of such failure, as applicable, to the
Master Servicer and/or the Special Servicer. If such Servicing Advance is not
made by the Master Servicer or the Special Servicer within one Business Day
after such notice then (subject to Section 3.11(g) below), the Trustee shall
make such Servicing Advance. Any failure by the Master Servicer or the Special
Servicer to make a Servicing Advance it is required to make hereunder shall
constitute an Event of Default by the Master Servicer or the Special Servicer,
as the case may be, subject to and as provided in Section 7.01(a).
(f) As and to the extent permitted by Section 3.05(a), the Master Servicer,
the Special Servicer (to the extent it has not already been reimbursed for any
such Servicing Advance by the Master Servicer) and the Trustee shall each be
entitled to receive interest at the Reimbursement Rate in effect from time to
time, accrued on the amount of each Servicing Advance made thereby (out of its
own funds) for so long as such Servicing Advance is outstanding, and such
interest will be paid: first, out of any Default Charges collected on or in
respect of the related Mortgage Loan during, and allocable to, the period, if
any, that it was a Specially Serviced Mortgage Loan or an REO Loan; and second,
at any time coinciding with or following the reimbursement of such Servicing
Advance, out of general collections on the Mortgage Loans and any REO Properties
on deposit in the Certificate Account. As and to the extent provided in Sections
3.03(a) and 3.05(a), the Master Servicer shall reimburse itself, the Special
Servicer or the Trustee, as appropriate, for any Servicing Advance made thereby
as soon as practicable after funds available for such purpose are(deposited in
the Certificate Account or a Servicing Account.
(g) Notwithstanding anything to the contrary set forth herein, none of the
Master Servicer, the Special Servicer or the Trustee, shall be required to make
any Servicing Advance (including, without limitation, an Emergency Advance) that
it determines in its reasonable, good faith judgment would constitute a
Nonrecoverable Servicing Advance. In addition, Nonrecoverable Servicing Advances
shall be reimbursable pursuant to Section 3.05(a)(vii) out of general
collections on the Mortgage Pool on deposit in the Certificate Account. The
determination by the Master Servicer, the Special Servicer or, if applicable,
the Trustee, that it has made a Nonrecoverable Servicing Advance or that any
proposed Servicing Advance, if made, would constitute a Nonrecoverable Servicing
Advance, shall be evidenced by an Officer's Certificate delivered promptly to
the Trustee (or, if applicable, retained thereby), the Depositor and the Rating
Agencies, setting forth the basis for such determination, together with (if such
determination is prior to the liquidation of the related Mortgage Loan or REO
Property) a copy of an Appraisal of the related Mortgaged Property or REO
Property, as the case may be, which shall have been performed within the twelve
months preceding such determination, and further accompanied by any other
information, including, without limitation, engineers' reports, environmental
surveys, inspection reports, rent rolls, income and expense statements or
similar reports, that the Master Servicer or the Special Servicer may have
obtained and that supports such determination. If such an Appraisal shall not
have been required and performed pursuant to the terms of this Agreement, the
Master Servicer or the Special Servicer, as the case may be, may, subject to its
reasonable and good faith determination that such Appraisal will demonstrate the
nonrecoverability of a Servicing Advance, obtain an Appraisal for such purpose
at the expense of the Trust. The Trustee shall be entitled to rely on any
determination of nonrecoverability that may have been made by the Master
Servicer or the Special Servicer with respect to a particular Servicing Advance,
and the Master Servicer shall be entitled to rely on any determination of
nonrecoverability that may have been made by the Special Servicer with respect
to a particular Servicing Advance.
(h) Notwithstanding anything to the contrary set forth herein, the Master
Servicer shall (at the direction of the Special Servicer if a Specially Serviced
Mortgage Loan or an REO Property is involved) pay directly out of the
Certificate Account any servicing expense that, if paid by the Master Servicer
or the Special Servicer, would constitute a Nonrecoverable Servicing Advance;
provided that the Master Servicer (or the Special Servicer, if a Specially
Serviced Mortgage Loan or an REO Property is involved) has determined in
accordance with the Servicing Standard that making such payment is in the best
interests of the Certificateholders (as a collective whole), as evidenced by an
Officer's Certificate delivered promptly to the Trustee, the Depositor and the
Rating Agencies, setting forth the basis for such determination and accompanied
by any information that the Master Servicer or the Special Servicer may have
obtained that supports such determination.
SECTION 3.12 Inspections; Collection of Financial Statements.
(a) Commencing in 199_, the Master Servicer shall inspect or cause the
inspection of each Mortgaged Property at least once every two years (or, if the
related Mortgage Loan has a then current balance greater than $2,000,000, at
least once every year), provided that at least 50% of the Mortgaged Properties
(by both number and aggregate Stated Principal Balances of the related Mortgage
Loans) will be inspected each year by the Master Servicer (or an entity employed
by the Master Servicer for such purpose) or, in accordance with the second
succeeding sentence, by the Special Servicer. The Master Servicer shall be
responsible for such inspections only in respect of (i) Mortgage Loans that are
not Specially Serviced Mortgage Loans and (ii) Corrected Mortgage Loans. The
Special Servicer, subject to statutory limitations or limitations set forth in
the related Mortgage Loan documents, shall perform or cause to be performed a
physical inspection of a Mortgaged Property as soon as practicable after the
servicing of the related Mortgage Loan is transferred thereto pursuant to
Section 3.21(a). The Master Servicer and the Special Servicer shall each prepare
or cause to be prepared as soon as reasonably possible a written report of each
such inspection performed or caused to be performed thereby detailing the
condition of the Mortgaged Property and specifying the existence of (i) any
vacancy in the Mortgaged Property that is, in the reasonable judgment of the
Master Servicer or Special Servicer (or their respective designees), as the case
may be, material and is evident from such inspection, (ii) any abandonment of
the Mortgaged Property, (iii) any change in the condition or value of the
Mortgaged Property that is, in the reasonable judgment of the Master Servicer or
Special Servicer (or their respective designees), as the case may be, material
and is evident from such inspection, (iv) any waste on or deferred maintenance
in respect of the Mortgaged Property that is evident from such inspection or (v)
any capital improvements made that are evident from such inspection. The Master
Servicer and Special Servicer each shall, within ____ days of the preparation
thereof, deliver to the Trustee, any single Holder that then constitutes the
Majority Certificateholder of the Controlling Class, the Rating Agencies and
each other a copy of (and, upon request, shall promptly discuss therewith the
contents of) each such written report prepared or caused to be prepared by or on
behalf of it. Furthermore, the Master Servicer shall obtain (and shall deliver
to the requesting party and the Trustee) such additional information with
respect to the matters addressed in such written report as the Special Servicer,
and/or any single Holder that then constitutes the Majority Certificateholder of
the Controlling Class, may reasonably request and shall cooperate with and
reasonably assist the Special Servicer in making direct inquiries with any
Mortgagor to the extent any such direct inquiry by the Special Servicer would
not violate the terms of any applicable Sub-Servicing Agreement; provided that
if the Special Servicer or any such Certificateholder shall desire such an
inquiry to be made of a Mortgagor, and if the subject Mortgage Loan is then
being primary serviced by a Sub-Servicer, then the Master Servicer shall in each
instance (regardless of whether such Mortgage Loan was originated by such
Sub-Servicer), unless otherwise agreed by such Sub-Servicer, first request that
such Sub-Servicer make such inquiry (and the Master Servicer or the Special
Servicer may contact such Mortgagor directly in such instance if such request
has been so made to such Sub-Servicer and the requested information has not
thereafter been obtained by such Sub-Servicer within a reasonable time). The
Trustee shall make available to Certificateholders, Certificate Owners and
prospective Certificateholders and Certificate Owners (which prospective
Certificateholders and Certificate Owners have been certified to it as such by a
Certificateholder or a Certificate Owner), in accordance with Section 8.12(b),
copies of all the written reports delivered to it pursuant to this Section
3.12(a) and, if and to the extent delivered to it in a written or electronic
format, the related additional information referred to in the preceding
sentence. In the absence of actual knowledge that the Master Servicer or the
Special Servicer is in default under this Section 3.12(a), the Trustee shall
have no obligation to confirm that inspections of the Mortgaged Properties are
being performed in accordance with this Section 3.12(a). The preceding sentence
notwithstanding, in the event the Trustee has received, as of December 31 of any
calendar year, inspection reports with respect to less than 50% of the Mortgaged
Properties as set forth in the first sentence of this Section 3.12(a), the
Trustee shall notify the Master Servicer of such fact in writing on or before
January 31 of the immediately succeeding calendar year. The notice provided by
the Trustee to the Master Servicer of the deficiency in the number of inspection
reports provided to the Trustee, shall constitute notice "requiring the same to
be remedied" within the meaning of Section 7.01(a)(vi) hereof and shall so state
on its face. If the Master Servicer does not provide satisfactory evidence
(which shall include the presentation of the required reports) of the
performance of the number of inspections required pursuant to the first sentence
of this Section 3.12(a) within _____ days of such notice, the Master Servicer
shall be deemed to have failed duly to observe and perform in all material
respects its covenants and agreements set forth in this Section 3.12(a).
(b) The Special Servicer, in the case of the Specially Serviced Mortgage
Loans and REO Properties, and the Master Servicer, in the case of all other
Mortgage Loans, shall make reasonable efforts to collect or otherwise obtain
promptly (from the related Mortgagor in the case of a Mortgage Loan) annual and
quarterly operating statements and rent rolls of the related Mortgaged Property
or REO Property (and financial statements of the related Mortgagor in the case
of a Mortgage Loan), whether or not delivery of such items is required pursuant
to the terms of the related Mortgage. The Special Servicer, in the case of the
Specially Serviced Mortgage Loans and REO Properties, and the Master Servicer,
in the case of all other Mortgage Loans, shall promptly: (i) review all such
items as may be collected; (ii) prepare written reports based on such reviews
identifying the revenues, expenses, Net Operating Income and Debt Service
Coverage Ratios for the related Mortgage Loans and REO Loans and any
extraordinary increases or decreases in expenses or revenues associated with the
related Mortgaged Properties and REO Properties; (iii) deliver copies of the
collected items, and of the written reports prepared in respect thereof, to the
Trustee, any single Holder that then constitutes the Majority Certificateholder
of the Controlling Class, the Rating Agencies and each other, in each case
within ____ days of its receipt or preparation, as applicable (it being
understood and agreed that with respect to Mortgage Loans (including, without
limitation, Specially Serviced Mortgage Loans) that are primary serviced by a
Sub-Servicer, such collected items shall be deemed to have been received by the
Master Servicer or the Special Servicer, as the case may be, at the same time
they are received by the applicable Sub-Servicer); and (iv) promptly upon the
request of any Person referred in the immediately preceding clause (iii), to
discuss therewith the contents of the collected items and the written reports
referred to in the immediately preceding clause (iii). Furthermore, the Master
Servicer shall obtain (and shall deliver to the requesting party and the
Trustee) such additional information with respect to the matters addressed in
the collected items and written reports referred to above as the Special
Servicer, and/or any single Holder that then constitutes the Majority
Certificateholder of the Controlling Class, may reasonably request and shall
cooperate with and reasonably assist the Special Servicer in making direct
inquiries with any Mortgagor to the extent any such direct inquiry by the
Special Servicer would not violate the terms of any applicable Sub-Servicing
Agreement; provided that if the Special Servicer or any such Certificateholder
shall desire such an inquiry to be made of a Mortgagor, and if the subject
Mortgage Loan is then being primary serviced by a Sub-Servicer, then the Master
Servicer shall in each instance (regardless of whether such Mortgage Loan was
originated by such Sub-Servicer), unless otherwise agreed by such Sub-Servicer,
first request that such Sub-Servicer make such inquiry (and the Master Servicer
or the Special Servicer may contact such Mortgagor directly in such instance if
such request has been so made to such Sub-Servicer and the requested information
has not thereafter been obtained by such Sub-Servicer within a reasonable time).
The Trustee shall make available to Certificateholders, Certificate Owners and
prospective Certificateholders and Certificate Owners (which prospective
Certificateholders and Certificate Owners have been certified to it as such by a
Certificateholder or a Certificate Owner), in accordance with Section 8.12(b),
copies of all the written reports delivered to it pursuant to this Section
3.12(b) and, if and to the extent delivered to it in written or electronic
format, the related additional information referred to in the preceding
sentence. In the absence of actual knowledge that the Master Servicer or the
Special Servicer is in default under this Section 3.12(b), the Trustee shall
have no obligation to confirm that the Master Servicer or the Special Servicer
has or is attempting to collect any of the items described above in this Section
3.12(b).
SECTION 3.13 Annual Statement as to Compliance.
Each of the Master Servicer and the Special Servicer will deliver to the
Trustee, with a copy to the Depositor, on or before __________ of each year,
beginning _________, 199_, an Officer's Certificate stating that (i) a review of
the activities of the Master Servicer or the Special Servicer, as the case may
be, during the preceding calendar year, and of its performance under this
Agreement during such calendar year, has been made under the signing officer's
supervision, (ii) to the best of such officer's knowledge, based on such review,
the Master Servicer or the Special Servicer, as the case may be, has in all
material respects fulfilled all of its obligations under this Agreement
thzoughout such calendar year, or, if there has been a material default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof, and (iii) the Master Servicer or the
Special Servicer, as the case may be, has received no notice regarding the
qualification or status as a REMIC of, or otherwise asserting a tax (other than
ad valorem real property taxes or other similar taxes on REO Property) on the
income or assets of, any portion of the Trust Fund from the Internal Revenue
Service or from any other governmental agency or body or, if it has received any
such notice, specifying the details thereof. The signing officer shall have no
personal liability with respect to the content of any such statement, and the
Master Servicer or the Special Servicer, as the case may be, shall be deemed to
have made such statement and shall assume any liability resulting therefrom.
The Master Servicer and the Special Servicer, to the extent applicable,
will reasonably cooperate with the Depositor in conforming any Officer's
Certificate delivered pursuant to this Section 3.13 to requirements imposed by
the Commission on the Depositor in connection with the Commission's issuance of
a no-action letter relating to the Depositor's reporting requirements in respect
of the Trust pursuant to the Exchange Act.
SECTION 3.14 Reports by Independent Public Accountants.
On or before __________ of each year, beginning _______, 199___ (or, as to
any such year, such earlier date as is contemplated by the last sentence of this
paragraph), each of the Master Servicer and the Special Servicer, at its
expense, shall cause a firm of independent public accountants that is a member
of the American Institute of Certified Public Accountants to furnish a statement
to the Depositor and the Trustee to the effect that such firm has examined such
documents and records as it has deemed necessary and appropriate relating to the
Master Servicer's or the Special Servicer's, as the case may be, servicing of
the Mortgage Loans under this Agreement or the servicing of mortgage loans
similar to the Mortgage Loans under substantially similar agreements for the
preceding calendar year (or during the period from the date of commencement of
the Master Servicer's or the Special Servicer's, as the case may be, duties
hereunder until the end of such preceding calendar year in the case of the first
such certificate) and that the assertion of the management of the Master
Servicer or the Special Servicer, as the case may be, that it maintained an
effective internal control system over servicing of the Mortgage Loans or
similar mortgage loans is fairly stated in all material respects, based upon
established criteria, which statement meets the standards applicable to
accountants' reports intended for general distribution. In rendering its report
such firm may rely, as to matters relating to the direct servicing of
securitized commercial and multifamily mortgage loans by Sub-Servicers, upon
comparable reports of firms of independent certified public accountants rendered
on the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
If the Depositor notifies the Trustee, the Master Servicer and the Special
Servicer on or before _________ of any year that such statements are required to
be filed with the Commission as part of the Form 10-K for the Trust covering the
prior calendar year, each of the Master Servicer and the Special Servicer shall
deliver such statement in respect of it by ____________ of such year.
The Master Servicer and the Special Servicer, to the extent applicable,
will reasonably cooperate with the Depositor in conforming any reports delivered
pursuant to this Section 3.14 to requirements imposed by the Commission on the
Depositor in connection with the Commission's issuance of a no-action letter
relating to the Depositor's reporting requirements in respect of the Trust
pursuant to the Exchange Act.
SECTION 3.15 Access to Certain Information.
Each of the Master Servicer and the Special Servicer shall provide or cause
to be provided to the other such party, the Depositor, the Trustee and the
Rating Agencies, and to the OTS, the FDIC, and any other federal or state
banking or insurance regulatory authority that may exercise authority over any
Certificateholder, access to any documentation regarding the Mortgage Loans and
the other assets of the Trust Fund that are within its control which may be
required by this Agreement or by applicable law. Such access shall be afforded
without charge but only upon reasonable prior written request and during normal
business hours at the offices of the Master Servicer or the Special Servicer, as
the case may be, designated by it.
SECTION 3.16 Title to REO Property; REO Account.
(a) If title to any REO Property is acquired, the deed or certificate of
sale shall be issued to the Trustee on behalf of the Certificateholders. The
Special Servicer shall sell any REO Property by the end of the third calendar
year following the year in which the Trust acquires ownership of such REO
Property for purposes of Section 860G(a)(8) of the Code, unless the Special
Servicer either (i) is granted an extension of time (an "REO Extension") by the
Internal Revenue Service to sell such REO Property or (ii) obtains for the
Trustee and the REMIC Administrator an Opinion of Counsel, addressed to the
Trustee and the REMIC Administrator, to the effect that the holding by the Trust
of such REO Property subsequent to the end of the third calendar year following
the year in which such acquisition occurred, will not result in the imposition
of taxes on "prohibited transactions" of REMIC I or REMIC II as defined in
Section 860F of the Code or cause REMIC I or REMIC II to fail to qualify as a
REMIC at any time that any Certificates are outstanding. If the Special Servicer
is granted the REO Extension contemplated by clause (i) of the immediately
preceding sentence or obtains the Opinion of Counsel contemplated by clause (ii)
of the immediately preceding sentence, the Special Servicer shall sell such REO
Property within such period longer than three years following the year that such
property was acquired, as is permitted by such REO Extension or such Opinion of
Counsel, as the case may be. Any reasonable expense incurred by the Special
Servicer in connection with its being granted the REO Extension contemplated by
clause (i) of the second preceding sentence or its obtaining the Opinion of
Counsel contemplated by clause (ii) of the second preceding sentence, shall be
an expense of the Trust payable out of the Certificate Account pursuant to
Section 3.05(a). Any REO Extension shall be requested by the Special Servicer no
later than ___ days before the end of the third calendar year following the year
in which the Trust acquired ownership of the related REO Property.
(b) The Special Servicer shall segregate and hold all funds collected and
received in connection with any REO Property separate and apart from its own
funds and general assets. If an REO Acquisition shall occur, the Special
Servicer shall establish and maintain one or more accounts (collectively, the
"REO Account"), to be held on behalf of the Trustee in trust for the benefit of
the Certificateholders, for the retention of revenues and other proceeds derived
from each REO Property. The REO Account shall be an Eligible Account and may
consist of one account for all the REO Properties. The Special Servicer shall
deposit, or cause to be deposited, in the REO Account, within two Business Days
of receipt, all REO Revenues, Liquidation Proceeds (net of all Liquidation
Expenses paid therefrom) and Insurance Proceeds received in respect of an REO
Property. The Special Servicer is authorized to pay out of related Liquidation
Proceeds any Liquidation Expenses incurred in respect of an REO Property and
outstanding at the time such proceeds are received. Funds in the REO Account may
be invested in Permitted Investments in accordance with Section 3.06. The
Special Servicer shall be entitled to make withdrawals from the REO Account to
pay itself, as additional servicing compensation in accordance with Section
3.11(d), interest and investment income earned in respect of amounts held in the
REO Account as provided in Section 3.06(b) (but only to the extent of the Net
Investment Earnings with respect to the REO Account for any Collection Period).
The Special Servicer shall give notice to the other parties hereto of the
location of the REO Account when first established and of the new location of
the REO Account prior to any change thereof.
(c) The Special Servicer shall withdraw from the REO Account funds
necessary for the proper operation, management, maintenance and disposition of
any REO Property, but only to the extent of amounts on deposit in the REO
Account relating to such REO Property. Within one Business Day following the end
of each Collection Period, the Special Servicer shall withdraw from the REO
Account and deposit into the Certificate Account or deliver to the Master
Servicer (which shall deposit such amounts into the Certificate Account) the
aggregate of all amounts received in respect of each REO Property during such
Collection Period, net of any withdrawals made out of such amounts pursuant to
the preceding sentence; provided that the Special Servicer may retain in the REO
Account such portion of proceeds and collections as may be necessary to maintain
a reserve of sufficient funds for the proper operation, management, maintenance
and disposition of the related REO Property (including without limitation the
creation of a reasonable reserve for repairs, replacements and necessary capital
improvements and other related expenses), such reserve not to exceed an amount
sufficient to cover such items to be incurred during the following twelve-month
period.
(d) The Special Servicer shall keep and maintain separate records, on a
property-by-property basis, for the purpose of accounting for all deposits to,
and withdrawals from, the REO Account pursuant to Section 3.16(b) or (c).
SECTION 3.17 Management of REO Property.
(a) Prior to the acquisition of title to any Mortgaged Property securing a
defaulted Mortgage Loan, the Special Servicer shall review the operation of such
Mortgaged Property and determine the nature of the income that would be derived
from such property if it were acquired by the Trust. If the Special Servicer
determines from such review that:
(i) None of the income from Directly Operating such Mortgaged Property
would be subject to tax as "net income from foreclosure property"
within the meaning of the REMIC Provisions or would be subject to the
tax imposed on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"), such
Mortgaged Property may be Directly Operated by the Special Servicer as
REO Property;
(ii) Directly Operating such Mortgaged Property as an REO Property
could result in income from such property that would be subject to an
REO Tax, but that a lease of such property to another party to operate
such property, or the performance of some services by an Independent
Contractor with respect to such property, or another method of
operating such property would not result in income subject to an REO
Tax, then the Special Servicer may (provided, that in the good faith
and reasonable judgment of the Special Servicer, it is commercially
feasible) acquire such Mortgaged Property as REO Property and so lease
or operate such REO Property; or
(iii) It is reasonable to believe that Directly Operating such
property as REO Property could result in income subject to an REO Tax
and that no commercially feasible means exists to operate such
property as REO Property without the Trust incurring or possibly
incurring an REO Tax on income from such property, the Special
Servicer shall deliver to the REMIC Administrator, in writing, a
proposed plan (the "Proposed Plan") to manage such property as REO
Property. Such plan shall include potential sources of income, and to
the extent commercially feasible, estimates of the amount of income
from each such source. Within a reasonable period of time after
receipt of such plan, the REMIC Administrator shall consult with the
Special Servicer and shall advise the Special Servicer of the Trust's
federal income tax reporting position with respect to the various
sources of income that the Trust would derive under the Proposed Plan.
In addition, the REMIC Administrator shall (to the maximum extent
possible) advise the Special Servicer of the estimated amount of taxes
that the Trust would be required to pay with respect to each such
source of income. After receiving the information described in the two
preceding sentences from the REMIC Administrator, the Special Servicer
shall either (A) implement the Proposed Plan (after acquiring the
respective Mortgaged Property as REO Property) or (B) manage and
operate such property in a manner that would not result in the
imposition of an REO Tax on the income derived from such property.
The Special Servicer's decision as to how each REO Property shall be
managed and operated shall be based on the good faith and reasonable judgment of
the Special Servicer as to which means would be in the best interest of the
Certificateholders by maximizing (to the extent commercially feasible) the net
after-tax REO Revenues received by the Trust with respect to such property
without materially impairing its marketability and, to the extent consistent
with the foregoing, in the same manner as would prudent mortgage loan servicers
and asset managers operating acquired mortgaged property comparable to such REO
Property. Both the Special Servicer and the REMIC Administrator may consult with
counsel knowledgeable in such matters at (to the extent reasonable) the expense
of the Trust in connection with determinations required under this Section
3.17(a). Neither the Special Servicer nor the REMIC Administrator shall be
liable to the Certificateholders, the Trust, the other parties hereto or each
other for errors in judgment made in good faith in the reasonable exercise of
their discretion while performing their respective responsibilities under this
Section 3.17(a) or, to the extent it relates to federal income tax consequences
for the Trust, Section 3.17(b) below. Nothing in this Section 3.17(a) is
intended to prevent the sale of a Defaulted Mortgage Loan or REO Property
pursuant to the terms and subject to the conditions of Section 3.18.
(b) If title to any REO Property is acquired, the Special Servicer shall
manage, conserve, protect and operate such REO Property for the benefit of the
Certificateholders solely for the purpose of its prompt disposition and sale in
a manner that does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or,
except as contemplated by Section 3.17(a), result in the receipt by either of
REMIC I or REMIC II of any "income from non-permitted assets" within the meaning
of Section 860F(a)(2)(B) of the Code or in an Adverse REMIC Event in respect of
any such REMIC. Except as provided in Section 3.17(a), the Special Servicer
shall not enter into any lease, contract or other agreement that causes REMIC I
to receive, and (unless required to do so under any lease, contract or agreement
to which the Special Servicer or the Trust may become a party or successor to a
party due to a foreclosure, deed-in-lieu of foreclosure or other similar
exercise of a creditor's rights or remedies with respect to a Mortgage Loan)
shall not cause or allow REMIC I to receive any "net income from foreclosure
property" that is subject to taxation under the REMIC Provisions. Subject to the
foregoing, however, the Special Servicer shall have full power and authority to
do any and all things in connection therewith as are consistent with the
Servicing Standard and, consistent therewith, shall withdraw from the REO
Account, to the extent of amounts on deposit therein with respect to any REO
Property, funds necessary for the proper operation, management, maintenance and
disposition of such REO Property, including without limitation:
(i) all insurance premiums due and payable in respect of such REO
Property;
(ii) all real estate taxes and assessments in respect of such REO Property
that may result in the imposition of a lien thereon;
[(iii) any ground rents in respect of such REO Property;] and
(iv) all costs and expenses necessary to maintain, lease, sell, protect,
manage, operate and restore such REO Property.
To the extent that amounts on deposit in the REO Account in respect of any
REO Property are insufficient for the purposes set forth in clauses (i) through
[(iv)] above with respect to such REO Property, the Special Servicer shall
direct the Master Servicer to make (and the Master Servicer shall so make)
Servicing Advances in such amounts as are necessary for such purposes unless (as
evidenced in the manner contemplated by Section 3.11(g)) the Special Servicer or
the Master Servicer determines, in its reasonable, good faith judgment, that
such payment would be a Nonrecoverable Servicing Advance.
(c) The Special Servicer may (and, except as otherwise permitted by Section
3.17(a), shall if it would avoid an Adverse REMIC Event) contract with any
Independent Contractor for the operation and management of any REO Property,
provided that:
(i) the terms and conditions of any such contract may not be inconsistent
herewith and shall reflect an agreement reached at arm's length;
(ii) the fees of such Independent Contractor [(which shall be expenses of
the Trust)] shall be reasonable and customary in consideration of the
nature and locality of the REO Property;
(iii) any such contract shall be consistent with the provisions of Treasury
Regulation ss.1.856-4(b)(5) and, to the extent consistent therewith,
shall be administered to require that the Independent Contractor, in a
timely manner, (A) to the extent of available revenue from the REO
Property, pay all costs and expenses incurred in connection with the
operation and management of such REO Property, including, without
limitation, those listed in Section 3.17(b) above, and (B) remit all
related revenues collected (net of [its fees and] such costs and
expenses) to the Special Servicer upon receipt;
(iv) none of the provisions of this Section 3.17(c) relating to any such
contract or to actions taken through any such Independent Contractor
shall be deemed to relieve the Special Servicer of any of its duties
and obligations hereunder with respect to the operation and management
of any such REO Property;
(v) the Special Servicer shall be obligated with respect thereto to the
same extent as if it alone were performing all duties and obligations
in connection with the operation and management of such REO Property;
and
(vi) the appointment of such Independent Contractor will not result in a
qualification, downgrading or withdrawal of any of the ratings then
assigned to the Certificates by such Rating Agency (as evidenced in
writing or otherwise by such Rating Agency).
The Special Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Special Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification.
SECTION 3.18 Sale of Mortgage Loans and REO Properties.
(a) The parties hereto may sell or purchase, or permit the sale or purchase
of, a Mortgage Loan or REO Property only on the terms and subject to the
conditions set forth in this Section 3.18 or as otherwise expressly provided in
or contemplated by Sections 2.03 and 9.01.
(b) [If the Special Servicer has determined, in its good faith and
reasonable judgment, that any Defaulted Mortgage Loan will become the subject of
a foreclosure sale or similar proceeding, and that the sale of such Mortgage
Loan under the circumstances provided in this Section 3.18(b) or in Section
3.18(c) is in accordance with the Servicing Standard, the Special Servicer shall
promptly so notify in writing the Trustee and the Master Servicer, and the
Trustee shall, within 10 days after receipt of such notice, notify all the
Certificateholders of the Controlling Class. The Majority Certificateholder of
the Controlling Class may at its option purchase from the Trust, at a price
equal to the applicable Purchase Price, any such Defaulted Mortgage Loan. The
Purchase Price for any Mortgage Loan purchased under this paragraph (b) shall be
deposited into the Certificate Account, and the Trustee, upon receipt of an
Officer's Certificate from the Master Servicer to the effect that such deposit
has been made, shall release or cause to be released to the Certificateholder(s)
effecting such purchase (or any designee thereof) the related Mortgage File, and
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, as shall be provided to it and are reasonably necessary
to vest in the Certificateholder(s) effecting such purchase (or any designee
thereof) ownership of such Mortgage Loan. In connection with any such purchase,
the Special Servicer shall deliver the related Servicing File to the
Certificateholder(s) effecting such purchase (or any designee thereof).
(c) If the Majority Certificateholder of the Controlling Class has not
purchased any Defaulted Mortgage Loan described in the first sentence of Section
3.18(b) within 15 days of its having received notice in respect thereof pursuant
to Section 3.18(b)] above, either the Special Servicer or, subject to the
Special Servicer's prior rights in such regard, the Master Servicer may at its
option purchase such Mortgage Loan from the Trust, at a price equal to the
Purchase Price. The Purchase Price for any such Mortgage Loan purchased under
this paragraph (c) shall be deposited into the Certificate Account, and the
Trustee, upon receipt of an Officer's Certificate from the Master Servicer to
the effect that such deposit has been made, shall release or cause to be
released to the Master Servicer or the Special Servicer, as applicable, the
related Mortgage File, and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be provided to
it and are reasonably necessary to vest in the Master Servicer or the Special
Servicer, as applicable, the ownership of such Mortgage Loan. In connection with
any such purchase by the Master Servicer, the Special Servicer shall deliver the
related Servicing File to the Master Servicer.
(d) The Special Servicer may offer to sell any Defaulted Mortgage Loan not
otherwise purchased pursuant to Section 3.18(b) or Section 3.18(c) above, if and
when the Special Servicer determines, consistent with the Servicing Standard,
that such a sale would be in the best economic interests of the Trust. Such
offer shall be made in a commercially reasonable manner (which, for purposes
hereof, includes an offer to sell without representation or warranty other than
customary warranties of title, loan status, condition and similar customary
matters, if liability for breach thereof is limited to recourse against the
Trust) for a period of not less than 30 days. Unless the Special Servicer
determines that acceptance of any offer would not be in the best economic
interests of the Trust, the Special Servicer shall accept the highest cash offer
received from any Person that constitutes a fair price for such Mortgage Loan.
In the absence of any offer determined as provided below to be fair, the Special
Servicer shall proceed with respect to such Defaulted Mortgage Loan in
accordance with Section 3.09 and, otherwise, in accordance with the Servicing
Standard.
The Special Servicer shall use its best efforts to solicit offers for each
REO Property in such manner as will be reasonably likely to realize a fair price
within the time period provided for by Section 3.16(a). The Special Servicer
shall accept the first (and, if multiple offers are received contemporaneously,
highest) cash offer received from any Person that constitutes a fair price
(determined pursuant to Section 3.18(e) below) for such REO Property. If the
Special Servicer reasonably believes that it will be unable to realize a fair
price (determined pursuant to Section 3.18(e) below) for any REO Property within
the time constraints imposed by Section 3.16(a), the Special Servicer shall
dispose of such REO Property upon such terms and conditions as the Special
Servicer shall deem necessary and desirable to maximize the recovery thereon
under the circumstances and, in connection therewith, shall accept the highest
outstanding cash offer, regardless of from whom received.
The Special Servicer shall give the Trustee and the Master Servicer not
less than five Business Days' prior written notice of its intention to sell any
Defaulted Mortgage Loan or REO Property pursuant to this Section 3.18(d). No
Interested Person shall be obligated to submit an offer to purchase any such
Mortgage Loan or REO Property, and notwithstanding anything to the contrary
herein, neither the Trustee nor any of its respective Affiliates may make an
offer for or purchase any Defaulted Mortgage Loan or any REO Property pursuant
hereto.
(e) Whether any cash offer constitutes a fair price for any Defaulted
Mortgage Loan or REO Property, as the case may be, for purposes of Section
3.18(d), shall be determined by the Special Servicer or, if such cash offer is
from an Interested Person, by the Trustee. In determining whether any offer
received from an Interested Person represents a fair price for any such Mortgage
Loan or REO Property, the Trustee shall be supplied with and shall rely on the
most recent Appraisal or updated Appraisal conducted in accordance with this
Agreement within the preceding 12-month period or, in the absence of any such
Appraisal, on a narrative appraisal prepared by a Qualified Appraiser, retained
by the Special Servicer. Such appraiser shall be selected by the Special
Servicer if neither the Special Servicer nor any Affiliate thereof is making an
offer with respect to a Defaulted Mortgage Loan or REO Property and shall be
selected by the Trustee if the Special Servicer or an Affiliate thereof is
making such an offer. The cost of any such narrative appraisal shall be advanced
by the Master Servicer, at the direction of the Special Servicer, and shall
constitute a Servicing Advance. When any Interested Person is among those making
an offer with respect to a Defaulted Mortgage Loan or REO Property, the Special
Servicer shall require that all offers be submitted in writing and be
accompanied by a refundable deposit of cash in an amount equal to 5% of the
offered amount. In determining whether any offer from a Person other than an
Interested Person constitutes a fair price for any such Mortgage Loan or REO
Property, the Special Servicer shall take into account (in addition to the
results of any Appraisal, updated Appraisal or narrative Appraisal that it may
have obtained pursuant to this Agreement within the prior 12 months), and in
determining whether any offer from an Interested Person constitutes a fair price
for any such Mortgage Loan or REO Property, any appraiser or other expert in
real estate matters shall be instructed to take into account, as applicable,
among other factors, the period and amount of any delinquency on the affected
Mortgage Loan, the occupancy level and physical condition of the Mortgaged
Property or REO Property, the state of the local economy and the obligation to
dispose of any REO Property within the time period specified in Section 3.16(a).
Notwithstanding the other provisions of this Section 3.18, no cash offer from
any Interested Person or any Affiliate thereof in an amount less than the
related Purchase Price shall constitute a fair price for any Defaulted Mortgage
Loan or REO Property unless such offer is the highest cash offer received and at
least two additional offers (not including the offers of Interested Persons or
any Affiliates thereof) have been received fzom Independent third parties
reflecting prices less than the related Purchase Price. The Purchase Price for
any Defaulted Mortgage Loan or REO Property shall in all cases be deemed a fair
price.
(f) Subject to Sections 3.18(a) through 3.18(e) above, the Special Servicer
shall act on behalf of the Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Defaulted Mortgage
Loan or REO Property, and the collection of all amounts payable in connection
therewith. In connection therewith, the Special Servicer may charge prospective
offerors, and may retain, fees that approximate the Special Servicer's actual
costs in the preparation and delivery of information pertaining to such sales or
evaluating offers without obligation to deposit such amounts into the
Certificate Account. Any sale of a Defaulted Mortgage Loan or any REO Property
shall be final and without recourse to the Trustee or the Trust (except such
recourse imposed by those representations and warranties typically given in such
transactions, any prorations applied thereto and any customary closing matters),
and if such sale is consummated in accordance with the terms of this Agreement,
none of the Special Servicer, the Master Servicer or the Trustee shall have any
liability to any Certificateholder with respect to the purchase price therefor
accepted by the Special Servicer or the Trustee.
(g) Any sale of a Defaulted Mortgage Loan or any REO Property shall be for
cash only (unless, as evidenced by an Opinion of Counsel, changes in the REMIC
Provisions made subsequent to the Startup Day allow a sale for other
consideration).
(h) Notwithstanding any of the foregoing paragraphs of this Section 3.18,
the Special Servicer shall not be obligated to accept the highest cash offer if
the Special Servicer determines, in accordance with the Servicing Standard, that
rejection of such offer would be in the best interests of the
Certificateholders, and the Special Servicer may accept a lower cash offer (from
any Person other than itself or an Affiliate) if it determines, in accordance
with the Servicing Standard, that acceptance of such offer would be in the best
interests of the Certificateholders (for example, if the prospective buyer
making the lower offer is more likely to perform its obligations or the terms
(other than price) offered by the prospective buyer making the lower offer are
more favorable).
SECTION 3.19 Additional Obligations of the Master Servicer and the Special
Servicer
(a) The Master Servicer shall maintain at its Primary Servicing Office and
shall, upon reasonable advance written notice, make available during normal
business hours for review by each Rating Agency and by any Certificateholder or
Certificate Owner or any Person identified to the Master Servicer as a
prospective transferee of a Certificate or an interest therein, copies of the
Servicing Files; provided that, if the Master Servicer in its reasonable, good
faith determination believes that any item of information contained in such
Servicing Files is of a nature that it should be conveyed to all
Certificateholders at the same time, it shall, as soon as reasonably possible
following its receipt of any such item of information, disclose such item of
information to the Trustee as part of the reports to be delivered to the Trustee
by the Master Servicer pursuant to Section 4.02(b), and until the Trustee has
either disclosed such information to all Certificateholders in a Distribution
Date Statement or has properly filed such information with the Commission on
behalf of the Trust under the Exchange Act, the Master Servicer shall be
entitled to withhold such item of information from any Certificateholder or
Certificate Owner or prospective transferee of a Certificate or an interest
therein; and provided, further, that the Servicer shall not be required to make
particular items of information contained in the Servicing File for any Mortgage
Loan available to any Person if the disclosure of such particular items of
information is expressly prohibited by the provisions of any related Mortgage
Loan documents. Except as set forth in the provisos to the preceding sentence,
copies of all or any portion of any Servicing File are to be made available by
the Master Servicer upon request; however, the Master Servicer shall be
permitted to require payment of a sum sufficient to cover the reasonable
out-of-pocket costs and expenses of providing such service. The Special Servicer
shall, as to each Specially Serviced Mortgage Loan and REO Property, promptly
deliver to the Master Servicer a copy of each document or instrument added to
the related Servicing File, and the Master Servicer shall in no way be in
default under this Section 3.19(a) solely by reason of the Special Servicer's
failure to do so.
In connection with providing access to or copies of the items described in
the preceding paragraph, the Master Servicer may require, unless the Depositor
directs otherwise, (a) in the case of Certificate Owners, a written confirmation
executed by the requesting Person, in form reasonably satisfactory to the Master
Servicer, generally to the effect that such Person is a beneficial holder of
Certificates and will otherwise keep such information confidential and (b) in
the case of a prospective purchaser, confirmation executed by the requesting
Person generally to the effect that such Person is a prospective purchaser of a
Certificate or an interest therein, is requesting the information for use in
evaluating a possible investment in Certificates and will otherwise keep such
information confidential. All Certificateholders, by the acceptance of their
Certificates, shall be deemed to have agreed to keep such information
confidential, except to the extent that the Depositor grants written permission
to the contrary. The Master Servicer shall not be liable for the dissemination
of information in accordance with this Section 3.19(a).
(b) Within 30 days (or within such longer period as the Master Servicer or
the Special Servicer, as applicable, is (as certified thereby to the Trustee in
writing) diligently and in good faith proceeding to obtain the Appraisal
referred to below) after the earliest of (i) the date on which any Mortgage Loan
becomes a Modified Mortgage Loan, (ii) the 90th day following the occurrence of
any uncured delinquency in Monthly Payments with respect to any Mortgage Loan,
(iii) the date on which a receiver is appointed in respect of the Mortgaged
Property securing any Mortgage Loan, (iv) the date on which the Mortgagor under
any Mortgage Loan becomes the subject of bankruptcy or insolvency proceedings,
and (v) the date on which the Mortgaged Property securing any Mortgage Loan
becomes an REO Property (each such Mortgage Loan and any related REO Loan, until
it ceases to be such in accordance with the following paragraph, a "Required
Appraisal Loan"), the Master Servicer or Special Servicer, as applicable, shall
obtain an Appraisal of the related Mortgaged Property; unless an Appraisal
thereof had previously been obtained within the prior twelve months. The cost of
such Appraisal shall be advanced by the Master Servicer, subject to its being
entitled to reimbursement therefor as a Servicing Advance as provided in Section
3.05(a), such Advance to be made at the direction of the Special Servicer when
the Appraisal is obtained by the Special Servicer.
With respect to each Required Appraisal Loan (unless such loan has become a
Corrected Mortgage Loan and has remained current for twelve consecutive Monthly
Payments, and no other Servicing Transfer Event has occurred with respect
thereto during such twelve months, in which case it will cease to be a Required
Appraisal Loan), the Special Servicer shall, within 30 days of each anniversary
of such loan's becoming a Required Appraisal Loan, order an update of the prior
Appraisal (the cost of which shall be advanced by the Master Servicer as a
Servicing Advance at the direction of the Special Servicer, subject to the
Master Servicer's right to reimbursement as provided in Section 3.05(a)). Based
upon such Appraisal, the Special Servicer shall redetermine and report to the
Trustee the Appraisal Reduction Amount, if any, with respect to such loan.
(c) The Master Servicer and the Special Servicer shall each deliver to the
other and to the Trustee (for inclusion in the Mortgage File) and the Rating
Agencies copies of all Appraisals, environmental reports and engineering reports
(or, in each case, updates thereof) obtained with respect to any Mortgaged
Property or REO Property.
(d) No more frequently than once per calendar month, the Special Servicer
may require the Master Servicer, and the Master Servicer shall be obligated, to
reimburse the Special Servicer for any Servicing Advances made by the Special
Servicer, but not previously reimbursed (whether pursuant to Section 3.05(a),
this Section 3.19(d) or otherwise) to the Special Servicer, and to pay the
Special Servicer interest thereon at the Reimbursement Rate from the date made
to, but not including, the date of reimbursement. Such reimbursement and any
accompanying payment of interest shall be made within ten (10) days of the
request therefor by wire transfer of immediately available funds to an account
designated by the Special Servicer. Upon the Master Servicer's reimbursement to
the Special Servicer of any Servicing Advance and payment to the Special
Servicer of interest thereon, all in accordance with this Section 3.19(d), the
Master Servicer shall for all purposes of this Agreement be deemed to have made
such Servicing Advance at the same time as the Special Servicer originally made
such Advance, and accordingly, the Master Servicer shall be entitled to
reimbursement for such Advance, together with Advance Interest thereon, at the
same time, in the same manner and to the same extent as the Master Servicer
would otherwise have been entitled if it had actually made such Servicing
Advance.
Notwithstanding anything to the contrary contained in this Agreement, if
the Special Servicer (i) is required under any other provision of this Agreement
to direct the Master Servicer to make a Servicing Advance or (ii) is otherwise
aware a reasonable period in advance that it is reasonably likely that the
Special Servicer will incur a cost or expense that will, when incurred,
constitute a Servicing Advance, the Special Servicer shall (in the case of
clause (i) preceding), and shall use reasonable efforts to (in the case of
clause (ii) preceding), request that the Master Servicer make such Servicing
Advance, such request to be made in writing and in a timely manner that does not
materially and adversely affect the interests of any Certificateholder and at
least five Business Days prior to the date on which failure to make such
Servicing Advance would (with notice from the Trustee regardless of whether such
notice is actually received) constitute an Event of Default pursuant to Section
7.01(a)(v); provided, however, that the Special Servicer shall have an
obligation to make any Emergency Advance or any other Servicing Advance with
respect to which it would, under the circumstances, be inconsistent with the
Servicing Standard for the Special Servicer to request that the Master Servicer
make such Servicing Advance (in lieu of making such Servicing Advance itself and
seeking reimbursement therefor as provided herein); and provided, further, that
the Special Servicer shall, with respect to Specially Serviced Mortgage Loans
and REO Properties, make any Servicing Advance that it fails to timely request
the Master Servicer to make. The Master Servicer shall have the obligation to
make any such Servicing Advance that it is requested by the Special Servicer to
make within five Business Days of the Master Servicer's receipt of such request.
Subject to the foregoing, the Special Servicer shall be relieved of any
obligations with respect to a Servicing Advance that it timely requests the
Master Servicer to make (regardless of whether or not the Master Servicer shall
make such Servicing Advance), other than an Emergency Advance or any other
Servicing Advance with respect to which it would, under the circumstances, be
inconsistent with the Servicing Standard for the Special Servicer to request
that the Master Servicer make such Servicing Advance (in lieu of making such
Servicing Advance itself and seeking reimbursement therefor as provided herein).
The Master Servicer shall be entitled to reimbursement for any Servicing Advance
made by it at the direction of the Special Servicer, together with Advance
Interest thereon, at the same time, in the same manner and to the same extent as
the Master Servicer is entitled with respect to any other Servicing Advance made
thereby.
Notwithstanding the foregoing provisions of this Section 3.19(d) or any
other provision of this Agreement to the contrary, the Master Servicer shall not
be required to reimburse the Special Servicer for, or make at the Special
Servicer's direction, any Servicing Advance if the Master Servicer determines in
its reasonable, good faith judgment that the Servicing Advance which the Special
Servicer is directing the Master Servicer to reimburse it for or make hereunder,
although not characterized by the Special Servicer as a Nonrecoverable Servicing
Advance, is or would be, if made, a Nonrecoverable Servicing Advance. The Master
Servicer shall notify the Special Servicer and the Trustee in writing of such
determination. Such notice shall not obligate the Special Servicer to make such
Servicing Advance.
(e) The Master Servicer shall deliver to the Trustee for deposit in the
Distribution Account on each Master Servicer Remittance Date, without any right
of reimbursement therefor, an amount equal to the lesser of (i) the aggregate of
all Prepayment Interest Shortfalls incurred in connection with Principal
Prepayments received in respect of the Mortgage Pool during the most recently
ended Collection Period, and (ii) that portion of its aggregate Master Servicing
Fee for the related Collection Period that is, in the case of each and every
Mortgage Loan and REO Loan, calculated at 0.040% per annum, together with the
total amount of additional master servicing compensation to which the Master
Servicer is entitled under Section 3.11(b) and that was received during such
Collection Period.
(f) Except under the same circumstances that it would be permitted to waive
a prepayment lockout provision in the subject Mortgage Loan pursuant to Section
3.20(a), neither the Master Servicer nor the Special Servicer shall consent to
any Mortgagor's prepaying its Mortgage Loan, partially or in its entirety, if
the Mortgagor would be prohibited from doing so without such consent.
(g) The Master Servicer shall not exercise any discretionary right it has
with respect to any Mortgage Loan pursuant to the related Mortgage Note or
Mortgage to apply any amounts maintained as an escrow or reserve to the
principal balance of such Mortgage Loan except in the case of a default
thereunder.
SECTION 3.20 Modifications, Waivers, Amendments and Consents.
(a) The Master Servicer and the Special Servicer each may, consistent with
the Servicing Standard, agree to any modification, waiver or amendment of any
term of, forgive or defer the payment of interest (including, without
limitation, Default Interest and Additional Interest) on and principal of,
forgive late payment charges and Prepayment Premiums on, permit the release,
addition or substitution of collateral securing, and/or permit the release of
the Mortgagor on or any guarantor of any Mortgage Loan it is required to service
and administer hereunder, without the consent of the Trustee or any
Certificateholder, subject, however, to each of the following limitations,
conditions and restrictions:
(i) other than as expressly provided in Section 3.02 (with respect
to Default Charges), Section 3.08 (with respect to due-on-sale and
due-on-encumbrance clauses) and Section 3.20(f) (with respect to
Additional Interest), the Master Servicer shall not agree to any
modification, waiver or amendment of any term of, or take any of the
other acts referenced in this Section 3.20(a) with respect to, any
Mortgage Loan it is required to service and administer hereunder that
would affect the amount or timing of any related payment of principal,
interest or other amount payable thereunder or, in the Master
Servicer's good faith and reasonable judgment, materially impair the
security for such Mortgage Loan or reduce the likelihood of timely
payment of amounts due thereon; the Special Servicer may, however,
agree to any modification, waiver or amendment of any term of, or take
any of the other acts referenced in this Section 3.20(a) with respect
to, a Specially Serviced Mortgage Loan that would have any such effect,
but only if a material default on such Mortgage Loan has occurred or,
in the Special Servicer's reasonable and good faith judgment, a default
in respect of payment on such Mortgage Loan is reasonably foreseeable,
and such modification, waiver, amendment or other action is reasonably
likely to produce a greater recovery to Certificateholders (as a
collective whole) on a present value basis (the relevant discounting of
anticipated collections that will be distributable to
Certificateholders to be performed at the related Net Mortgage Rate
(or, in the case of a Hyper-Amortization Loan after its Anticipated
Repayment Date, the related Net Mortgage Rate in effect immediately
prior to such Anticipated Repayment Date)), than would liquidation;
(ii) the Special Servicer may not, in connection with any
particular extension, extend the maturity date of any Specially
Serviced Mortgage Loan beyond _________ ____, 20__;
(iii) neither the Master Servicer nor the Special Servicer shall
make or permit any modification, waiver or amendment of any term of, or
take any of the other acts referenced in this Section 3.20(a) or in
Section 3.08 with respect to, any Mortgage Loan that would (A) cause
REMIC I or REMIC II to fail to qualify as a REMIC under the Code or
result in the imposition of any tax on "prohibited transactions" or
"contributions" after the Startup Day of either such REMIC under the
REMIC Provisions or (B) cause any Mortgage Loan to cease to be a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the
Code (neither the Master Servicer nor the Special Servicer shall be
liable for decisions made under this subsection which were made in good
faith and, unless it would constitute bad faith or negligence to do so,
each of the Master Servicer and the Special Servicer may rely on
Opinions of Counsel in making such decisions);
(iv) neither the Master Servicer nor the Special Servicer shall
permit any Mortgagor to add or substitute any collateral for an
outstanding Mortgage Loan, which additional or substitute collateral
constitutes real property, unless the Special Servicer shall have first
determined in accordance with the Servicing Standard, based upon a
Phase I Environmental Assessment (and such additional environmental
testing as the Special Servicer deems necessary and appropriate)
prepared by an Independent Person who regularly conducts Phase I
Environmental Assessments (and such additional environmental testing),
at the expense of the Mortgagor, that such additional or substitute
collateral is in compliance with applicable environmental laws and
regulations and that there are no circumstances or conditions present
with respect to such new collateral relating to the use, management or
disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation would be required
under any then applicable environmental laws and/or regulations; and
(v) neither the Master Servicer nor the Special Servicer shall
release any collateral securing an outstanding Mortgage Loan
(including, without limitation, as part of a substitution of
collateral), except in connection with a payment in full or, subject to
the other provisions of this Section 3.20, a discounted payoff of such
Mortgage Loan, or except as provided in Section 3.09(d), or except
where the Rating Agencies have been notified in writing and (A) either
(1) the use of the collateral to be released will not, in the Master
Servicer's or Special Servicer's, as the case may be, good faith and
reasonable judgment, materially and adversely affect the Net Operating
Income being generated by or the use of the related Mortgaged Property,
or (2) there is a corresponding principal paydown of such Mortgage Loan
in an amount at least equal to, or a delivery of substitute collateral
with an appraised value at least equal to, the appraised value of the
collateral to be released, (B) the remaining Mortgaged Property and any
substitute collateral is, in the Master Servicer's or Special
Servicer's, as the case may be, good faith and reasonable judgment,
adequate security for the remaining Mortgage Loan and (C) if the
collateral that is being released has an Appraised Value in excess of
$3,000,000, __________ has confirmed in writing that such release
and/or substitution would not result in the downgrade, qualification or
withdrawal of the rating then assigned by __________ to any Class of
Certificates;
provided that (1) the limitations, conditions and restrictions set forth in
clauses (i) through (v) above shall not apply to any of the acts referenced in
this Section 3.20(a) in respect of any Mortgage Loan that is expressly provided
for, or that the related Mortgagor is permitted to effect without the
mortgagee's consent, in any event under the terms of such Mortgage Loan in
effect on the Closing Date, and (2) notwithstanding clauses (i) through (v)
above, neither the Master Servicer nor the Special Servicer shall be required to
oppose the confirmation of a plan in any bankruptcy or similar proceeding
involving a Mortgagor if in their reasonable and good faith judgment such
opposition would not ultimately prevent the confirmation of such plan or one
substantially similar.
(b) The Special Servicer shall have no liability to the Trust, the
Certificateholders or any other Person if its analysis and determination that
the modification, waiver, amendment or other action contemplated by Section
3.20(a) is reasonably likely to produce a greater recovery to Certificateholders
on a present value basis than would liquidation, should prove to be wrong or
incorrect, so long as the analysis and determination were made on a reasonable
basis in good faith by the Special Servicer and the Special Servicer has
complied with the Servicing Standard in ascertaining the pertinent facts. Each
such determination shall be evidenced by an Officer's Certificate to such effect
to be delivered by the Special Servicer to the Trustee.
(c) Any payment of interest, which is deferred pursuant to Section 3.20(a),
shall not, for purposes hereof, including, without limitation, calculating
monthly distributions to Certificateholders, be added to the unpaid principal
balance or Stated Principal Balance of the related Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so permit or that such
interest may actually be capitalized.
(d) The Master Servicer and the Special Servicer each may, as a condition
to its granting any request by a Mortgagor for consent, modification, waiver or
indulgence or any other matter or thing (except with respect to any waiver
pursuant to subsection (f) below), the granting of which is within the Master
Servicer's or Special Servicer's, as the case may be, discretion pursuant to the
terms of the instruments evidencing or securing the related Mortgage Loan and is
permitted by the terms of this Agreement, require that such Mortgagor pay to it,
as additional servicing compensation, a reasonable and customary fee (not to
exceed 1.0% of the unpaid principal balance of the related Mortgage Loan) for
the additional services performed in connection with such request, together with
any related costs and expenses incurred by it.
(e) All modifications, waivers, amendments and other actions entered into
or taken in respect of the Mortgage Loans pursuant to the preceding subsections
of this Section 3.20 shall be in writing. Each of the Master Servicer and the
Special Servicer shall notify the other such party and the Trustee, in writing,
of any modification, waiver, amendment or other action entered into or taken in
respect of any Mortgage Loan pursuant to this Section 3.20 and the date thereof,
and shall deliver to the Trustee or the related Custodian for deposit in the
related Mortgage File (with a copy to the other such party), an original
counterpart of the agreement relating to such modification, waiver, amendment or
other action, promptly (and in any event within ____ Business Days) following
the execution thereof. In addition, following the execution of any modification,
waiver or amendment agreed to by the Special Servicer pursuant to Section
3.20(a) above, the Special Servicer shall deliver to the Master Servicer and the
Trustee an Officer's Certificate setting forth in reasonable detail the basis of
the determination made by it pursuant to clause (i) of Section 3.20(a).
(f) With respect to any Hyper-Amortization Loan after its Anticipated
Repayment Date, the Master Servicer shall be permitted, in its discretion, to
waive (such waiver to be in writing addressed to the related Mortgagor, with a
copy to the Trustee) all or any accrued Additional Interest if, prior to the
related maturity date, the related Mortgagor has requested the right to prepay
the Mortgage Loan in full together with all payments required by the Mortgage
Loan in connection with such prepayment except for all or a portion of accrued
Additional Interest, provided that the Master Servicer's determination to waive
the right to such accrued Additional Interest is reasonably likely to produce a
greater payment to Certificateholders on a present value basis (the relevant
discounting of anticipated collections that will be distributable to
Certificateholders to be performed at the related Net Mortgage Rate in effect
immediately prior to the related Anticipated Repayment Date) than a refusal to
waive the right to such Additional Interest. The Master Servicer will have no
liability to the Trust, the Certificateholders or any other person so long as
such determination is based on such criteria.
SECTION 3.21 Transfer of Servicing Between Master Servicer and Special
Servicer; Record Keeping.
(a) Upon determining that a Servicing Transfer Event has occurred with
respect to any Mortgage Loan, the Master Servicer shall promptly give notice
thereof, and deliver the related Servicing File, to the Special Servicer and
shall use its best efforts to provide the Special Servicer with all information,
documents (or copies thereof) and records (including records stored
electronically on computer tapes, magnetic discs and the like) relating to the
Mortgage Loan and reasonably requested by the Special Servicer to enable it to
assume its functions hereunder with respect thereto without acting through a
Sub-Servicer. The Master Servicer shall use its best efforts to comply with the
preceding sentence within five Business Days of the occurrence of each related
Servicing Transfer Event.
Upon determining that a Specially Serviced Mortgage Loan has become a
Corrected Mortgage Loan, the Special Servicer shall promptly give notice
thereof, and return the related Servicing File, to the Master Servicer and upon
giving such notice, and returning such Servicing File, to the Master Servicer,
the Special Servicer's obligation to service such Mortgage Loan, and the Special
Servicer's right to receive the Special Servicing Fee with respect to such
Mortgage Loan, shall terminate, and the obligations of the Master Servicer to
service and administer such Mortgage Loan shall resume.
Notwithstanding other provisions in this Agreement to the contrary, the
Master Servicer shall remain responsible for the accounting, data collection,
reporting and other basic Master Servicer administrative functions with respect
to Specially Serviced Mortgage Loans, provided that the Special Servicer shall
establish procedures for the Master Servicer as to the application of receipts
and tendered payments and shall have the exclusive responsibility for and
authority over all contacts (including billing and collection) with and notices
to Mortgagors and similar matters relating to each Specially Serviced Mortgage
Loan and the related Mortgaged Property.
Also notwithstanding anything herein to the contrary, in connection with
the transfer to the Special Servicer of the servicing of a Cross-Collateralized
Mortgage Loan as a result of a Servicing Transfer Event or the re-assumption of
servicing responsibilities by the Master Servicer with respect to any such
Mortgage Loan upon its becoming a Corrected Mortgage Loan, the Master Servicer
and the Special Servicer shall each transfer to the other, as and when
applicable, the servicing of all other Cross-Collateralized Mortgage Loans
constituting part of the same Group; provided that no Cross-Collateralized
Mortgage Loan may become a Corrected Mortgage Loan at any time that a continuing
Servicing Transfer Event exists with respect to another Cross-Collateralized
Mortgage Loan in the same Group.
(b) In servicing any Specially Serviced Mortgage Loans, the Special
Servicer shall provide to the Trustee originals of documents contemplated by the
definition of "Mortgage File" and generated while such Mortgage Loan is a
Specially Serviced Mortgage Loan, for inclusion in the related Mortgage File
(with a copy of each such original to the Master Servicer), and copies of any
additional related Mortgage Loan information, including correspondence with the
related Mortgagor generated while such Mortgage Loan is a Specially Serviced
Mortgage Loan.
(c) Notwithstanding anything in this Agreement to the contrary, in the
event that the Master Servicer and the Special Servicer are the same Person, all
notices, certificates, information, consents and documents required to be given
or delivered by the Master Servicer to the Special Servicer or vice versa shall
be deemed to be given or delivered, as the case may be, without the necessity of
any action on such Person's part.
SECTION 3.22 Sub-Servicing Agreements.
(a) The Master Servicer and, with the consent of the Depositor, the Special
Servicer, may each enter into Sub-Servicing Agreements to provide for the
performance by third parties of any or all of its obligations hereunder,
provided that, in each case, the Sub-Servicing Agreement: (i) is not
inconsistent with this Agreement; (ii) expressly or effectively provides that if
the Master Servicer or Special Servicer, as the case may be, shall for any
reason no longer act in such capacity hereunder (including, without limitation,
by reason of an Event of Default), any successor to the Master Servicer or the
Special Servicer, as the case may be, hereunder (including the Trustee if the
Trustee has become such successor pursuant to Section 7.02) may thereupon either
assume all of the rights and, except to the extent they arose prior to the date
of assumption, obligations of the Master Servicer or Special Servicer, as the
case may be, under such agreement or, subject to the provisions of Section
3.22(d), terminate such rights and obligations, in either case without payment
of any fee except as set forth in Section 3.22(d); (iii) in the case of a
Sub-Servicing Agreement entered into by the Master Servicer, expressly or
effectively provides that such agreement shall be suspended with respect to any
Mortgage Loan serviced thereunder at the time such Mortgage Loan becomes a
Specially Serviced Mortgage Loan (but only until such time as such Mortgage Loan
becomes a Corrected Mortgage Loan) and, except as set forth in Section 3.22(d),
the Sub-Servicer shall not receive or accrue an entitlement to any sub-servicing
compensation in respect of a Specially Serviced Mortgage Loan or an REO Loan;
(iv) in the case of a Sub-Servicing Agreement entered into by the Special
Servicer, relates only to Specially Serviced Mortgage Loans or REO Properties
and expressly or effectively provides that such agreement shall terminate with
respect to any such Mortgage Loan that becomes a Corrected Mortgage Loan; (v) in
the case of a Sub-Servicing Agreement entered into by the Master Servicer,
provides that the related Sub-Servicer shall comply with all reasonable requests
for additional information made by the Master Servicer and, further, provides
that the failure of the related Sub-Servicer to furnish the Master Servicer on
timely basis with any required reports, statements or other information,
including without limitation, the reports referred to in Section 3.12, either
(A) shall permit the Master Servicer to make necessary inquiries of the related
Borrower directly or (B) shall (subject to a cure period not to exceed ______
days) constitute an event of default thereunder for which the Master Servicer
may terminate such Sub-Servicer without payment of any termination fee (it being
understood that notwithstanding anything to the contrary in this clause (v), the
obligations of a Sub-Servicer in respect of the second sentence of Section
3.12(b) hereof may be limited to the provision of reports as agreed between the
Master Servicer and such Sub-Servicer and response to reasonable inquiries from
the Master Servicer with respect thereto); and (vi) in the case of a
Sub-Servicing Agreement entered into by the Master Servicer subsequent to the
Closing Date, is approved by the Majority Certificateholder of the Controlling
Class and the Special Servicer (such approval not to be unreasonably withheld);
[provided that, without in any way limiting the obligations of the Master
Servicer hereunder or its liability or responsibility for the performance of
such obligations, the requirements of items (i) through (v) of this sentence
shall not (for the first six months following the Closing Date) apply with
respect to any Sub-Servicing Agreement to which the Master Servicer is a party
in effect on the Closing Date and covering one or more Mortgage Loans (it being
understood and agreed that the Master Servicer shall cause each such
Sub-Servicing Agreement then still in effect to satisfy such requirements by the
end of such six-month period).] References in this Agreement to actions taken or
to be taken by the Master Servicer or the Special Servicer, as the case may be,
include actions taken or to be taken by a Sub-Servicer on behalf of the Master
Servicer or the Special Servicer, as the case may be; and, in connection
therewith, all amounts advanced by any Sub-Servicer to satisfy the obligations
of the Master Servicer or the Special Servicer, as the case may be, hereunder to
make Advances shall be deemed to have been advanced by the Master Servicer or
the Special Servicer, as the case may be, out of its own funds and, accordingly,
such Advances shall be recoverable by such Sub-Servicer in the same manner and
out of the same funds as if such Sub-Servicer were the Master Servicer or the
Special Servicer, as the case may be, and, for so long as they are outstanding,
such Advances shall accrue interest in accordance with Section 3.11(f) and/or
Section 4.03(d), such interest to be allocable between the Master Servicer or
the Special Servicer, as the case may be, and such Sub-Servicer as they may
agree. For purposes of this Agreement, the Master Servicer and the Special
Servicer each shall be deemed to have received any payment when a Sub-Servicer
retained by it receives such payment. The Master Servicer and the Special
Servicer each shall notify the other such party, the Trustee and the Depositor
in writing promptly of the appointment by it of any Sub-Servicer, and shall
deliver to the Trustee copies of all Sub-Servicing Agreements, and any
amendments thereto and modifications thereof, entered into by it promptly upon
its execution and delivery of such documents; provided that the foregoing
requirements set forth in this sentence shall not apply in the case of the
Sub-Servicing Agreements in effect as of the Closing Date that are listed on
Schedule II hereto or in the case of the Sub-Servicers thereunder. Furthermore,
the Master Servicer shall not consent to the amendment or modification of any
Sub-Servicing Agreement to which it is a party without having obtained the prior
consent of the Special Servicer and the Majority Certificateholder of the
Controlling Class, which consent shall not be unreasonably withheld; provided
that no such consent of the Special Servicer or the Majority Certificateholder
of the Controlling Class shall be required with respect to any amendment or
modification of a Sub-Servicing Agreement in effect on the Closing Date and
covering one or more Mortgage Loans, if and to the extent that such modification
or amendment is effected during the first 180 days following the Closing Date in
order to correct any inconsistency between such Sub-Servicing Agreement and this
Agreement.
(b) Each Sub-Servicer [(i)] shall be authorized to transact business in the
state or states in which the Mortgaged Properties for the Mortgage Loans it is
to service are situated, if and to the extent required by applicable law, [and
(ii) shall be an approved conventional seller/servicer of multifamily mortgage
loans for Freddie Mac or Fannie Mae or a HUD-Approved Servicer.]
(c) The Master Servicer and the Special Servicer, for the benefit of the
Trustee and the Certificateholders, shall (at no expense to the Trustee, the
Certificateholders or the Trust) each monitor the performance and enforce the
obligations of its Sub-Servicers under the related Sub-Servicing Agreements.
Such enforcement, including, without limitation, the legal prosecution of
claims, termination of Sub-Servicing Agreements in accordance with their
respective terms and the terms of this Agreement, and the pursuit of other
appropriate remedies, shall be in such form and carried out to such an extent
and at such time as the Master Servicer or the Special Servicer, as the case may
be, in its good faith business judgment, would require were it the owner of the
Mortgage Loans. Promptly upon becoming aware of a default under any
Sub-Servicing Agreement to which it is a party, the Master Servicer or the
Special Servicer, as the case may be, shall notify the other such party, the
Trustee and the Certificateholders of the Controlling Class.
(d) With respect to the Sub-Servicing Agreements in effect as of the
Closing Date that are listed on Schedule II hereto, the initial Master Servicer
in its [partnership] capacity hereby agrees that it shall not, in its capacity
as Master Servicer, terminate any Sub-Servicer thereunder without cause. In the
event of the resignation, removal or other termination of the initial Master
Servicer (or any successor Master Servicer) hereunder for any reason, the
successor to the initial Master Servicer (or to such successor Master Servicer)
shall elect, with respect to any Sub-Servicing Agreement existing at the time of
such termination (i) to assume the rights and obligations of the predecessor
Master Servicer under such Sub-Servicing Agreement and continue the
sub-servicing arrangements thereunder on the same terms (including without
limitation the obligation to pay the same sub-servicing fee), (ii) to enter into
a new Sub-Servicing Agreement with such Sub-Servicer and on such terms as the
new Master Servicer and such Sub-Servicer shall mutually agree (it being
understood that such Sub-Servicer is under no obligation to accept any such new
Sub-Servicing Agreement or to enter into or continue negotiations with the new
Master Servicer) or (iii) to terminate such Sub-Servicing Agreement without
cause, provided that no Sub-Servicer may be terminated without cause unless it
receives Sub-Servicer Termination Compensation. For purposes hereof, a
Sub-Servicer shall receive "Sub-Servicer Termination Compensation" if any
successor Master Servicer elects to terminate such Sub-Servicer without cause,
in which case either of the following shall occur: (i) such successor Master
Servicer shall pay to such Sub-Servicer a fee (a "Sub-Servicer Termination Fee")
in an amount equal to two times the product of (A) the Primary Servicing Fee
Rate in effect under such Sub-Servicing Agreement at the time of such
Sub-Servicer's termination and (B) the then-current outstanding principal
balance of the Mortgage Loans serviced by such Sub-Servicer or (ii) such
successor Master Servicer shall agree to pay such Sub-Servicer an interest-only
strip (the "Termination Strip") out of its related Master Servicing Fees for
each Mortgage Loan serviced by such Sub-Servicer at the time of such
Sub-Servicer's termination (such strip to be calculated in the same manner as
the related Master Servicing Fees, but at a per annum rate equal to the
applicable Primary Servicing Fee Rate minus 0.___%). Any subsequent successor
Master Servicer shall be obligated to pay any such Termination Strip agreed to
by a predecessor Master Servicer. Nothing in the foregoing provisions of this
Section 3.22(d) shall limit the ability of the initial or a successor Master
Servicer to terminate a Sub-Servicer at any time for cause; provided, however,
that the parties hereto understand and agree that the refusal or failure of a
Sub-Servicer to enter into or continue negotiations with a successor Master
Servicer concerning a new Sub-Servicing Agreement shall not constitute cause for
termination. It shall be the corporate obligation (not reimbursable by the Trust
or any of the other parties to this Agreement) of the Person, who as successor
Master Servicer, terminates any Sub-Servicer without cause, and of its
successors and assigns in such capacity (to the extent contemplated by the
second preceding sentence), to pay Sub-Servicer Termination Compensation to such
terminated Sub-Servicer. References in this Section 3.22(d) to Master Servicer,
successor Master Servicer or subsequent successor Master Servicer shall mean the
Trustee, if it is then Master Servicer, successor Master Servicer or subsequent
Master Servicer pursuant to the operation of Section 7.02.
(e) In the event the Trustee or its designee assumes the rights and
obligations of the Master Servicer or the Special Servicer under any
Sub-Servicing Agreement, the Master Servicer or the Special Servicer, as the
case may be, at its expense shall, upon request of the Trustee, deliver to the
assuming party all documents and records relating to such Sub-Servicing
Agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected and held on behalf of it thereunder, and
otherwise use its best efforts to effect the orderly and efficient transfer of
the Sub-Servicing Agreement to the assuming party.
(f) Notwithstanding any Sub-Servicing Agreement, the Master Servicer and
the Special Servicer shall each remain obligated and liable to the Trustee and
the Certificateholders for the performance of its obligations and duties under
this Agreement in accordance with the provisions hereof to the same extent and
under the same terms and conditions as if it alone were servicing and
administering the Mortgage Loans for which it is responsible.
SECTION 3.23 Designation of Special Servicer by the Majority
Certificateholder of the Controlling Class.
The Majority Certificateholder of the Controlling Class may at any time and
from time to time replace any existing Special Servicer or any Special Servicer
that has resigned or otherwise ceased to serve as Special Servicer. Such
Majority Certificateholder shall so designate a Person to so serve by the
delivery to the Trustee of a written notice stating such designation, subject to
the approval of the Trustee, which approval shall not be unreasonably withheld.
The Trustee shall, promptly after receiving any such notice, so notify the
Rating Agencies. If the Trustee approves the designated Person (based upon the
servicing qualifications and financial condition of such designated Person) as a
replacement Special Servicer, which approval shall not be unreasonably withheld,
the designated Person shall become the Special Servicer as of the date the
Trustee shall have received: (i) written confirmation from each Rating Agency
stating that if the designated Person were to serve as Special Servicer
hereunder, none of the then-current ratings assigned by such Rating Agency to
the respective Classes of the Certificates would be qualified, downgraded or
withdrawn as a result thereof; (ii) a written acceptance of all obligations of
the Special Servicer under this Agreement, executed by the designated Person;
and (iii) an Opinion of Counsel (at the expense of the Person designated to
become the Special Servicer or at the expense of the Majority Certificateholder
that made the designation) to the effect that the designation of such Person to
serve as Special Servicer is in compliance with this Section 3.23, that upon the
execution and delivery of the written acceptance referred to in the immediately
preceding clause (ii), the designated Person shall be bound by the terms of this
Agreement and that this Agreement shall be enforceable against the designated
Person in accordance with its terms. The existing Special Servicer shall be
deemed to have resigned simultaneously with such designated Person's becoming
the Special Servicer hereunder; provided, however, that (i) the terminated
Special Servicer shall continue to be entitled to receive all amounts accrued or
owing to it under this Agreement on or prior to the effective date of such
resignation, whether in respect of Servicing Advances or otherwise, (ii) if it
was terminated without cause, it shall be entitled to a portion of certain
Workout Fees thereafter received on the Corrected Mortgage Loans (but only if
and to the extent permitted by Section 3.11(c)), and (iii) it and its directors,
officers, employees and agents shall continue to be entitled to the benefits of
Section 6.03, notwithstanding any such resignation. Such terminated Special
Servicer shall cooperate with the Trustee and the replacement Special Servicer
in effecting the termination of its responsibilities and rights hereunder,
including, without limitation, the transfer within two Business Days to the
replacement Special Servicer for administration by it of all cash amounts that
shall at the time be or should have been credited by the terminated Special
Servicer to the REO Account or delivered to the Master Servicer or that are
thereafter received by the terminated Special Servicer with respect to Specially
Serviced Mortgage Loans and REO Properties.
SECTION 3.24 Confidentiality.
The Master Servicer and the Special Servicer shall each keep confidential
and shall not disclose to any Person other than each other, the Depositor, the
Trustee and the Rating Agencies, without the related Sub-Servicer's prior
written consent, any information which it obtains in its capacity as Master
Servicer or Special Servicer with regard to the Sub-Servicer (other than the
name of the Sub-Servicer) or the Mortgage Loans or any related Mortgagor
including, without limitation, credit information with respect to any such
Mortgagor (collectively, "Confidential Information"), except (i) to the extent
that it is appropriate for the Master Servicer to do so in working with legal
counsel, auditors, taxing authorities or other governmental authorities, (ii) to
the extent required by this Agreement or any Sub-Servicing Agreement, (iii) to
the extent such information is otherwise publicly available, (iv) to the extent
such disclosure is required by law or (v) to the extent such information is
required to be delivered to third parties (including, without limitation,
property inspectors, tax service companies, insurance carriers, and data systems
vendors) in connection with the performance of the Master Servicer's or the
Special Servicer's obligations hereunder. For purposes of this paragraph, the
terms "Master Servicer" and "Special Servicer" shall mean the divisions or
departments of such corporate entities involved in providing services hereunder
and their respective officers, directors and employees, and shall not include
any other divisions or departments, or any Affiliates, of the Master Servicer or
Special Servicer (including without limitation any investor in any of the
Certificates and any such division, department or Affiliate engaged in the
origination of, or investment in, commercial or multifamily mortgage loans), all
of which shall be regarded as Persons not entitled to Confidential Information.
SECTION 3.25 No Solicitation of Prepayments.
Neither the Master Servicer nor the Special Servicer shall solicit or
permit any Affiliate to solicit, either directly or indirectly, prepayments from
any Mortgagors under the Mortgage Loans; provided however, that the foregoing
restriction shall not be interpreted to prohibit such solicitation by a division
or department of, or an Affiliate of, the Master Servicer or the Special
Servicer if such solicitation occurs incidentally in the normal course of
business and such solicitation is not conducted, in whole or in part, (i) by a
Person engaged at any time in activities relating to the servicing of Mortgage
Loans or (ii) based upon or otherwise with the benefit of any information
obtained by or through the Master Servicer or Special Servicer or from
documentation relating to the Certificates, including without limitation any
listing of the Mortgage Loans or related Mortgagors or Mortgaged Properties.
Each Sub-Servicing Agreement shall contain a provision identical to the
foregoing with respect to the related Sub-Servicer.
<PAGE>
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS AND RELATED MATTERS
SECTION 4.01 Distributions on the Certificates.
(a) On each Distribution Date, the Trustee shall apply amounts on deposit
in the Distribution Account, in each case to the extent of the remaining portion
of the Available Distribution Amount, in the following order of priority:
(i) to distributions of interest to the Holders of the Class A-1
Certificates, the Holders of the Class A-2 Certificates and the Holders
of the Class X Certificates, pro rata in accordance with the respective
amounts of Distributable Certificate Interest payable in respect of
such Classes of Certificates described in this clause (i), in an amount
equal to all Distributable Certificate Interest in respect of each such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(ii) to distributions of principal, first to the Holders of the
Class A-1 Certificates and second to the Holders of the Class A-2
Certificates, in each case, in an amount (not to exceed the Class
Principal Balance of such Class of Certificates outstanding immediately
prior to such Distribution Date) equal to the entire remaining
Principal Distribution Amount for such Distribution Date;
(iii) to distributions to the Holders of the Class A-1
Certificates and the Holders of the Class A-2 Certificates, pro rata in
accordance with the respective amounts of previously allocated Realized
Losses and Additional Trust Fund Expenses reimbursable in respect of
such Classes of Certificates described in this clause (iii), in an
amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to each such Class of Certificates and that remain unreimbursed
immediately prior to such Distribution Date;
(iv) to distributions of interest to the Holders of the Class B
Certificates in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(v) if the Class Principal Balances of the Class A-1 and Class A-2
Certificates have been reduced to zero, to distributions of principal
to the Holders of the Class B Certificates, in an amount (not to exceed
the Class Principal Balance of the Class B Certificates outstanding
immediately prior to such Distribution Date) equal to the entire
remaining Principal Distribution Amount for such Distribution Date;
(vi) to distributions to the Holders of the Class B Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class B Certificates and that remain unreimbursed immediately
prior to such Distribution Date;
(vii) to distributions of interest to the Holders of the Class C
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(viii) if the Class Principal Balances of the Class A-1, Class A-2
and Class B Certificates have been reduced to zero, to distributions of
principal to the Holders of the Class C Certificates, in an amount (not
to exceed the Class Principal Balance of the Class C Certificates
outstanding immediately prior to such Distribution Date) equal to the
entire remaining Principal Distribution Amount for such Distribution
Date;
(ix) to distributions to the Holders of the Class C Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class C Certificates and that remain unreimbursed immediately
prior to such Distribution Date;
(x) to distributions of interest to the Holders of the Class D
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xi) if the Class Principal Balances of the Class A-1, Class A-2,
Class B and Class C Certificates have been reduced to zero, to
distributions of principal to the Holders of the Class D Certificates,
in an amount (not to exceed the Class Principal Balance of the Class D
Certificates outstanding immediately prior to such Distribution Date)
equal to the entire remaining Principal Distribution Amount for such
Distribution Date;
(xii) to distributions to the Holders of the Class D Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class D Certificates and that remain unreimbursed immediately
prior to such Distribution Date;
(xiii) to distributions of interest to the Holders of the Class E
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xiv) if the Class Principal Balances of the Class A-1, Class A-2,
Class B, Class C and Class D Certificates have been reduced to zero, to
distributions of principal to the Holders of the Class E Certificates,
in an amount (not to exceed the Class Principal Balance of the Class E
Certificates outstanding immediately prior to such Distribution Date)
equal to the entire remaining Principal Distribution Amount for such
Distribution Date;
(xv) to distributions to the Holders of the Class E Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class E Certificates and that remain unreimbursed immediately
prior to such Distribution Date;
(xvi) to distributions of interest to the Holders of the Class F
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xvii) if the Class Principal Balances of the Class A-1, Class
A-2, Class B, Class C, Class D and Class E Certificates have been
reduced to zero, to distributions of principal to the Holders of the
Class F Certificates, in an amount (not to exceed the Class Principal
Balance of the Class F Certificates outstanding immediately prior to
such Distribution Date) equal to the entire remaining Principal
Distribution Amount for such Distribution Date;
(xviii) to distributions to the Holders of the Class F
Certificates, in an amount equal to, and in reimbursement of, all
Realized Losses and Additional Trust Fund Expenses, if any, that were
previously allocated to the Class F Certificates and that remain
unreimbursed immediately prior to such Distribution Date;
(xix) to distributions of interest to the Holders of the Class G
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xx) if the Class Principal Balances of the Class A-1, Class A-2,
Class B, Class C, Class D, Class E and Class F Certificates have been
reduced to zero, to distributions of principal to the Holders of the
Class G Certificates, in an amount (not to exceed the Class Principal
Balance of the Class G Certificates outstanding immediately prior to
such Distribution Date) equal to the entire remaining Principal
Distribution Amount for such Distribution Date;
(xxi) to distributions to the Holders of the Class G Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class G Certificates and that remain unreimbursed immediately
prior to such Distribution Date;
(xxii) to distributions of interest to the Holders of the Class H
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xxiii) if the Class Principal Balances of the Class A-1, Class
A-2, Class B, Class C, Class D, Class E, Class F and Class G
Certificates have been reduced to zero, to distributions of principal
to the Holders of the Class H Certificates, in an amount (not to exceed
the Class Principal Balance of the Class H Certificates outstanding
immediately prior to such Distribution Date) equal to the entire
remaining Principal Distribution Amount for such Distribution Date;
(xxiv) to distributions to the Holders of the Class H
Certificates, in an amount equal to, and in reimbursement of, all
Realized Losses and Additional Trust Fund Expenses, if any, that were
previously allocated to the Class H Certificates and that remain
unreimbursed immediately prior to such Distribution Date;
(xxv) to distributions of interest to the Holders of the Class J
Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xxvi) if the Class Principal Balances of the Class A-1, Class
A-2, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates have been reduced to zero, to distributions of principal
to the Holders of the Class J Certificates, in an amount (not to exceed
the Class Principal Balance of the Class J Certificates outstanding
immediately prior to such Distribution Date) equal to the entire
remaining Principal Distribution Amount for such Distribution Date;
(xxvii) to distributions to the Holders of the Class J
Certificates, in an amount equal to, and in reimbursement of, all
Realized Losses and Additional Trust Fund Expenses, if any, that were
previously allocated to the Class J Certificates and that remain
unreimbursed immediately prior to such Distribution Date;
(xxviii) to distributions of interest to the Holders of the Class
K Certificates, in an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xxix) if the Class Principal Balances of the Class A-1, Class
A-2, Class B, Class C, Class D, Class E, Class F, Class G, Class H and
Class J Certificates have been reduced to zero, to distributions of
principal to the Holders of the Class K Certificates, in an amount (not
to exceed the Class Principal Balance of the Class K Certificates
outstanding immediately prior to such Distribution Date) equal to the
entire remaining Principal Distribution Amount for such Distribution
Date;
(xxx) to distributions to the Holders of the Class K Certificates,
in an amount equal to, and in reimbursement of, all Realized Losses and
Additional Trust Fund Expenses, if any, that were previously allocated
to the Class K Certificates and that remain unreimbursed immediately
prior to such Distribution Date; and
(xxxi) to distributions to the Holders of the Class R-I
Certificates, in an amount equal to the balance, if any, of the
Available Distribution Amount for such Distribution Date remaining
after the distributions to be made on such Distribution Date pursuant
to clauses (i) through (xxx) above;
provided that, on each Distribution Date coinciding with or following the Senior
Principal Distribution Cross-Over Date, and in any event on the Final
Distribution Date, the payments of principal to be made pursuant to clause (ii)
above, will be so made to the Holders of the respective Classes of Class A
Certificates, subject to available funds, up to an amount equal to, and pro rata
as among such Classes in accordance with, the respective then outstanding Class
Principal Balances of such Classes of Certificates, and without regard to the
Principal Distribution Amount for such date; and provided, further, that, on the
Final Distribution Date, the payments of principal to be made pursuant to any of
clauses (v), (viii), (xi), (xiv), (xvii), (xx), (xxiii), (xxvi) and (xxix) above
with respect to any Class of Sequential Pay Certificates, will be so made to the
Holders thereof, subject to available funds, up to an amount equal to the entire
then outstanding Class Principal Balance of such Class of Certificates, and
without regard to the Principal Distribution Amount for such date. References to
"remaining Principal Distribution Amount" in clause (ii) above, in connection
with payments of principal to be made to the Holders of any Class of Class A
Certificates, shall be to the Principal Distribution Amount for such
Distribution Date, net of any distributions of principal made in respect thereof
to the Holders of each other Class of Class A Certificates, if any, that
pursuant to clause (ii) above has an earlier right to payment with respect
thereto. References to "remaining Principal Distribution Amount" in any of
clauses (v), (viii), (xi), (xiv), (xvii), (xx), (xxiii), (xxvi) and (xxix)
above, in connection with the payments of principal to be made to the Holders of
any Class of Sequential Pay Certificates, shall be to the Principal Distribution
Amount for such Distribution Date, net of any payments of principal made in
respect thereof to the Holders of each other Class of Sequential Pay
Certificates that has a higher Payment Priority.
Any Prepayment Premium (whether described in the related Mortgage Loan
documents as a fixed prepayment premium or a yield maintenance amount) actually
collected with respect to a Mortgage Loan or REO Loan during any particular
Collection Period will be distributed on the related Distribution Date as
follows:
(i) first, to the Holders of the Class X Certificates and the
Holders of the respective Class or Classes of Sequential Pay
Certificates then entitled to distributions of principal on such
Distribution Date, up to an amount equal to the corresponding PV Yield
Loss Amount (as defined below) for each such Class of Certificates, pro
rata in accordance with their respective entitlements; and
(ii) then, to the extent of any portion of such Prepayment Premium
remaining following the distributions described in the preceding clause
(i), to the Holders of the Class X Certificates.
The "PV Yield Loss Amount" for any Distribution Date shall mean, with
respect to any Class of REMIC II Regular Certificates as to which any payment of
principal is to be applied on such Distribution Date in reduction of its Class
Principal Balance or Class Notional Amount, as the case may be, an amount equal
to the product of the applicable Annuity Factor and the applicable Lost Coupon
Amount.
For purposes of computing the PV Yield Loss Amount for any Class of REMIC
II Regular Certificates for any Distribution Date, the following definitions
shall apply:
The "Annuity Factor" for any Class of REMIC II Regular Certificates shall
be equal to the following:
-n
1-(1+T)
-------
T
where n equals either (i) one-twelfth of the number of months from such
Distribution Date to the Assumed Final Distribution Date for such Class, if the
Assumed Final Distribution Date for such Class is later than such Distribution
Date, or (ii) zero, if the Assumed Final Distribution Date for such Class
coincides with or is earlier than such Distribution Date, and T equals the
Reinvestment Yield.
The "Assumed Final Distribution Date" for each Class of REMIC II Regular
Certificates is the Distribution Date in the month set forth below with respect
to such Class.
Month of Assumed Final
Class Distribution Date
----- -----------------
Class A-1 __________, 20__
Class A-2 __________, 20__
Class X __________, 20__
Class B __________, 20__
Class C __________, 20__
Class D __________, 20__
Class E __________, 20__
Class F __________, 20__
Class G __________, 20__
Class H __________, 20__
Class J __________, 20__
Class K __________, 20__
The "Lost Coupon Amount" shall mean: (a) with respect to any Class of
Sequential Pay Certificates as to which a payment of principal is to be applied
on such Distribution Date in reduction of its Class Principal Balance, the
product of (x) the amount, if any, by which the Pass-Through Rate for such Class
exceeds the applicable Reinvestment Yield and (y) the aggregate amount of
principal paid to such Class in reduction of its Class Principal Balance on such
Distribution Date; and (b) with respect to the Class X Certificates, the product
of (x) the Pass-Through Rate applicable to such Class for such Distribution Date
and (y) the aggregate amount of the reduction of its Class Notional Amount on
such Distribution Date.
The "Reinvestment Yield" for any Class of REMIC II Regular Certificates and
any Distribution Date shall be a rate determined by the Trustee, in good faith,
equal to the average yield for "This Week" as most recently reported by the
Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) for U.S.
Treasury securities with a maturity coterminous with the Assumed Final
Distribution Date for such Class. If there is no U.S. Treasury security listed
with a maturity coterminous with the Assumed Final Distribution Date for such
Class, then the Reinvestment Yield shall be a rate determined by the Trustee, in
good faith, equal to the interpolated yield to maturity of U.S. Treasury
securities with maturities next longer and shorter than such remaining term to
maturity (such interpolated yield to be rounded to the nearest whole multiple of
1/100 of 1% per annum, if the interpolated yield is not such a multiple). In the
event the yields of U.S. Treasury securities are no longer published in Federal
Reserve Statistical Release H.15(519), the Trustee shall select a comparable
publication to determine the Reinvestment Yield.
(b) All distributions made with respect to each Class on each Distribution
Date shall be allocated pro rata among the outstanding Certificates in such
Class based on their respective Percentage Interests. Except as otherwise
provided below, all such distributions with respect to each Class on each
Distribution Date shall be made to the Certificateholders of the respective
Class of record at the close of business on the related Record Date and shall be
made by wire transfer of immediately available funds to the account of any such
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder shall have provided the Trustee with written
wiring instructions [no less than five Business Days prior to the related Record
Date (which wiring instructions may be in the form of a standing order
applicable to all subsequent Distribution Dates),] or otherwise by check mailed
to the address of such Certificateholder as it appears in the Certificate
Register. The final distribution on each Certificate (determined without regard
to any possible future reimbursement of any Realized Loss or Additional Trust
Fund Expense previously allocated to such Certificate) will be made in like
manner, but only upon presentation and surrender of such Certificate at the
Corporate Trust Office or such other location specified in the notice to
Certificateholders of such final distribution. Any distribution that is to be
made with respect to a Certificate in reimbursement of a Realized Loss or
Additional Trust Fund Expense previously allocated thereto, which reimbursement
is to occur after the date on which such Certificate is surrendered as
contemplated by the preceding sentence, will be made by check mailed to the
address of the Certificateholder that surrendered such Certificate as such
address last appeared in the Certificate Registrar or to any other address of
which the Trustee was subsequently notified in writing.
(c) Each distribution with respect to a Book-Entry Certificate shall be
paid to the Depository, as Holder thereof, and the Depository shall be
responsible for crediting the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trustee, the
Certificate Registrar, the Depositor, the Master Servicer, the Special Servicer
or the REMIC Administrator shall have any responsibility therefor except as
otherwise provided by this Agreement or applicable law.
(d) The rights of the Certificateholders to receive distributions from the
proceeds of the Trust Fund in respect of their Certificates, and all rights and
interests of the Certificateholders in and to such distributions, shall be as
set forth in this Agreement. Neither the Holders of any Class of Certificates
nor any party hereto shall in any way be responsible or liable to the Holders of
any other Class of Certificates in respect of amounts properly previously
distributed on the Certificates. Distributions in reimbursement of Realized
Losses and Additional Trust Fund Expenses previously allocated to a Class of
Certificates shall not constitute distributions of principal and shall not
result in a reduction of the related Class Principal Balance.
(e) Except as otherwise provided in Section 9.01, whenever the Trustee
expects that the final distribution with respect to any Class of Certificates
(determined without regard to any possible future reimbursement of any Realized
Loss or Additional Trust Fund Expense previously allocated to such Class of
Certificates) will be made on the next Distribution Date, the Trustee shall, as
soon as practicable in the month in which such Distribution Date occurs, mail to
each Holder of such Class of Certificates as of the date of mailing a notice to
the effect that:
(i) the Trustee expects that the final distribution with respect
to such Class of Certificates will be made on such Distribution Date
but only upon presentation and surrender of such Certificates at the
Corporate Trust Office or such other location therein specified, and
(ii) no interest shall accrue on such Certificates from and after
such Distribution Date.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held uninvested
in trust and credited to the account or accounts of the appropriate
non-tendering Holder or Holders. If any Certificates as to which notice has been
given pursuant to this Section 4.01(e) shall not have been surrendered for
cancellation within six months after the time specified in such notice, the
Trustee shall mail a second notice to the remaining non-tendering
Certificateholders to surrender their Certificates for cancellation in order to
receive the final distribution with respect thereto. If within one year after
the second notice all such Certificates shall not have been surrendered for
cancellation, the Trustee, directly or through an agent, shall take such steps
to contact the remaining non-tendering Certificateholders concerning the
surrender of their Certificates as it shall deem appropriate. The costs and
expenses of holding such funds in trust and of contacting such
Certificateholders following the first anniversary of the delivery of such
second notice to the non-tendering Certificateholders shall be paid out of such
funds. No interest shall accrue or be payable to any Certificateholder on any
amount held in trust hereunder by the Trustee as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 4.01(e). If all of the Certificates
shall not have been surrendered for cancellation by the second anniversary of
the delivery of the second notice, the Trustee shall distribute to the Class
R-II Certificateholders all unclaimed funds and other assets which remain
subject hereto.
(f) Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. In the event the
Trustee does withhold any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall indicate the amount withheld to such
Certificateholders.
SECTION 4.02 Statements to Certificateholders; Certain Reports by the
Master Servicer and the Special Servicer.
(a) On each Distribution Date, the Trustee shall forward by mail to each
Holder (and, if it shall have certified to the Trustee as to its Ownership
Interest in a Class of Book-Entry Certificates, each Certificate Owner) of the
REMIC II Regular Certificates and to the Rating Agencies a statement (a
"Distribution Date Statement"), substantially in the form contemplated on [pages
_______ through __________] of the Prospectus Supplement, as to the
distributions made on such Distribution Date setting forth:
(i) the amount of the distribution, if any, on such Distribution Date
to the Holders of each Class of REMIC II Regular Certificates in
reduction of the Class Principal Balance thereof;
(ii) the amount of the distribution, if any, on such Distribution Date
to the Holders of each Class of REMIC II Regular Certificates
allocable to Distributable Certificate Interest and the amount of the
distribution, if any, on such Distribution Date to the Holders of each
Class of REMIC II Regular Certificates allocable to Prepayment
Premiums;
(iii) the Available Distribution Amount for such Distribution Date;
(iv) the aggregate amount of P&I Advances made in respect of the
immediately preceding Distribution Date;
(v) the aggregate Stated Principal Balance of the Mortgage Pool
outstanding immediately before and immediately after such Distribution
Date;
(vi) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average Mortgage Rate of the
Mortgage Pool as of the end of the Collection Period for the
immediately preceding Distribution Date;
(vii) as of the close of business on the last day of the most recently
ended calendar month, the number, aggregate unpaid principal balance
and specific identification (by loan number) of Mortgage Loans (A)
delinquent 30-59 days, (B) delinquent 60-89 days, (C) delinquent 90 or
more days, and (D) as to which foreclosure proceedings have been
commenced;
(viii) the book value (within the meaning of 12 C.F.R. ss.571.13 or
comparable provision), property type and address of any REO Property
included in the Trust Fund as of the end of the Collection Period for
such Distribution Date and the unpaid principal balance and Assumed
Monthly Payment of the related REO Loan;
(ix) the Accrued Certificate Interest and Distributable Certificate
Interest in respect of each Class of REMIC II Regular Certificates for
such Distribution Date;
(x) the aggregate amount of Distributable Certificate Interest payable
in respect of each Class of REMIC II Regular Certificates on such
Distribution Date, including, without limitation, any Distributable
Certificate Interest remaining unpaid from prior Distribution Dates;
(xi) any unpaid Distributable Certificate Interest in respect of each
Class of REMIC II Regular Certificates after giving effect to the
distributions made on such Distribution Date;
(xii) the Pass-Through Rate for each Class of REMIC II Regular
Certificates for such Distribution Date;
(xiii) the Principal Distribution Amount for such Distribution Date,
separately identifying the respective components of such amount;
(xiv) the aggregate of all Realized Losses incurred during the related
Collection Period and, aggregated by type, all Additional Trust Fund
Expenses incurred during the related Collection Period;
(xv) the Class Principal Balance or Class Notional Amount, as the case
may be, of each Class of REMIC II Regular Certificates outstanding
immediately before and immediately after such Distribution Date,
separately identifying any reduction therein due to the allocation of
Realized Losses and Additional Trust Fund Expenses on such
Distribution Date;
(xvi) the aggregate of all Realized Losses and Additional Trust Fund
Expenses that remain unallocated following such Distribution Date;
(xvii) the Certificate Factor for each Class of REMIC II Regular
Certificates immediately following such Distribution Date;
(xviii) the aggregate amount of servicing compensation paid to the
Master Servicer, the Special Servicer, and their respective
Sub-Servicers, collectively and separately, during the related
Collection Period (and separately identifying the portion of such
compensation paid to each such Person that constitutes Default
Charges, assumption fees and modification fees);
(xix) a brief description of any material waiver, modification or
amendment of any Mortgage Loan entered into by the Master Servicer or
Special Servicer pursuant to Section 3.20 during the related
Collection Period;
(xx) any item of information disclosed to the Trustee by the Master
Servicer pursuant to Section 3.19(a) since the preceding Distribution
Date (or, in the case of the initial Distribution Date, since the
Closing Date); and
(xxi) such additional information, if any, as is contemplated on
[pages __________ through ______] of the Prospectus Supplement.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount in the aggregate for
all Certificates of each applicable Class and per Single Certificate. Except
with respect to the Certificate Factor (required to be reported by clause (xvii)
above), financial information reported by the Trustee to the Certificateholders
pursuant to this Section 4.02 shall be expressed as a dollar amount rounded to
the nearest whole cent. Absent actual knowledge of an error therein, the Trustee
shall have no obligation to recompute, recalculate or verify any information
provided to it by the Master Servicer or Special Servicer. The calculations by
the Trustee contemplated by this Section 4.02 shall, in the absence of manifest
error, be presumptively deemed to be correct for all purposes hereunder.
In addition, the Trustee shall so deliver or cause to be delivered to such
Certificateholders and Certificate Owners and to the Rating Agencies, at the
same time that the Distribution Date Statement is delivered thereto, each (i)
Delinquent Loan Status Report, (ii) REO Status Report, (iii) Historical Loan
Modification Report, (iv) Special Servicer Loan Status Report, (v) Historical
Loss Report and (vi) Operating Statement Analysis (such six reports,
collectively with the Distribution Date Statement, the "Certificateholder
Reports") that has been received or prepared by the Trustee since the prior
Distribution Date. Delivery of such reports shall be in a written format and, in
the case of the Rating Agencies (upon request and to the extent reasonably
possible), through an electronic medium. The form of any Certificateholder
Report may change over time.
On each Distribution Date, the Trustee shall also deliver or cause to be
delivered to such Certificateholders and Certificate Owners and to the Rating
Agencies, a report (based on information received from the Master Servicer and
Special Servicer) containing, as and to the extent received from the Master
Servicer and Special Servicer, information regarding the Mortgage Pool as of the
close of business on the related Determination Date, which report shall contain
substantially the categories of information regarding the Mortgage Loans set
forth in Annex A to the Prospectus Supplement (calculated, where applicable, on
the basis of the most recent relevant information provided by the Mortgagors to
the Master Servicer or the Special Servicer and by the Master Servicer or the
Special Servicer, as the case may be, to the Trustee) and such information shall
be presented in a loan-by-loan and tabular format substantially similar to the
formats utilized in Annex A to the Prospectus Supplement (provided that no
information will be provided as to any repair and replacement or other cash
reserve and the only financial information to be reported on an ongoing basis
will be the actual expenses, actual revenues and actual Net Operating Income for
the respective Mortgaged Properties and a Debt Service Coverage Ratio calculated
on the basis thereof). To the extent reasonably possible, delivery of such
report to any particular Rating Agency shall be, upon request, through an
electronic medium.
On each Distribution Date, the Trustee shall forward or make available
electronically to the Depositor, to the Master Servicer, to the Special
Servicer, to the Holders of the Residual Certificates and, in the case of
reports regarding a Class of Book-Entry Certificates, to The Trepp Group (at 477
Madison Avenue, 15th Floor, New York, New York 10022, or such other address as
The Trepp Group may hereafter designate) or any other party that the Depository
may designate, a copy of the reports forwarded to the Holders of the REMIC II
Regular Certificates on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to each Class of Residual
Certificates on such Distribution Date.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each Person who at any time during the calendar year
was a Holder of a REMIC II Regular Certificate a statement containing the
information as to the applicable Class set forth in clauses (i) and (ii) above
of the description of Distribution Date Statement, aggregated for such calendar
year or applicable portion thereof during which such Person was a
Certificateholder, together with such other information as the Trustee
determines to be necessary to enable Certificateholders to prepare their tax
returns for such calendar year. Such obligation of the Trustee shall be deemed
to have been satisfied to the extent that substantially comparable information
shall be provided by the Trustee pursuant to any requirements of the Code as
from time to time are in force.
Upon filing with the IRS, the REMIC Administrator shall furnish to the
Holders of the Class R-I and Class R-II Certificates the Form 1066 and shall
furnish their respective Schedules Q thereto at the times required by the Code
or the IRS, and shall provide from time to time such information and
computations with respect to the entries on such forms as any Holder of the
Class R-I and Class R-II Certificates may reasonably request.
The Trustee shall make available via the Trustee's ASAP (Automated
Statements Accessed by Phone) System (or comparable system), to Persons with an
account number thereon, the Certificateholder Reports and a summary report of
Certificate Factors via automated facsimile. The Trustee shall make available,
upon request, to Certificateholders, Certificate Owners identified to the
Trustee in accordance with Section 5.06(b), the Depositor, NationsBanc
Montgomery Securities LLC, the Master Servicer and the Special Servicer account
numbers on the Trustee's ASAP System.
Upon the authorization of the Depositor, the Trustee shall deliver all the
reports delivered or made available pursuant to this Section 4.02(a) to the
Certificateholders and Certificate Owners to Bloomberg Financial Markets, L.P.
("Bloomberg") (for so long as Bloomberg exists) using a format and media
mutually acceptable to the Trustee and Bloomberg or shall otherwise make such
reports available, on a confidential basis, via its own electronic bulletin
board. All files on such bulletin board shall be password protected. Passwords
to each file shall be released by the Trustee, upon request, to
Certificateholders, Certificate Owners identified to the Trustee in accordance
with Section 5.06(b), the Depositor, the Rating Agencies, NationsBanc Montgomery
Securities, LLC, the Master Servicer and the Special Servicer.
(b) At or before 11:00 a.m. (New York City time) on the third Business Day
prior to the related Distribution Date, the Master Servicer shall deliver or
cause to be delivered to the Trustee and the Special Servicer, in writing and on
a computer-readable medium, in form reasonably acceptable to the Trustee,
including, without limitation, on a loan-by-loan basis, the following reports:
(1) a Delinquent Loan Status Report, (2) an REO Status Report, (3) a Historical
Loan Modification Report, (4) a Historical Loss Report, (5) the Special Servicer
Loan Status Report most recently received by the Master Servicer and (6) a
single report setting forth the information specified in clauses (i) through
(xv) below (the items specified in clause (xiii) below to be reported once per
calendar quarter, and the amounts and allocations of payments, collections, fees
and expenses with respect to Specially Serviced Mortgage Loans and REO
Properties to be based upon the report to be delivered by the Special Servicer
to the Master Servicer on the second Business Day after such Determination Date,
in the form required by Section 4.02(c) below):
(i) the aggregate amount that is to be transferred from the
Certificate Account to the Distribution Account on the related Master
Servicer Remittance Date that is allocable to principal on or in
respect of the Mortgage Loans and any REO Loans, separately
identifying the aggregate amount of any Principal Prepayments included
therein, and (if different) the Principal Distribution Amount for the
immediately succeeding Distribution Date;
(ii) the aggregate amount that is to be transferred from the
Certificate Account to the Distribution Account on the related Master
Servicer Remittance Date that is allocable to (A) interest on or in
respect of the Mortgage Loans and any REO Loans and (B) Prepayment
Premiums;
(iii) the aggregate amount of any P&I Advances (specifying the
principal and interest portions thereof separately) to be made
pursuant to Section 4.03 of this Agreement that were made in respect
of the immediately preceding Distribution Date;
(iv) the amount of the Master Servicing Fees, Special Servicing Fees,
Workout Fees, Liquidation Fees and other servicing compensation with
respect to the Mortgage Pool for the Collection Period ending on such
Determination Date, specifying the items and amounts of such other
servicing compensation payable to the Master Servicer, the Special
Servicer and any Sub-Servicers retained by each;
(v) the number and aggregate unpaid principal balance as of the close
of business on the last day of the most recently ended calendar month
of Mortgage Loans in the Mortgage Pool (A) remaining outstanding, (B)
delinquent 30-59 days, (C) delinquent 60-89 days, (D) delinquent 90
days or more but not in foreclosure and (E) in foreclosure; and the
number and aggregate unpaid principal balance as of the close of
business on such Determination Date of Mortgage Loans in the Mortgage
Pool (X) as to which the related Mortgaged Property has become REO
Property during the Collection Period ending on such Determination
Date, (Y) as to which the related Mortgaged Property was REO Property
as of the end of such Collection Period and (Z) the terms of which
have been modified during such Collection Period pursuant to this
Agreement;
(vi) the loan number and the unpaid principal balance as of the close
of business on such Determination Date of each Specially Serviced
Mortgage Loan and each other Defaulted Mortgage Loan;
(vii) with respect to any REO Property that was included in the Trust
Fund as of the close of business on such Determination Date, the loan
number of the related Mortgage Loan, the book value of such REO
Property and the amount of REO Revenues and other amounts, if any,
received on such REO Property during the related Collection Period and
the portion thereof included in the Available Distribution Amount for
the immediately succeeding Distribution Date;
(viii) with respect to any Mortgage Loan as to which the related
Mortgaged Property became an REO Property during the Collection Period
ending on such Determination Date, the loan number of such Mortgage
Loan and the Stated Principal Balance of such Mortgage Loan as of the
related Acquisition Date;
(ix) with respect to any Mortgage Loan or REO Property as to which a
Final Recovery Determination was made by the Master Servicer during
the Collection Period ending on such Determination Date, the loan
number of such Mortgage Loan or, in the case of an REO Property, of
the related Mortgage Loan, the amount of Liquidation Proceeds and/or
other amounts, if any, received thereon during such Collection Period
and the portion thereof included in the Available Distribution Amount
for the immediately succeeding Distribution Date, and any resulting
Realized Loss;
(x) the aggregate Stated Principal Balance of the Mortgage Pool
outstanding immediately before and immediately after such Distribution
Date;
(xi) the aggregate amount of Realized Losses on the Mortgage Pool for
the Collection Period ending on such Determination Date (and the
portions allocable to principal and interest);
(xii) the aggregate amount of the Additional Trust Fund Expenses
(broken down by type) withdrawn from the Certificate Account during
the Collection Period ending on such Determination Date;
(xiii) to the extent provided by the related Mortgagors, information
with respect to occupancy rates for all Mortgaged Properties, sales
per square foot with respect to all retail Mortgaged Properties, and
capital expenditures and capital reserve balances with respect to all
Mortgaged Properties, in each case in the format of the Mortgage Loan
Schedule;
(xiv) such other information on a Mortgage Loan-by-Mortgage Loan or
REO Property-by-REO Property basis as the Trustee or the Depositor
shall reasonably request in writing (including, without limitation,
information with respect to any modifications of any Mortgage Loan,
any Mortgage Loans in default or foreclosure, the operation and
disposition of REO Property and the assumption of any Mortgage Loan);
and
(xv) such additional information as is contemplated on pages ______and
__________of the Prospectus Supplement.
On the date on which the reports described above are delivered to the
Trustee, the Master Servicer shall also deliver or cause to be delivered to the
Trustee and the Rating Agencies a report, in writing and in a computer-readable
medium, in form reasonably acceptable to the Trustee, containing the information
with respect to the Mortgage Pool necessary for the Trustee to prepare with
respect to the Mortgage Pool the additional schedules and tables required to be
made available by the Trustee pursuant to Section 4.02(a) in substantially the
same formats set forth in Annex A to the Prospectus Supplement, in each case
reflecting the changes in the Mortgage Pool during the related Collection
Period.
Not later than the first day of the calendar month following each Master
Servicer Remittance Date, the Master Servicer shall forward to the Trustee a
statement, setting forth the status of the Certificate Account as of the close
of business on such Master Servicer Remittance Date, stating that all
distributions required by this Agreement to be made by the Master Servicer have
been made (or, in the case of any required distribution that has not been made
by the Master Servicer, specifying the nature and status thereof) and showing,
for the period from the preceding Master Servicer Remittance Date (or, in the
case of the first Master Servicer Remittance Date, from the Cut-Off Date) to
such Master Servicer Remittance Date, the aggregate of deposits into and
withdrawals from the Certificate Account for each category of deposit specified
in Section 3.04(a) and each category of withdrawal specified in Section 3.05(a).
The Master Servicer shall also deliver to the Trustee, upon reasonable request
of the Trustee, any and all additional information relating to the Mortgage
Loans (which information shall be based upon reports delivered to the Master
Servicer by the Special Servicer with respect to Specially Serviced Mortgage
Loans and REO Properties).
Within _____ days following the end of each calendar quarter, commencing
with the calendar quarter ended ____________ __, 199__ the Master Servicer shall
deliver to the Trustee, with respect to each Mortgaged Property and REO
Property, a report (an "Operating Statement Analysis") containing revenue,
expense and net operating income information normalized using the methodology
described in Annex A of the Prospectus Supplement as of the end of such calendar
quarter. The requirement that the Master Servicer deliver each Operating
Statement Analysis is subject to the Master Servicer having received directly or
through the Special Servicer the related operating statements and rent rolls
from the related Mortgagor or otherwise.
The Master Servicer, on each Determination Date, shall forward (for
delivery on such Determination Date) to the Special Servicer all information
collected by the Master Servicer which the Special Servicer is required to
include in the Special Servicer Loan Status Report. Further, the Master Servicer
shall cooperate with the Special Servicer and provide the Special Servicer with
the information in the possession of the Master Servicer reasonably requested by
the Special Servicer, in writing, to the extent required to allow the Special
Servicer to perform its obligations under this Agreement with respect to those
Mortgage Loans serviced by the Master Servicer.
The Master Servicer shall use its reasonable efforts to notify the Rating
Agencies in a timely manner of any change in the identity of either of the two
largest tenants of any retail Mortgaged Property and any casualty at or
condemnation proceeding with respect to any Mortgaged Property, subject to its
becoming aware of such change or event.
To the extent the statements, reports and information (or portions thereof)
to be delivered by the Master Servicer under this Section 4.02(b) are derived
from underlying information to be delivered to the Master Servicer by the
Special Servicer, the Master Servicer shall not be liable for any failure to
deliver such statement, report or information (or portion thereof) on the
prescribed dates, to the extent such failure is caused by the Special Servicer's
failure to deliver such underlying information in a timely manner. Absent actual
knowledge to the contrary, the Master Servicer may conclusively rely on any such
information forwarded to it by the Special Servicer and shall have no obligation
to verify the same.
(c) On the second Business Day after each Determination Date, the Special
Servicer shall forward to the Master Servicer (A) the Special Servicer Loan
Status Report and (B) all information the Master Servicer will be required to
include in the other reports that the Master Servicer is obligated to deliver to
the Trustee pursuant to Section 4.02(b), to the extent such information relates
to any Specially Serviced Mortgage Loan or any REO Property. The Special
Servicer shall also deliver to the Master Servicer and the Trustee, upon the
reasonable written request of either of them, any and all additional information
in the possession of the Special Servicer relating to the Specially Serviced
Mortgage Loans and the REO Properties.
The Special Servicer shall cooperate with the Master Servicer and provide
the Master Servicer with the information in the possession of the Special
Servicer reasonably requested by the Master Servicer, in writing, to the extent
required to allow the Master Servicer to perform its obligations under this
Agreement with respect to the Specially Serviced Mortgage Loans and REO
Properties. Additional information regarding the Specially Serviced Mortgage
Loans, including, without limitation, any financial or occupancy information
(including lease summaries) provided to the Special Servicer by the Mortgagors
or otherwise obtained, shall be delivered to the Master Servicer, within ten
days of receipt.
SECTION 4.03 P&I Advances.
(a) On or before 1:00 p.m., New York City time, on each Master Servicer
Remittance Date, the Master Servicer shall either (i) deposit into the
Distribution Account from its own funds an amount equal to the aggregate amount
of P&I Advances, if any, to be made in respect of the related Distribution Date,
(ii) apply amounts held in the Certificate Account for future distribution to
Certificateholders in subsequent months in discharge of any such obligation to
make P&I Advances, or (iii) make P&I Advances in the form of any combination of
(i) and (ii) aggregating the total amount of P&I Advances to be made; provided
that if Late Collections of any of the delinquent principal and/or interest in
respect of which it is to make P&I Advances on any Master Servicer Remittance
Date are then on deposit in the Certificate Account, the Master Servicer shall
use such Late Collections (net of any Master Servicing Fees and Workout Fees
payable therefrom) to make such P&I Advances. Any amounts held in the
Certificate Account for future distribution and so used to make P&I Advances
(other than the Late Collections of the delinquent principal and/or interest
contemplated by the proviso to the preceding sentence) shall be appropriately
reflected in the Master Servicer's records and replaced by the Master Servicer
by deposit in the Certificate Account on or before the next succeeding
Determination Date (to the extent not previously replaced through the deposit of
Late Collections of the delinquent principal and/or interest in respect of which
such P&I Advances were made). If, as of 1:00 p.m., New York City time, on any
Master Servicer Remittance Date, the Master Servicer shall not have made any P&I
Advance required to be made on such date pursuant to this Section 4.03(a) (and
shall not have delivered to the Trustee the requisite Officer's Certificate and
documentation related to a determination of nonrecoverability of a P&I Advance),
then the Trustee shall provide notice of such failure to a Servicing Officer of
the Master Servicer by facsimile transmission sent to telecopy no. (____)
____-______ (or such alternative number provided by the Master Servicer to the
Trustee in writing) and by telephone at telephone no. (____) ___-____ (or such
alternative number provided by the Master Servicer to the Trustee in writing) as
soon as possible, but in any event before 3:00 p.m., New York City time, on such
Master Servicer Remittance Date. If, after such notice, the Trustee does not
receive the full amount of such P&I Advances by the close of business (New York
City time) on such Master Servicer Remittance Date, then (i) unless the Trustee
determines that such Advance would be a Nonrecoverable P&I Advance if made, the
Trustee shall make the portion of such P&I Advances that was required to be, but
was not, made by the Master Servicer on such Master Servicer Remittance Date and
(ii) such failure shall constitute an Event of Default on the part of the Master
Servicer.
(b) The aggregate amount of P&I Advances to be made in respect of the
Mortgage Loans (including, without limitation, Balloon Mortgage Loans delinquent
as to their respective Balloon Payments) and any REO Loans for any Distribution
Date shall equal, subject to subsection (c) below, the aggregate of all Monthly
Payments (other than Balloon Payments) and any Assumed Monthly Payments, in each
case net of related Master Servicing Fees and Workout Fees payable hereunder,
that were due or deemed due, as the case may be, in respect thereof on their
respective Due Dates during the related Collection Period and that were not paid
by or on behalf of the related Mortgagors or otherwise collected as of the close
of business on the last day of the related Collection Period; provided that, if
an Appraisal Reduction Amount exists with respect to any Required Appraisal
Loan, then, in the event of subsequent delinquencies thereon, the interest
portion of the P&I Advance in respect of such Required Appraisal Loan for the
related Distribution Date shall be reduced (it being herein acknowledged that
there shall be no reduction in the principal portion of such P&I Advance) to
equal the product of (i) the amount of the interest portion of such P&I Advance
for such Required Appraisal Loan for such Distribution Date without regard to
this proviso, multiplied by (ii) a fraction, expressed as a percentage, the
numerator of which is equal to the Stated Principal Balance of such Required
Appraisal Loan immediately prior to such Distribution Date, net of the related
Appraisal Reduction Amount, if any, and the denominator of which is equal to the
Stated Principal Balance of such Required Appraisal Loan immediately prior to
such Distribution Date.
(c) Notwithstanding anything herein to the contrary, no P&I Advance shall
be required to be made hereunder if such P&I Advance would, if made, constitute
a Nonrecoverable P&I Advance. In addition, Nonrecoverable P&I Advances shall be
reimbursable pursuant to Section 3.05(a) out of general collections on the
Mortgage Pool on deposit in the Certificate Account. The determination by the
Master Servicer or, if applicable, the Trustee, that it has made a
Nonrecoverable P&I Advance or that any proposed P&I Advance, if made, would
constitute a Nonrecoverable P&I Advance, shall be evidenced by an Officer's
Certificate delivered promptly (and, in any event, in the case of a proposed P&I
Advance by the Master Servicer, no less than 5 Business Days prior to the
related Master Servicer Remittance Date) to the Trustee (or, if applicable,
retained thereby), the Depositor and the Rating Agencies, setting forth the
basis for such determination, together with ( such determination is prior to the
liquidation of the related Mortgage Loan or REO Property) a copy of an Appraisal
of the related Mortgaged Property or REO Property, as the case may be, which
shall have been performed within the twelve months preceding such determination,
and further accompanied by any other information that the Master Servicer or the
Special Servicer may have obtained and that supports such determination. The
Trustee shall deliver such Officer's Certificate as soon as practicable after
its determination that such P&I Advance would be nonrecoverable. If such an
Appraisal shall not have been required and performed pursuant to the terms of
this Agreement, the Master Servicer or the Special Servicer, as the case may be,
may, subject to its reasonable and good faith determination that such Appraisal
will demonstrate the nonrecoverability of the related Advance, obtain an
Appraisal for such purpose at the expense of the Trust. The Trustee shall be
entitled to rely on any determination of nonrecoverability that may have been
made by the Master Servicer or the Special Servicer with respect to a particular
P&I Advance, and the Master Servicer shall be entitled to rely on any
determination of nonrecoverability that may have been made by the Special
Servicer with respect to a particular P&I Advance.
(d) As and to the extent permitted by Section 3.05(a), the Master Servicer
and the Trustee shall each be entitled to receive interest at the Reimbursement
Rate in effect from time to time, accrued on the amount of each P&I Advance made
thereby (out of its own funds) for so long as such P&I Advance is outstanding
(or, in the case of Advance Interest payable to the Master Servicer, if earlier,
until the Late Collection of the delinquent principal and/or interest in respect
of which such P&I Advance was made has been received by the Master Servicer or
any of its Sub-Servicers), and such interest will be paid: first, out of any
Default Charges collected on or in respect of the related Mortgage Loan during,
and allocable to, the period, if any, that it was a Specially Serviced Mortgage
Loan or an REO Loan; and second, at any time coinciding with or following the
reimbursement of such P&I Advance, out of general collections on the Mortgage
Loans and any REO Properties on deposit in the Certificate Account. As and to
the extent provided by Section 3.05(a), the Master Servicer shall reimburse
itself or the Trustee, as appropriate, for any P&I Advance made thereby as soon
as practicable after funds available for such purpose are deposited in the
Certificate Account, and in no event shall interest accrue in accordance with
this Section 4.03(d) on any P&I Advance as to which the corresponding Late
Collection had been received as of the related date on which such P&I Advance
was made.
SECTION 4.04 Allocation of Realized Losses and Additional Trust Fund
Expenses to the Sequential Pay Certificates.
On each Distribution Date, following the distributions to be made to the
Certificateholders on such date pursuant to Section 4.01(a), the Trustee shall
determine the amount, if any, by which (i) the then aggregate Certificate
Principal Balance of the Sequential Pay Certificates, exceeds (ii) the aggregate
Stated Principal Balance of the Mortgage Pool that will be outstanding
immediately following such Distribution Date. If such excess does exist, then
the Class Principal Balances of the Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates shall be reduced
sequentially, in that order, in each case, until such excess or the related
Class Principal Balance is reduced to zero (whichever occurs first). If, after
the foregoing reductions, the amount described in clause (i) of the second
preceding sentence still exceeds the amount described in clause (ii) of the
second preceding sentence, then the respective Class Principal Balances of the
Class A-1 and Class A-2 Certificates shall be reduced, pro rata in accordance
with the relative sizes of the then outstanding Class Principal Balances of such
Classes of Certificates, until such excess or each such Class Principal Balance
is reduced to zero (whichever occurs first). Such reductions in the Class
Principal Balances of the respective Classes of the Sequential Pay Certificates
shall be deemed to be allocations of Realized Losses and Additional Trust Fund
Expenses.
SECTION 4.05 Deemed Distributions on, and Allocations of Realized Losses
and Additional Trust Fund Expenses to, the REMIC I Regular
Interests.
(a) All distributions of Distributable Certificate Interest made in respect
of the respective Classes of REMIC II Regular Certificates on each Distribution
Date pursuant to Section 4.01(a) shall be deemed to have first been distributed
from REMIC I to REMIC II in respect of the respective REMIC I Regular Interests,
pro rata in accordance with, and in an amount equal to, the aggregate
Uncertificated Distributable Interest in respect of each REMIC I Regular
Interest for such Distribution Date and, to the extent not previously deemed
paid pursuant to this sentence, for all prior Distribution Dates. In addition,
distributions of principal and reimbursements of previously allocated Realized
Losses and Additional Trust Fund Expenses made in respect of each Class of
Sequential Pay Certificates on each Distribution Date pursuant to Section
4.01(a) shall be deemed to have first been distributed from REMIC I to REMIC II
in respect of the Corresponding Major REMIC I Regular Interest and the
Corresponding Minor REMIC I Regular Interest, pro rata based on their respective
Uncertificated Principal Balances outstanding immediately prior to such
Distribution Date. In each such case, if such distribution on any such Class of
Certificates was a distribution of interest, of principal or in reimbursement of
any previously allocated Realized Losses and Additional Trust Fund Expenses in
respect of any such Class of Certificates, then the corresponding distribution
deemed to be made on a REMIC I Regular Interest pursuant to the preceding two
sentences shall be deemed to also be a distribution of interest, of principal or
in reimbursement of any previously allocated Realized Losses and Additional
Trust Fund Expenses, as the case may be, in respect of such REMIC I Regular
Interest.
(b) All distributions of Prepayment Premiums made in respect of the
respective Classes of REMIC II Regular Certificates on each Distribution Date
pursuant to Section 4.01(a) shall be deemed to have first been distributed from
REMIC I to REMIC II in respect of the respective REMIC I Regular Interests, pro
rata based upon the amount of principal deemed distributed in respect of each
such REMIC I Regular Interest for such Distribution Date pursuant to Section
4.05(a) above.
(c) The actual distributions made by the Trustee on each Distribution Date
in respect of the REMIC II Certificates pursuant to Section 4.01(a), shall be
deemed to have been so made from the amounts deemed distributed in respect of
the REMIC I Regular Interests on such Distribution Date pursuant to this Section
4.05. Notwithstanding the deemed distributions on the REMIC I Regular Interests
described in this Section 4.05, actual distributions of funds from the
Distribution Account shall be made only in accordance with Section 4.01.
(d) Each Realized Loss and Additional Trust Fund Expense, if any, allocated
to each Class of Sequential Pay Certificates on any Distribution Date shall be
deemed to have first been allocated to the Corresponding Major REMIC I Regular
Interest and the Corresponding Minor REMIC I Regular Interest (pro rata based on
their respective Uncertificated Principal Balances outstanding immediately
following the deemed distributions on such Distribution Date pursuant to Section
4.05(a)), with a corresponding reduction in the Uncertificated Principal Balance
of each such REMIC I Regular Interest.
<PAGE>
ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
(a) The Certificates will be substantially in the respective forms annexed
hereto as Exhibits A-1, A-2, A-3, A-4 and A-5; provided that any of the
Certificates may be issued with appropriate insertions, omissions, substitutions
and variations, and may have imprinted or otherwise reproduced thereon such
legend or legends, not inconsistent with the provisions of this Agreement, as
may be required to comply with any law or with rules or regulations pursuant
thereto, or with the rules of any securities market in which the Certificates
are admitted to trading, or to conform to general usage. The Certificates will
be issuable in registered form only; provided, however, that in accordance with
Section 5.03 beneficial ownership interests in the Registered Certificates and
the Class F Certificates shall initially be held and transferred through the
book-entry facilities of the Depository. The REMIC II Regular Certificates will
be issuable in denominations corresponding to initial Certificate Principal
Balances or Certificate Notional Amounts, as the case may be, as of the Closing
Date of not less than $__________ (or, with respect to the Class A Certificates,
$____________ and, with respect to the Class X Certificates, $____________) and
any whole dollar denomination in excess thereof; provided, however, that a
single Certificate of each Class thereof may be issued in a different
denomination. Each Class of Residual Certificates will be issuable only in a
denomination representing the entire Class.
(b) The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee in its capacity as trustee hereunder by an authorized
officer. Certificates bearing the manual or facsimile signatures of individuals
who were at any time the authorized officers of the Trustee shall be entitled to
all benefits under this Agreement, subject to the following sentence,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
however, unless there appears on such Certificate a certificate of
authentication substantially in the form provided for herein executed by the
Certificate Registrar by manual signature, and such certificate of
authentication upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication;
provided that the Certificates issued on the Closing Date shall, in any event,
be dated the Closing Date.
SECTION 5.02 Registration of Transfer and Exchange of Certificates.
(a) At all times during the term of this Agreement, there shall be
maintained at the office of the Certificate Registrar a Certificate Register in
which, subject to such reasonable regulations as the Certificate Registrar may
prescribe, the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Trustee is hereby initially appointed (and hereby agrees to act in
accordance with the terms hereof) as Certificate Registrar for the purpose of
registering Certificates and transfers and exchanges of Certificates as herein
provided. For so long as the Trustee acts as Certificate Registrar, its
Corporate Trust Office shall constitute the office of the Certificate Registrar
maintained for such purposes. The Trustee may appoint, by a written instrument
delivered to the Depositor, the Master Servicer, the Special Servicer and the
REMIC Administrator, any other bank or trust company to act as Certificate
Registrar under such conditions as the predecessor Certificate Registrar may
prescribe, provided that the Trustee shall not be relieved of any of its duties
or responsibilities hereunder as Certificate Registrar by reason of such
appointment. If the Trustee resigns or is removed in accordance with the terms
hereof, the successor trustee shall immediately succeed to its predecessor's
duties as Certificate Registrar. The Depositor, the Master Servicer, the Special
Servicer and the REMIC Administrator shall have the right to inspect the
Certificate Register or to obtain a copy thereof at all reasonable times, and to
rely conclusively upon a certificate of the Certificate Registrar as to the
information set forth in the Certificate Register. Upon request, the Trustee
shall promptly inform, or cause the Certificate Registrar to inform, the Master
Servicer or the Special Servicer, as applicable, of the identity of all
Certificateholders of the Controlling Class.
If three or more Certificateholders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the most recent list of Certificateholders held by the Trustee. If the Trustee
is no longer the Certificate Registrar and such a list is as of a date more than
90 days prior to the date of receipt of such applicants' request, the Trustee
shall promptly request from the Certificate Registrar a current list as provided
above, and shall afford such applicants access to such list promptly upon
receipt.
Every Certificateholder, by receiving and holding such list, agrees with
the Certificate Registrar and the Trustee that neither the Certificate Registrar
nor the Trustee shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Certificateholders
hereunder, regardless of the source from which such information was derived.
(b) No transfer of any Non-Registered Certificate shall be made unless that
transfer is made pursuant to an effective registration statement under the
Securities Act, and effective registration or qualification under applicable
state securities laws, or is made in a transaction which does not require such
registration or qualification. In the event a transfer of any Non-Registered
Certificate (other than in connection with the initial issuance of the
Certificates or a transfer of such Non-Registered Certificate by the Depositor
or any Affiliate of the Depositor and other than a Non-Registered Certificate
which constitutes a Book-Entry Certificate) is to be made without registration
under the Securities Act, the Certificate Registrar shall refuse to register
such transfer unless it receives the following: (i) a certificate from the
Certificateholder desiring to effect such transfer substantially in the form
attached as Exhibit B-1 hereto; or (ii) a certificate from the Certificateholder
desiring to effect such transfer substantially in the form attached as Exhibit
B-2 hereto and a certificate from such Certificateholder's prospective
transferee substantially in the form attached either as Exhibit B-3 or Exhibit
B-4 hereto; or (iii) an Opinion of Counsel satisfactory to the Certificate
Registrar to the effect that such transfer may be made without registration
under the Securities Act, together with the written certification(s) as to the
facts surrounding such transfer from the Certificateholder desiring to effect
such transfer and/or such Certificateholder's prospective transferee on which
such Opinion of Counsel is based. If a transfer of any interest in any
Non-Registered Certificate that constitutes a Book-Entry Certificate (such as a
Class F Certificate) is to be made without registration under the Securities Act
(other than in connection with the initial issuance of the Certificates or a
transfer of any interest in such Non-Registered Certificate by the Depositor or
any of its Affiliates), then the Certificate Owner desiring to effect such
transfer shall be required to obtain either (i) a certificate from such
Certificate Owner's prospective transferee substantially in the form attached as
Exhibit B-5 hereto or as Exhibit B-6 hereto; or (ii) an Opinion of Counsel to
the effect that such transfer may be made without registration under the
Securities Act (which Opinion of Counsel shall not be an expense of the Trust or
of the Depositor, the Mortgage Loan Seller, the Master Servicer, the Special
Servicer, the Trustee, the REMIC Administrator or the Certificate Registrar in
their respective capacities as such). None of the Depositor, the Trustee or the
Certificate Registrar is obligated to register or qualify any Class of
Non-Registered Certificates under the Securities Act or any other securities law
or to take any action not otherwise required under this Agreement to permit the
transfer of any Non-Registered Certificate or interest therein without
registration or qualification. Any Holder or Certificate Owner of a
Non-Registered Certificate desiring to effect such a transfer shall, and does
hereby agree to, indemnify the Depositor, the Trustee, the REMIC Administrator
and the Certificate Registrar against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal and
state laws.
(c) No transfer of any Non-Registered Certificate or any interest therein
shall be made under any circumstances (i) to any employee benefit plan or other
retirement arrangement, including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to ERISA or the
Code (each, a "Plan"), or (ii) to any Person who is directly or indirectly
purchasing such Certificate or interest therein on behalf of, as named fiduciary
of or as trustee of a Plan, or with "plan assets" within the meaning of the
Department of Labor regulation promulgated at 29 C.F.R. ss.2510.3-101, unless:
(x) in the case of any Non-Registered Certificate or interest therein that is
being acquired with "plan assets", the prospective Transferee provides the
Certificate Registrar (or, in the case of a Non-Registered Certificate that
constitutes a Book-Entry Certificate, the Certificate Owner that desires to
effect the transfer) with a certification to the effect that the purchase,
continued holding and transfer of such Certificate or interest therein is exempt
from the prohibited transaction provisions of Section 406 of ERISA and Section
4975 of the Code under Sections I and III of Prohibited Transaction Class
Exemption ("PTCE") 95-60 or under Section 401(c) of ERISA; or (y) in the case of
any Non-Registered Certificate that is held as a Definitive Certificate, the
prospective Transferee provides the Certificate Registrar with a certification
of facts and an Opinion of Counsel, obtained at the expense of such prospective
Transferee, which establish to the satisfaction of the Certificate Registrar
that such transfer will not result in a violation of Section 406 of ERISA or
Section 4975 of the Code, will not result in the imposition of an excise tax
under Section 4975 of the Code and will not subject the Trustee, Master Servicer
or Special Servicer to any obligation in addition to those undertaken in this
Agreement. Each Person who acquires any Certificate (including, without
limitation, a Registered Certificate) or interest therein shall (in all cases,
in the case of a Registered Certificate, and only if such Person shall not have
delivered the Opinion of Counsel and/or one of the certifications referred to in
the preceding sentence, in the case of a Non-Registered Certificate) be deemed
to have certified that: (i) it is neither a Plan nor any Person who is directly
or indirectly purchasing such Certificate or interest therein on behalf of, as
named fiduciary of, as trustee of, or with assets of a Plan, or (ii)
alternatively, that the purchase, continued holding and transfer of such
Certificate or interest therein is exempt from the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code under Prohibited
Transaction Exemption ("PTE") 90-88 or PTE 93-31, Sections I and III of PTCE
95-60 or Section 401(c) of ERISA.
(d) (i) Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably authorized the Trustee under clause (ii)(A) below to deliver
payments to a Person other than such Person and to have irrevocably authorized
the Trustee under clause (ii)(B) below to negotiate the terms of any mandatory
sale and to execute all instruments of Transfer and to do all other things
necessary in connection with any such sale. The rights of each Person acquiring
any Ownership Interest in a Residual Certificate are expressly subject to the
following provisions:
(A) Each Person holding or acquiring any Ownership Interest in a
Residual Certificate shall be a Permitted Transferee and a United
States Person and shall promptly notify the Trustee and the REMIC
Administrator of any change or impending change in its status as a
Permitted Transferee or United States Person.
(B) In connection with any proposed Transfer of any Ownership Interest
in a Residual Certificate (other than in connection with the initial
issuance thereof or the transfer thereof among the Depositor and its
Affiliates), the Certificate Registrar shall require delivery to it,
and shall not register the Transfer of any Residual Certificate until
its receipt of, an affidavit and agreement substantially in the form
attached hereto as Exhibit C-1 (a "Transfer Affidavit and Agreement")
from the proposed Transferee, in form and substance satisfactory to
the Certificate Registrar, representing and warranting, among other
things, that such Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual Certificate that is
the subject of the proposed Transfer as a nominee, trustee or agent
for any Person that is not a Permitted Transferee, that for so long as
it retains its Ownership Interest in a Residual Certificate it will
endeavor to remain a Permitted Transferee, that it is a United States
Person and that it has reviewed the provisions of this Section 5.02(d)
and agrees to be bound by them.
(C) Notwithstanding the delivery of a Transfer Affidavit and Agreement
by a proposed Transferee under clause (B) above, if the Certificate
Registrar has actual knowledge that the proposed Transferee is not
both a Permitted Transferee and a United States Person, no Transfer of
an Ownership Interest in a Residual Certificate to such proposed
Transferee shall be effected.
(D) Except in connection with the initial issuance of the Residual
Certificates or any transfer thereof among the Depositor and its
Affiliates, each Person holding or acquiring any Ownership Interest in
a Residual Certificate shall agree (1) to require a Transfer Affidavit
and Agreement from any prospective Transferee to whom such Person
attempts to transfer its Ownership Interest in such Residual
Certificate and (2) not to transfer its Ownership Interest in such
Residual Certificate unless it provides to the Certificate Registrar a
certificate substantially in the form attached hereto as Exhibit C-2
stating that, among other things, it has no actual knowledge that such
prospective Transferee is not a Permitted Transferee and a United
States Person.
(E) Each Person holding or acquiring an Ownership Interest in a
Residual Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee and the REMIC Administrator
written notice that it is a "pass-through interest holder" within the
meaning of temporary Treasury regulation Section 1.67-3T(a)(2)(i)(A)
immediately upon acquiring an Ownership Interest in a Residual
Certificate, if it is, or is holding an Ownership Interest in a
Residual Certificate on behalf of, a "pass-through interest holder".
(ii) (A) If any purported Transferee shall become a Holder of a
Residual Certificate in violation of the provisions of this Section
5.02(d), then the last preceding Holder of such Residual Certificate that
was in compliance with the provisions of this Section 5.02(d) shall be
restored, to the extent permitted by law, to all rights as Holder thereof
retroactive to the date of registration of such Transfer of such Residual
Certificate. None of the Trustee, the Master Servicer, the Special
Servicer, the REMIC Administrator or the Certificate Registrar shall be
under any liability to any Person for any registration of Transfer of a
Residual Certificate that is in fact not permitted by this Section 5.02(d)
or for making any payments due on such Certificate to the Holder thereof or
for taking any other action with respect to such Holder under the
provisions of this Agreement.
(B) If any purported Transferee shall become a Holder of a Residual
Certificate in violation of the restrictions in this Section 5.02(d) and to
the extent that the retroactive restoration of the rights of the Holder of
such Residual Certificate as described in clause (ii)(A) above shall be
invalid, illegal or unenforceable, then the Trustee shall have the right,
but not the obligation, to cause the transfer of such Residual Certificate
to a Permitted Transferee selected by the Trustee on such terms as the
Trustee may choose, and the Trustee shall not be liable to any Person
having an Ownership Interest in a Residual Certificate as a result of its
exercise of such discretion. Such Permitted Transferee shall promptly
endorse and deliver such Residual Certificate in accordance with the
instructions of the Trustee. Such Permitted Transferee may be the Trustee
itself or any Affiliate of the Trustee.
(iii) The REMIC Administrator shall make available to the Internal
Revenue Service and those Persons specified by the REMIC Provisions all
information necessary to compute any tax imposed (A) as a result of the
Transfer of an Ownership Interest in a Residual Certificate to any Person
who is not a Permitted Transferee or a United States Person, including the
information described in Treasury regulations sections 1.860D-1(b)(5) and
1.860E-2(a)(5) with respect to the "excess inclusions" of such Residual
Certificate and (B) as a result of any regulated investment company, real
estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code that holds an Ownership
Interest in a Residual Certificate having as among its record holders at
any time any Person which is not a Permitted Transferee. The Person holding
such Ownership Interest shall be responsible for the reasonable
compensation of the REMIC Administrator for providing such information.
(iv)The provisions of this Section 5.02(d) set forth prior to this
subsection (iv) may be modified, added to or eliminated, provided that
there shall have been delivered to the Trustee and the REMIC Administrator
the following:
(A) written notification from [each] Rating Agency to the effect that
the modification of, addition to or elimination of such provisions will not
cause such Rating Agency to downgrade its then-current rating of any Class
of Certificates; and
(B) an Opinion of Counsel, in form and substance satisfactory to the
Trustee and the REMIC Administrator, to the effect that such modification
of, addition to or elimination of such provisions will not cause either
REMIC I or REMIC II to (x) cease to qualify as a REMIC or (y) be subject to
an entity-level tax caused by the Transfer of any Residual Certificate to a
Person which is not a Permitted Transferee, or cause a Person other than
the prospective Transferee to be subject to a REMIC-related tax caused by
the Transfer of a Residual Certificate to a Person which is not a Permitted
Transferee. Such Opinion of Counsel shall not be at the expense of the
Trust, the Trustee or the REMIC Administrator.
(e) Subject to the preceding subsections, upon surrender for registration
of transfer of any Certificate at the offices of the Certificate Registrar
maintained for such purpose, the Trustee shall execute and the Certificate
Registrar shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Certificates of authorized
denominations of the same Class of a like aggregate Percentage Interest.
(f) At the option of any Holder, its Certificates may be exchanged for
other Certificates of authorized denominations of the same Class of a like
aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at the offices of the Certificate Registrar maintained for such
purpose. Whenever any Certificates are so surrendered for exchange, the Trustee
shall execute and the Certificate Registrar shall authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive.
(g) Every Certificate presented or surrendered for transfer or exchange
shall (if so required by the Certificate Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in the form satisfactory to the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
(h) No service charge shall be imposed for any transfer or exchange of
Certificates, but the Trustee or the Certificate Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
(i) Subsequent to the initial issuance of the Certificates, the Trustee
shall be responsible for the preparation of physical Certificates in connection
with any transfer or exchange; provided that the correct form of Certificate of
each Class shall be provided by the Depositor to the Trustee on diskette on or
about the Closing Date. All Certificates surrendered for transfer and exchange
shall be physically canceled by the Certificate Registrar, and the Certificate
Registrar shall hold or destroy such canceled Certificates in accordance with
its standard procedures.
(j) The Certificate Registrar shall be required to provide the Depositor
and the REMIC Administrator with an updated copy of the Certificate Register on
or about January 1 of each year, commencing __________ 1, 199__, and shall be
required to provide the Depositor, the Master Servicer, the Special Servicer or
the REMIC Administrator with an updated copy of the Certificate Register at
other times promptly upon written request therefor.
(k) If a Person is acquiring any Non-Registered Certificate or interest
therein as a fiduciary or agent for one or more accounts, such Person shall be
required to deliver to the Certificate Registrar (or, in the case of a
Book-Entry Certificate, to the Certificate Owner that is transferring such
interest) a certification to the effect that, and such other evidence as may be
reasonably required by the Trustee (or such Certificate Owner) to confirm that,
it has (i) sole investment discretion with respect to each such account and (ii)
full power to make the acknowledgments, representations, warranties,
certification and agreements with respect to each such account as set forth in
subsections (b), (c) and (d), as applicable, of this Section 5.02.
SECTION 5.03 Book-Entry Certificates.
(a) The Registered Certificates and the Class F Certificates shall, in the
case of each Class thereof, initially be issued as one or more Certificates
registered in the name of the Depository or its nominee and, except as provided
in subsection (c) below, transfer of such Certificates may not be registered by
the Certificate Registrar unless such transfer is to a successor Depository that
agrees to hold such Certificates for the respective Certificate Owners with
Ownership Interests therein. Such Certificate Owners shall hold and transfer
their respective Ownership Interests in and to such Certificates through the
book-entry facilities of the Depository and, except as provided in subsection
(c) below, shall not be entitled to fully registered, physical Certificates
("Definitive Certificates") in respect of such Ownership Interests. All
transfers by Certificate Owners of their respective Ownership Interests in the
Book-Entry Certificates shall be made in accordance with the procedures
established by the Depository Participant or brokerage firm representing each
such Certificate Owner. Each Depository Participant shall only transfer the
Ownership Interests in the Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures. Neither the Certificate Registrar nor the
Trustee shall have any responsibility to monitor or restrict the transfer of
Ownership Interests in Certificates through the book-entry facilities of the
Depository.
(b) The Depositor, the Mortgage Loan Seller, the Trustee, the Master
Servicer, the Special Servicer, the REMIC Administrator and the Certificate
Registrar may for all purposes, including the making of payments due on the
Book-Entry Certificates, deal with the Depository as the authorized
representative of the Certificate Owners with respect to such Certificates for
the purposes of exercising the rights of Certificateholders hereunder. The
rights of Certificate Owners with respect to the Book-Entry Certificates shall
be limited to those established by law and agreements between such Certificate
Owners and the Depository Participants and brokerage firms representing such
Certificate Owners. Multiple requests and directions from, and votes of, the
Depository as Holder of the Book-Entry Certificates with respect to any
particular matter shall not be deemed inconsistent if they are made with respect
to different Certificate Owners. The Trustee may establish a reasonable record
date in connection with solicitations of consents from or voting by
Certificateholders and shall give notice to the Depository of such record date.
If any party hereto requests from the Depository a list of the Depository
Participants in respect of any Class or Classes of the Book-Entry Certificates,
the cost thereof shall be borne by the party on whose behalf such request is
made (but in no event shall any such cost be borne by the Trustee).
(c) If (i)(A) the Depositor advises the Trustee and the Certificate
Registrar in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to any Class of the
Book-Entry Certificates, and (B) the Depositor is unable to locate a qualified
successor, or (ii) the Depositor at its option advises the Trustee and the
Certificate Registrar in writing that it elects to terminate the book-entry
system through the Depository with respect to any Class of the Book-Entry
Certificates, the Certificate Registrar shall notify all affected Certificate
Owners, through the Depository, of the occurrence of any such event and of the
availability of Definitive Certificates to such Certificate Owners requesting
the same. Upon surrender to the Certificate Registrar of any Class of the
Book-Entry Certificates by the Depository, accompanied by registration
instructions for registration of transfer, the Trustee shall execute, and the
Certificate Registrar shall authenticate and deliver, the appropriate Definitive
Certificates to the Certificate Owners identified in such instructions. None of
the Depositor, the Mortgage Loan Seller, the Master Servicer, the Special
Servicer, the Trustee, the REMIC Administrator or the Certificate Registrar
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates for purposes of evidencing
ownership of any Class of Registered Certificates, the registered holders of
such Definitive Certificates shall be recognized as Certificateholders hereunder
and, accordingly, shall be entitled directly to receive payments on, to exercise
Voting Rights with respect to, and to transfer and exchange such Definitive
Certificates.
SECTION 5.04 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Trustee and the Certificate Registrar such security or indemnity as may
reasonably be required by them to save each of them harmless, then, in the
absence of actual notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute and the Certificate Registrar shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of the same Class and like Percentage Interest.
Upon the issuance of any new Certificate under this Section, the Trustee and the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) connected therewith. Any replacement Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the applicable REMIC created hereunder, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
SECTION 5.05 Persons Deemed Owners.
Prior to due presentment for registration of transfer, the Depositor, the
Mortgage Loan Seller, the Master Servicer, the Special Servicer, the Trustee,
the REMIC Administrator, the Certificate Registrar and any agents of any of them
may treat the person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions pursuant to Section
4.01 and for all other purposes whatsoever, and none of the Depositor, the
Mortgage Loan Seller, the Master Servicer, the Special Servicer, the Trustee,
the REMIC Administrator, the Certificate Registrar or any agent of any of them
shall be affected by notice to the contrary.
SECTION 5.06 Certification by Certificate Owners.
(a) Each Certificate Owner is hereby deemed by virtue of its acquisition of
an Ownership Interest in the Book-Entry Certificates to agree to comply with the
applicable transfer requirements of Sections 5.02(b) and 5.02(c).
(b) To the extent that under the terms of this Agreement, it is necessary
to determine whether any Person is a Certificate Owner, the Trustee shall make
such determination based on a certificate of such Person which shall specify, in
reasonable detail satisfactory to the Trustee, the Class and Certificate
Principal Balance or Certificate Notional Amount, as the case may be, of the
Book-Entry Certificate beneficially owned, the value of such Person's interest
in such Certificate and any intermediaries through which such Person's Ownership
Interest in such Book-Entry Certificate is held; provided, however, that the
Trustee shall not knowingly recognize such Person as a Certificate Owner if such
Person, to the knowledge of a Responsible Officer of the Trustee, acquired its
Ownership Interest in a Book-Entry Certificate in violation of Section 5.02(b)
and/or Section 5.02(c), or if such Person's certification that it is a
Certificate Owner is in direct conflict with information obtained by the Trustee
from the Depository, Depository Participants, and/or indirect participating
brokerage firms for which a Depository Participant acts as agent, with respect
to the identity of a Certificate Owner. The Trustee shall exercise its
reasonable discretion in making any determination under this Section 5.06(b) and
shall afford any Person providing information with respect to its beneficial
ownership of any Certificates an opportunity to resolve any discrepancies
between the information provided and any other information available to the
Trustee.
<PAGE>
ARTICLE VI
THE DEPOSITOR, THE MORTGAGE LOAN SELLER, THE MASTER SERVICER, THE
SPECIAL SERVICER AND THE REMIC ADMINISTRATOR
SECTION 6.01 Liability of the Depositor, the Mortgage Loan Seller, the
Master Servicer, the Special Servicer and the REMIC
Administrator.
The Depositor, the Mortgage Loan Seller, the Master Servicer, the Special
Servicer and the REMIC Administrator shall be liable in accordance herewith only
to the extent of the respective obligations specifically imposed upon and
undertaken by the Depositor, the Mortgage Loan Seller, the Master Servicer, the
Special Servicer and the REMIC Administrator herein.
SECTION 6.02 Merger, Consolidation or Conversion of the Depositor, the
Mortgage Loan Seller, the Master Servicer, the Special
Servicer or the REMIC Administrator.
Subject to the following paragraph, the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer and the REMIC Administrator
each will keep in full effect its existence, rights and franchises as a
corporation or other business organization under the laws of the jurisdiction of
its organization, and each will obtain and preserve its qualification to do
business as a foreign corporation or otherwise in each jurisdiction in which
such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement.
The Depositor, the Mortgage Loan Seller, the Master Servicer, the Special
Servicer and the REMIC Administrator each may be merged or consolidated with or
into any Person, or transfer all or substantially all of its assets (which, as
to the Master Servicer and the Special Servicer, may be limited to all or
substantially all of its assets relating to the business of mortgage loan
servicing) to any Person, in which case any Person resulting from any merger or
consolidation to which the Depositor, the Mortgage Loan Seller, the Master
Servicer, the Special Servicer or the REMIC Administrator shall be a party, or
any Person succeeding to the business of the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer or the REMIC Administrator,
shall be the successor of the Depositor, the Mortgage Loan Seller, the Master
Servicer, the Special Servicer or the REMIC Administrator, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that no successor or surviving Person shall
succeed to the rights of the Master Servicer, the Special Servicer, or the
Mortgage Loan Seller unless such succession will not result in any withdrawal,
downgrade or qualification of the rating then assigned by [either] Rating Agency
to any Class of Certificates (as confirmed in writing).
SECTION 6.03 Limitation on Liability of the Depositor, the Master Servicer,
the Special Servicer, the REMIC Administrator and Others.
None of the Depositor, the Master Servicer, the Special Servicer, the REMIC
Administrator or any director, officer, employee or agent of any of the
foregoing shall be under any liability to the Trust or the Certificateholders
for any action taken, or not taken, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not protect
the Depositor, the Master Servicer, the Special Servicer, the REMIC
Administrator or any such other Person against any breach of a representation or
warranty made herein, or against any expense or liability specifically required
to be borne thereby pursuant to the terms hereof, or against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties hereunder, or by reason
of negligent disregard of such obligations and duties. The Depositor, the Master
Servicer, the Special Servicer, the REMIC Administrator and any director,
officer, employee or agent of any of the foregoing may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any Person respecting any matters arising hereunder. The Depositor, the Master
Servicer, the Special Servicer, the REMIC Administrator and any director,
officer, employee or agent of any of the foregoing shall be indemnified and held
harmless by the Trust against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement, the Certificates or
any asset of the Trust, other than any loss, liability or expense: (i)
specifically required to be borne by such Person pursuant to the terms hereof,
including, without limitation, Section 10.01(h); (ii) incidental to the
performance of obligations and duties hereunder, including, without limitation,
in the case of the Master Servicer or the Special Servicer, the prosecution of
an enforcement action in respect of any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement); or (iii) which was incurred in connection with
claims against such party resulting from (A) any breach of a representation or
warranty made herein by such party, (B) willful misfeasance, bad faith or
negligence in the performance of obligations or duties hereunder by such party,
or from negligent disregard of such obligations or duties, or (C) any violation
by such party of any state or federal securities law. None of the Depositor, the
Master Servicer, the Special Servicer or the REMIC Administrator shall be under
any obligation to appear in, prosecute or defend any legal action unless such
action is related to its respective duties under this Agreement and, except in
the case of a legal action contemplated by Section 3.22, in its opinion does not
involve it in any ultimate expense or liability; provided, however, that the
Depositor, the Master Servicer, the Special Servicer or the REMIC Administrator
may in its discretion undertake any such action which it may deem necessary or
desirable with respect to the enforcement and/or protection of the rights and
duties of the parties hereto and the interests of the Certificateholders
hereunder. In such event, the legal expenses and costs of such action, and any
liability resulting therefrom, shall be expenses, costs and liabilities of the
Trust, and the Depositor, the Master Servicer, the Special Servicer and the
REMIC Administrator each shall be entitled to the direct payment of such
expenses or to be reimbursed therefor from the Certificate Account as provided
in Section 3.05(a).
SECTION 6.04 Master Servicer, Special Servicer and REMIC Administrator Not
to Resign.
None of the Master Servicer, the Special Servicer or the REMIC
Administrator shall be permitted to resign from the obligations and duties
hereby imposed on it, except (i) upon the appointment of, and the acceptance of
such appointment by, a successor thereto which is reasonably acceptable to the
Trustee and the receipt by the Trustee of written confirmation from each and
every Rating Agency to the effect that such resignation and appointment will not
result in the downgrade, qualification or withdrawal of any rating then assigned
by such Rating Agency to any Class of Certificates, or (ii) upon determination
that such obligations and duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer,
Special Servicer or REMIC Administrator, as the case may be, so causing such a
conflict being of a type and nature carried on by the Master Servicer, Special
Servicer or REMIC Administrator, as the case may be, at the date of this
Agreement. Any such determination of the nature described in clause (ii) of the
preceding sentence permitting the resignation of the Master Servicer, the
Special Servicer or the REMIC Administrator, as the case may be, shall be
evidenced by an Opinion of Counsel to such effect which shall be rendered by
Independent counsel, be addressed and delivered to the Trustee and the Rating
Agencies and be paid for by the resigning party. No such resignation for either
reason shall become effective until the Trustee or other successor shall have
assumed the responsibilities and obligations of the resigning party hereunder.
All costs and expenses of the Trustee and the Trust (including, without
limitation, any costs or expenses of any party hereto reimbursable out of the
Trust Fund) in connection with any such resignation (including, without
limitation, any requisite transfer of servicing) shall be paid for, as incurred,
by the resigning party.
Consistent with the foregoing, none of the Master Servicer, the Special
Servicer or the REMIC Administrator shall be permitted, except as expressly
provided herein, to assign or transfer any of its rights, benefits or privileges
hereunder to any other Person, or delegate to or subcontract with, or authorize
or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by it hereunder. If, pursuant to any provision
hereof, the duties of the Master Servicer, the Special Servicer or the REMIC
Administrator are transferred to a successor thereto, then, subject to Section
3.22, the entire amount of compensation payable to the Master Servicer, the
Special Servicer or the REMIC Administrator, as the case may be, pursuant hereto
shall thereafter be payable to such successor.
SECTION 6.05 Rights of the Depositor and the Trustee in Respect of the
Master Servicer, the Special Servicer and the REMIC
Administrator.
The Master Servicer, the Special Servicer and the REMIC Administrator each
shall afford the Depositor and the Trustee, upon reasonable notice, during
normal business hours access to all records maintained by the Master Servicer,
the Special Servicer or the REMIC Administrator, as the case may be, in respect
of its rights and obligations hereunder and access to such of its officers as
are responsible for such obligations. Upon reasonable request, the Master
Servicer, the Special Servicer and the REMIC Administrator each shall furnish
the Depositor and the Trustee with its most recent financial statements and such
other information as it possesses, and which it is not prohibited by law or, to
the extent applicable, binding obligations to third parties with respect to
confidentiality from disclosing, regarding its business, affairs, property and
condition, financial or otherwise. The Depositor may, but is not obligated to,
enforce the obligations of the Master Servicer, the Special Servicer and the
REMIC Administrator hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Master Servicer,
the Special Servicer or the REMIC Administrator hereunder or, in connection with
a default thereby, exercise the rights of the Master Servicer, the Special
Servicer or the REMIC Administrator hereunder; provided, however, that none of
the Master Servicer, the Special Servicer or the REMIC Administrator shall be
relieved of any of its obligations hereunder by virtue of such performance by
the Depositor or its designee. The Depositor shall not have any responsibility
or liability for any action or failure to act by the Master Servicer, the
Special Servicer or the REMIC Administrator and is not obligated to supervise
the performance of the Master Servicer, the Special Servicer or the REMIC
Administrator under this Agreement or otherwise.
<PAGE>
ARTICLE VII
DEFAULT
SECTION 7.01 Events of Default.
(a) "Event of Default", wherever used herein, unless the context otherwise
requires, means any one of the following events:
(i) any failure by the Master Servicer to deposit into the
Certificate Account any amount required to be so deposited under this
Agreement which continues unremedied for two Business Days following
the date on which such deposit was first required to be made, or any
failure by the Master Servicer to deposit into, or to remit to the
Trustee for deposit into, the Distribution Account on any Master
Servicer Remittance Date, the full amount of any Master Servicer
Remittance Amount required to be so deposited or remitted under this
Agreement on such date; or
(ii) any failure by the Special Servicer to deposit into, or to
remit to the Master Servicer for deposit into, the Certificate Account
or the REO Account any amount required to be so deposited or remitted
under this Agreement which continues unremedied for two Business Days
following the date on which such deposit or remittance was first
required to be made; or
(iii) any failure by the Master Servicer to remit to the Trustee
for deposit into the Distribution Account, on any Master Servicer
Remittance Date, the full amount of P&I Advances required to be made on
such date; or
(iv) any failure by the Master Servicer to timely make any
Servicing Advance required to be made by it pursuant to this Agreement,
which failure continues unremedied for a period of one Business Day
following the date on which notice shall have been given to the Master
Servicer by the Trustee as provided in Section 3.11(e); or
(v) any failure by the Special Servicer to timely make (or timely
direct the Master Servicer to make) any Servicing Advance required to
be made by it or the Master servicer at its direction pursuant to this
Agreement, which failure continues unremedied for a period of one
Business Day following the date on which notice has been given to the
Special Servicer by the Trustee as provided in Section 3.11(e); or
(vi) any failure on the part of the Master Servicer or the Special
Servicer duly to observe or perform in any material respect any other
of the covenants or agreements thereof contained in this Agreement,
which failure continues unremedied for a period of 30 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party hereto, or to the
Master Servicer or the Special Servicer, as the case may be, with a
copy to each other party hereto, by the Holders of Certificates
entitled to at least 25% of the Voting Rights; or
(vii) any failure on the part of the REMIC Administrator duly to
observe or perform in any material respect any of the covenants or
agreements thereof contained in this Agreement, which failure continues
unremedied for a period of 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given to the REMIC Administrator by any other party hereto, or to
the REMIC Administrator, with a copy to each other party hereto, by the
Holders of Certificates entitled to at least 25% of the Voting Rights;
or
(viii) any breach on the part of the Master Servicer, the Special
Servicer or the REMIC Administrator of any representation or warranty
thereof contained in this Agreement which materially and adversely
affects the interests of any Class of Certificateholders and which
continues unremedied for a period of 30 days after the date on which
notice of such breach, requiring the same to be remedied, shall have
been given to the Master Servicer, the Special Servicer or the REMIC
Administrator, as the case may be, by any other party hereto, or to the
Master Servicer, the Special Servicer or the REMIC Administrator, as
the case may be, with a copy to each other party hereto, by the Holders
of Certificates entitled to at least 25% of the Voting Rights; or
(ix) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law for the appointment of a conservator, receiver, liquidator,
trustee or similar official in any bankruptcy, insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer, the Special Servicer or the REMIC
Administrator and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or
(x) the Master Servicer, the Special Servicer or the REMIC
Administrator shall consent to the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy,
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to it or of or relating to all or
substantially all of its property; or
(xi) the Master Servicer, the Special Servicer or the REMIC
Administrator shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an
assignment for the benefit of its creditors, voluntarily suspend
payment of its obligations, or take any corporate action in furtherance
of the foregoing; or
(xii) the Trustee shall have received written notice from either
Rating Agency that the continuation of the Master Servicer or the
Special Servicer in such capacity would result (or the continuation of
the Master Servicer or the Special Servicer in such capacity has
resulted) in a downgrade, qualification or withdrawal of any rating
then assigned by such Rating Agency to any Class of Certificates.
Each Event of Default listed above as items (iv) through (xii) shall constitute
an Event of Default only with respect to the relevant party; provided that if a
single entity acts or any two or more Affiliates act as Master Servicer, Special
Servicer and REMIC Administrator, or in any two or more of the foregoing
capacities, an Event of Default in one capacity (other than an event described
in clause (xii)) will constitute an Event of Default in each such capacity.
(b) If any Event of Default with respect to the Master Servicer or the
Special Servicer (in either case, for purposes of this Section 7.01(b), the
"Defaulting Party") shall occur and be continuing, then, and in each and every
such case, so long as the Event of Default shall not have been remedied, the
Depositor or the Trustee may, and at the written direction of the Holders of
Certificates entitled to at least 51% of the Voting Rights or if the relevant
Event of Default is the one described in clause (xii) of subsection (a) above,
the Trustee shall, terminate, by notice in writing to the Defaulting Party (with
a copy of such notice to each other party hereto), all of the rights and
obligations (accruing from and after such notice) of the Defaulting Party under
this Agreement and in and to the Mortgage Loans and the proceeds thereof. From
and after the receipt by the Defaulting Party of such written notice, all
authority and power of the Defaulting Party under this Agreement, whether with
respect to the Certificates (other than as a Holder of any Certificate) or the
Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant
to and under this Section, and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of and at the expense
of the Defaulting Party, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement or assignment of the Mortgage
Loans and related documents, or otherwise. The Master Servicer and the Special
Servicer each agree that, if it is terminated pursuant to this Section 7.01(b),
it shall promptly (and in any event no later than ten Business Days subsequent
to its receipt of the notice of termination) provide the Trustee with all
documents and records reasonably requested thereby to enable the Trustee to
assume the Master Servicer's or Special Servicer's, as the case may be,
functions hereunder, and shall cooperate with the Trustee in effecting the
termination of the Master Servicer's or Special Servicer's, as the case may be,
responsibilities and rights hereunder, including, without limitation, the
transfer within two Business Days to the Trustee for administration by it of all
cash amounts which shall at the time be or should have been credited by the
Master Servicer to the Certificate Account, the Distribution Account, any
Servicing Account or any Reserve Account (if it is the Defaulting Party) or by
the Special Servicer to the REO Account, the Certificate Account, any Servicing
Account or any Reserve Account (if it is the Defaulting Party) or thereafter be
received with respect to the Mortgage Loans and any REO Properties (provided,
however, that the Master Servicer and the Special Servicer each shall, if
terminated pursuant to this Section 7.01(b), continue to be obligated for or
entitled to receive all amounts accrued or owing by or to it under this
Agreement on or prior to the date of such termination, whether in respect of
Advances or otherwise, and it and its directors, officers, employees and agents
shall continue to be entitled to the benefits of Section 6.03 notwithstanding
any such termination). All costs and expenses of the Trustee and the Trust
(including, without limitation, any costs and expenses of any party hereto
reimbursable out of the Trust Fund) in connection with the termination of the
Master Servicer or Special Servicer, as applicable, under this Section 7.01(b)
(including, without limitation, the requisite transfer of servicing) shall be
paid for, as incurred, by the Defaulting Party.
(c) If any Event of Default with respect to the REMIC Administrator shall
occur and be continuing, then, and in each and every such case, so long as the
Event of Default shall not have been remedied, the Depositor or the Trustee may,
and at the written direction of the Holders of Certificates entitled to at least
51% of the Voting Rights, the Trustee (or, if the Trustee is also the REMIC
Administrator, the Master Servicer) shall, terminate, by notice in writing to
the REMIC Administrator (with a copy to each of the other parties hereto), all
of the rights and obligations of the REMIC Administrator under this Agreement.
From and after the receipt by the REMIC Administrator of such written notice (or
if the Trustee is also the REMIC Administrator, from and after such time as
another successor appointed as contemplated by Section 7.02 accepts such
appointment), all authority and power of the REMIC Administrator under this
Agreement shall pass to and be vested in the Trustee (or such other successor)
pursuant to and under this Section, and, without limitation, the Trustee (or
such other successor) is hereby authorized and empowered to execute and deliver,
on behalf of and at the expense of the REMIC Administrator, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination. The REMIC Administrator agrees promptly
(and in any event no later than ten Business Days subsequent to its receipt of
the notice of the termination) to provide the Trustee (or, if the Trustee is
also the REMIC Administrator, such other successor appointed as contemplated by
Section 7.02) with all documents and records requested thereby to enable the
Trustee (or such other successor) to assume the REMIC Administrator's functions
hereunder, and to cooperate with the Trustee (or such other successor) in
effecting the termination of the REMIC Administrator's responsibilities and
rights hereunder (provided, however, that the REMIC Administrator shall continue
to be obligated for or entitled to receive all amounts accrued or owing by or to
it under this Agreement on or prior to the date of such termination, and it and
its directors, officers, employees and agents shall continue to be entitled to
the benefits of Section 6.03 notwithstanding any such termination).
SECTION 7.02 Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer, the Special Servicer or the
REMIC Administrator resigns pursuant to clause (ii) of the first sentence of
Section 6.04 or receives a notice of termination pursuant to Section 7.01, the
Trustee shall be the successor in all respects to the Master Servicer, the
Special Servicer or (unless it has also been acting as such) the REMIC
Administrator, as the case may be, in its capacity as such under this Agreement
and the transactions set forth or provided for herein and shall be subject to
all the responsibilities, duties and liabilities relating thereto and arising
thereafter placed on the Master Servicer, the Special Servicer or the REMIC
Administrator, as the case may be, by the terms and provisions hereof,
including, without limitation, if the Master Servicer is the resigning or
terminated party, the Master Servicer's obligation to make P&I Advances;
provided that any failure to perform such duties or responsibilities caused by
the Master Servicer's, the Special Servicer's or the REMIC Administrator's, as
the case may be, failure to cooperate or to provide information or monies
required by Section 7.01 shall not be considered a default by the Trustee
hereunder. Neither the Trustee nor any other successor shall be liable for any
of the representations and warranties of the resigning or terminated party or
for any losses incurred by the resigning or terminated party pursuant to Section
3.06 hereunder nor shall the Trustee nor any other successor be required to
purchase any Mortgage Loan hereunder. As compensation therefor, the Trustee
shall be entitled to all fees and other compensation which the resigning or
terminated party would have been entitled to for future services rendered if the
resigning or terminated party had continued to act hereunder. Notwithstanding
the above, the Trustee may, if it shall be unwilling to so act, or shall, if it
is unable to so act, or is not approved by each and every Rating Agency as an
acceptable master servicer or special servicer, as the case may be, of
commercial mortgage loans, or if the Holders of Certificates entitled to at
least 51% of the Voting Rights so request in writing to the Trustee, or if the
REMIC Administrator is the resigning or terminated party and the Trustee had
been acting in such capacity, promptly appoint, or petition a court of competent
jurisdiction to appoint, any established and qualified institution as the
successor to the Master Servicer, the Special Servicer or the REMIC
Administrator, as the case may be, hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Master Servicer, the
Special Servicer or the REMIC Administrator, as the case may be, hereunder;
provided that such appointment does not result in the downgrading, qualification
or withdrawal of any rating then assigned by either Rating Agency to any Class
of Certificates (as evidenced by written confirmation thereof from each Rating
Agency). No appointment of a successor to the Master Servicer, the Special
Servicer or the REMIC Administrator hereunder shall be effective until the
assumption of the successor to such party of all its responsibilities, duties
and liabilities hereunder. Pending appointment of a successor to the Master
Servicer, the Special Servicer or the REMIC Administrator hereunder, the Trustee
shall act in such capacity as hereinabove provided. In connection with any such
appointment and assumption described herein, the Trustee may make such
arrangements for the compensation of such successor out of payments on or in
respect of the Mortgage Loans or otherwise as it and such successor shall agree;
provided, however, that no such compensation shall be in excess of that
permitted the resigning or terminated party hereunder. The Depositor, the
Trustee, such successor and each other party hereto shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. Any costs and expenses associated with the transfer of the foregoing
functions under this Agreement (other than the set-up costs of the successor)
shall be borne by the predecessor Master Servicer, Special Servicer or REMIC
Administrator, as applicable, and, if not paid by such predecessor Master
Servicer, Special Servicer or REMIC Administrator within thirty days of its
receipt of an invoice therefor, shall be an expense of the Trust; provided that
such predecessor Master Servicer, Special Servicer or REMIC Administrator shall
reimburse the Trust for any such expense so incurred by the Trust; and provided,
further, that the Trustee shall decide whether and to what extent it is in the
best interest of the Certificateholders to pursue any remedy against any party
obligated to make such reimbursement.
SECTION 7.03 Notification to Certificateholders.
(a) Upon any resignation of the Master Servicer, the Special Servicer or
the REMIC Administrator pursuant to Section 6.04, any termination of the Master
Servicer, the Special Servicer or the REMIC Administrator pursuant to Section
7.01 or any appointment of a successor to the Master Servicer, the Special
Servicer or the REMIC Administrator pursuant to Section 6.04 or Section 7.02,
the Trustee shall give prompt written notice thereof to Certificateholders at
their respective addresses appearing in the Certificate Register.
(b) Not later than the later of (i) 60 days after the occurrence of any
event which constitutes or, with notice or lapse of time or both, would
constitute an Event of Default and (ii) five days after the Trustee has actual
knowledge, or would be deemed in accordance with Section 8.02(vii) to have
notice of the occurrence of such an event, the Trustee shall transmit by mail to
the other non-defaulting parties hereto and all Certificateholders notice of
such occurrence, unless such default shall have been cured.
SECTION 7.04 Waiver of Events of Default.
The Holders entitled to at least 66-2/3% of the Voting Rights allocated to
each of the Classes of Certificates affected by any Event of Default hereunder
may waive such Event of Default, except that prior to any waiver of an Event of
Default arising from a failure to make P&I Advances, the Trustee shall be
reimbursed all amounts which it has advanced. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose hereunder. No such waiver shall extend to
any subsequent or other Event of Default or impair any right consequent thereon
except to the extent expressly so waived. [Notwithstanding any other provisions
of this Agreement, for purposes of waiving any Event of Default pursuant to this
Section 7.04, Certificates registered in the name of the Depositor or any
Affiliate of the Depositor (provided that neither the Depositor nor any
Affiliate thereof is the party in respect of which such Event of Default exists)
shall be entitled to the same Voting Rights with respect to the matters
described above as they would if any other Person held such Certificates.]
SECTION 7.05 Additional Remedies of Trustee Upon Event of Default.
During the continuance of any Event of Default, so long as such Event of
Default shall not have been remedied, the Trustee, in addition to the rights
specified in Section 7.01, shall have the right, in its own name and as trustee
of an express trust, to take all actions now or hereafter existing at law, in
equity or by statute to enforce its rights and remedies and to protect the
interests, and enforce the rights and remedies, of the Certificateholders
(including the institution and prosecution of all judicial, administrative and
other proceedings and the filings of proofs of claim and debt in connection
therewith). Except as otherwise expressly provided in this Agreement, no remedy
provided for by this Agreement shall be exclusive of any other remedy, and each
and every remedy shall be cumulative and in addition to any other remedy, and no
delay or omission to exercise any right or remedy shall impair any such right or
remedy or shall be deemed to be a waiver of any Event of Default.
<PAGE>
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01 Duties of Trustee.
(a) The Trustee, prior to the occurrence of an Event of Default hereunder
and after the curing or waiver of all such Events of Default and defaults which
may have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement; provided that it is herein
acknowledged and agreed that the Trustee is at all times acting in a fiduciary
capacity with respect to the Certificateholders. If an Event of Default
hereunder occurs and is continuing, the Trustee shall exercise such of the
rights and powers vested in it by this Agreement and applicable law, and use the
same degree of care and skill in their exercise as a prudent man or the Trustee
would exercise or use under the circumstances in the conduct of his or its own
affairs (whichever standard would be higher). Any permissive right of the
Trustee contained in this Agreement shall not be construed as a duty.
(b) The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement (other than the Mortgage Files, the review of which
is specifically governed by the terms of Article II), shall examine them to
determine whether they conform in form to the requirements of this Agreement. If
any such instrument is found not to so conform to the requirements of this
Agreement in a material manner, the Trustee shall take such action as it deems
appropriate to have the instrument corrected. The Trustee shall not be
responsible for, but may assume and rely upon, the accuracy and content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Depositor, the Master Servicer, the Special Servicer
or the REMIC Administrator and accepted by the Trustee in good faith, pursuant
to this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) The duties and obligations of the Trustee shall be determined
solely by the express provisions of this Agreement, the Trustee shall
not be liable except for the performance of such duties and obligations
as are specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the Trustee
and, in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of Holders of Certificates entitled to
at least 25% (or, as to any particular matter, any higher percentage as
may be specifically provided for hereunder) of the Voting Rights
relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Agreement.
SECTION 8.02 Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) The Trustee may rely upon and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document reasonably believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(ii) The Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance therewith;
(iii) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to make any
investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request,
order or direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby; the Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default hereunder which has not been cured,
to exercise such of the rights and powers vested in it by this
Agreement and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs;
(iv) The Trustee shall not be personally liable for any action
reasonably taken, suffered or omitted by it in good faith and believed
by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default hereunder, and
after the curing of all such Events of Default which may have occurred,
the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so
by Holders of Certificates entitled to at least 25% of the Voting
Rights; provided, however, that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a condition
to taking any such action;
(vi) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys-in-fact, provided that the use of any such agent or
attorney-in-fact shall not relieve the Trustee from afy of it{
obligations hereunder, and the Trustee shall remain responsible for all
acts and omissions of any such agent or attorney-in-fact;
(vii) For all purposes under this Agreement, the Trustee shall not
be deemed to have notice of any Event of Default hereunder unless a
Responsible Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office, and such notice
references the Certificates or this Agreement; and
(viii) The Trustee shall not be responsible for any act or
omission of the Master Servicer, the Special Servicer or the REMIC
Administrator (unless the Trustee is acting as Master Servicer, Special
Servicer or REMIC Administrator, as the case may be) or for any act or
omission of the Depositor or the Mortgage Loan Seller.
SECTION 8.03 Trustee Not Liable for Validity or Sufficiency of Certificates
or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
representations and warranties of, and the other statements attributed to, the
Trustee in Article II and the certificate of authentication executed by the
Trustee as Certificate Registrar set forth on each outstanding Certificate)
shall be taken as the statements of the Depositor, the Mortgage Loan Seller, the
Master Servicer, the Special Servicer or the REMIC Administrator, as the case
may be, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Agreement (other than as specifically set forth in Sections 2.08 and 2.09) or of
any Certificate (other than as to the signature of the Trustee set forth
thereon) or of any Mortgage Loan or related document. The Trustee shall not be
accountable for the use or application by the Depositor of any of the
Certificates issued to it or of the proceeds of such Certificates, or for the
use or application of any funds paid to the Depositor or the Mortgage Loan
Seller in respect of the assignment of the Mortgage Loans to the Trust, or any
funds deposited in or withdrawn from the Certificate Account or any other
account by or on behalf of the Depositor, the Master Servicer, the Special
Servicer or the REMIC Administrator. The Trustee shall not be responsible for
the accuracy or content of any resolution, certificate, statement, opinion,
report, document, order or other instrument furnished by the Depositor, the
Master Servicer, the Special Servicer or the REMIC Administrator and accepted by
the Trustee in good faith, pursuant to this Agreement.
SECTION 8.04 Trustee May Own Certificates8.04 Trustee Own Certificates.
The Trustee, in its individual or any other capacity, and any agent of the
Trustee may become the owner or pledgee of Certificates with, except as
otherwise provided in the definition of Certificateholder, the same rights it
would have if it were not the Trustee or such agent, as the case may be.
SECTION 8.05 Fees of Trustee; Indemnification of Trustee.
(a) The Trustee shall pay to itself on each Distribution Date, pursuant to
Section 3.05(b)(ii), from amounts on deposit in the Distribution Account, an
amount equal to the Trustee Fee for such Distribution Date and, to the extent
not previously received, for each prior Distribution Date.
(b) The Trustee and any director, officer, employee or agent of the Trustee
shall be entitled to be indemnified and held harmless by the Trust (to the
extent of amounts on deposit in the Certificate Account and the Distribution
Account from time to time) against any loss, liability or expense (including,
without limitation, costs and expenses of litigation, and of investigation,
counsel fees, damages, judgments and amounts paid in settlement) arising out of,
or incurred in connection with, any legal actions relating to the exercise and
performance of any of the powers and duties of the Trustee hereunder; provided
that none of the Trustee or any of the other above specified Persons shall be
entitled to indemnification pursuant to this Section 8.05(b) for (i) allocable
overhead, (ii) expenses or disbursements incurred or made by or on behalf of the
Trustee in the normal course of the Trustee's performing its routine duties in
accordance with any of the provisions hereof, (iii) any expense or liability
specifically required to be borne thereby pursuant to the terms hereof, or (iv)
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of the Trustee's obligations and duties
hereunder, or by reason of negligent disregard of such obligations or duties, or
as may arise from a breach of any representation, warranty or covenant of the
Trustee made herein. The provisions of this Section 8.05(b) shall survive any
resignation or removal of the Trustee and appointment of a successor trustee.
SECTION 8.06 Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation, a trust company,
a bank or a banking association: (i) organized and doing business under the laws
of the United States of America or any State thereof or the District of
Columbia; (ii) authorized under such laws to exercise trust powers; (iii) having
a combined capital and surplus of at least $[50,000,000.00] (iv) subject to
supervision or examination by federal or state authority; and (v) whose
long-term senior unsecured debt (or that of its fiscal agent) is rated not less
than "_____" by ______ and "_____" by _____ (or, in the case of [each] Rating
Agency, such lower ratings as would not, as confirmed in writing by such Rating
Agency, result in a qualification, downgrade or withdrawal of any of the
then-current ratings assigned by such Rating Agency to the Certificates). If
such corporation, trust company, bank or banking association publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then, for the purposes of this
Section 8.06, the combined capital and surplus of such corporation, trust
company, bank or banking association shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. No
Person shall become a successor trustee hereunder if the succession of such
Person would result in a qualification, downgrading or withdrawal of any of the
ratings then assigned by the Rating Agencies to the Certificates. In case at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Trustee shall resign immediately in the manner and with the
effect specified in Section 8.07. The corporation, trust company, bank or
banking association serving as Trustee may have normal banking and trust
relationships with the Depositor, the Mortgage Loan Seller, the Master Servicer,
the Special Servicer, the REMIC Administrator and their respective Affiliates.
SECTION 8.07 Resignation and Removal of the Trustee.
(a) The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Depositor, the Mortgage
Loan Seller, the Master Servicer, the Special Servicer, the REMIC Administrator
and to all Certificateholders. Upon receiving such notice of resignation, the
Depositor shall promptly appoint a successor trustee acceptable to the Master
Servicer by written instrument, in duplicate, which instrument shall be
delivered to the resigning Trustee and to the successor trustee. A copy of such
instrument shall be delivered to the Mortgage Loan Seller, the Master Servicer,
the Special Servicer, the REMIC Administrator and the Certificateholders by the
Depositor. If no successor trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.06 and shall fail to resign after written
request therefor by the Depositor or the Master Servicer, or if at any time the
Trustee shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor may remove the Trustee and appoint a successor
trustee acceptable to the Master Servicer by written instrument, in duplicate,
which instrument shall be delivered to the Trustee so removed and to the
successor trustee. A copy of such instrument shall be delivered to the Mortgage
Loan Seller, the Master Servicer, the Special Servicer, the REMIC Administrator
and the Certificateholders by the Depositor.
(c) The Holders of Certificates entitled to at least 33 1/3% of the Voting
Rights may at any time remove the Trustee and appoint a successor trustee by
written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed; provided that the
Master Servicer, the Depositor and the remaining Certificateholders shall have
been notified; and provided further that other Holders of the Certificates
entitled to a greater percentage of the Voting Rights shall not have objected to
such removal in writing to the Master Servicer and the Depositor within 30 days
of their receipt of notice thereof. A copy of such instrument shall be delivered
to the Depositor, the Mortgage Loan Seller, the Special Servicer, the REMIC
Administrator and the remaining Certificateholders by the Master Servicer.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.07 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08; and no such resignation or removal of the Trustee
and/or appointment of a successor trustee shall be permitted, unless, as
confirmed in writing by each Rating Agency, such resignation or removal and
appointment would not result in the qualification, downgrading or withdrawal of
the rating assigned by either Rating Agency to any Class of Certificates.
SECTION 8.08 Successor Trustee.
(a) Any successor trustee appointed as provided in Section 8.07 shall
execute, acknowledge and deliver to the Depositor, the Mortgage Loan Seller, the
Master Servicer, the Special Servicer, the REMIC Administrator and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver to the successor
trustee all Mortgage Files and related documents and statements held by it
hereunder (other than any Mortgage Files and related documents and statements at
the time held on its behalf by a Custodian, which Custodian shall become the
agent of the successor trustee), and the Depositor, the Mortgage Loan Seller,
the Master Servicer, the Special Servicer, the REMIC Administrator and the
predecessor trustee shall execute and deliver such instruments and do such other
things as may reasonably be required to more fully and certainly vest and
confirm in the successor trustee all such rights, powers, duties and
obligations, and to enable the successor trustee to perform its obligations
hereunder. If such predecessor trustee was removed as Trustee under this
Agreement without cause, the cost of any such execution, delivery or action
shall be at the expense of the Trust.
(b) No successor trustee shall accept appointment as provided in this
Section 8.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06.
(c) Upon acceptance of appointment by a successor trustee as provided in
this Section 8.08, the Master Servicer shall mail notice of the succession of
such trustee hereunder to the Depositor and the Certificateholders. If the
Master Servicer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Master Servicer.
SECTION 8.09 Merger or Consolidation of Trustee.
Any entity into which the Trustee may be merged or converted or with which
it may be consolidated or any entity resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any entity succeeding to
the corporate trust business of the Trustee shall be the successor of the
Trustee hereunder, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided that the Trustee shall continue to be eligible under
the provisions of Section 8.06. The successor to the Trustee shall promptly
notify in writing each of the other parties hereto, the Certificateholders and
the Rating Agencies of any such merger, conversion, consolidation or succession
to business.
SECTION 8.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Master Servicer
and the Trustee may consider necessary or desirable. If the Master Servicer
shall not have joined in such appointment within 15 days after the receipt by it
of a request to do so, or in case an Event of Default in respect of the Master
Servicer shall have occurred and be continuing, the Trustee alone shall have the
power to make such appointment. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 8.06 hereunder and no notice to Holders of Certificates of the
appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.08 hereof.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer, the Special Servicer or the REMIC
Administrator hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee at the direction of the Trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
(e) The appointment of a co-trustee or separate trustee under this Section
8.10 shall not relieve the Trustee of its duties, responsibilities or
liabilities hereunder.
SECTION 8.11 Appointment of Custodians.
The Trustee may, with the consent of the Master Servicer, appoint one or
more Custodians to hold all or a portion of the Mortgage Files as agent for the
Trustee; provided that if the Custodian is an Affiliate of the Trustee such
consent of the Master Servicer need not be obtained and the Trustee shall
instead notify the Master Servicer of such appointment. Each Custodian shall be
a depository institution subject to supervision by federal or state authority,
shall have combined capital and surplus (or shall have its performance
guaranteed by an Affiliate with a combined capital and surplus) of at least
$10,000,000, shall be qualified to do business in the jurisdiction in which it
holds any Mortgage File and shall not be the Depositor, the Mortgage Loan Seller
or any Affiliate of any of them. Each Custodian shall be subject to the same
obligations and standard of care as would be imposed on the Trustee hereunder in
connection with the retention of Mortgage Files directly by the Trustee. The
appointment of one or more Custodians shall not relieve the Trustee from any of
its duties, liabilities or obligations hereunder, and the Trustee shall remain
responsible for all acts and omissions of any Custodian.
SECTION 8.12 Access to Certain Information.
(a) The Trustee shall provide or cause to be provided to the Depositor, the
Master Servicer, the Special Servicer and the Rating Agencies, and to the OTS,
the FDIC, and any other federal or state banking or insurance regulatory
authority that may exercise authority over any Certificateholder, access to the
Mortgage Files and any other documentation regarding the Mortgage Loans and the
Trust Fund, that is within its control which may be required by this Agreement
or by applicable law. Such access shall be afforded without charge but only upon
reasonable prior written request and during normal business hours at the offices
of the Trustee designated by it.
(b) Promptly following the first sale of any Non-Registered Certificate to
an Independent third party, the Depositor shall provide to the Trustee
______copies of any private placement memorandum or other disclosure document
used by the Depositor or its Affiliate in connection with the offer and sale of
the Class of Certificates to which such Non-Registered Certificate belongs. In
addition, if any such private placement memorandum or disclosure document is
revised, amended or supplemented at any time following the delivery thereof to
the Trustee, the Depositor promptly shall inform the Trustee of such event and
shall deliver to the Trustee _____ copies of the private placement memorandum or
disclosure document, as revised, amended or supplemented. The Trustee shall
maintain at its Corporate Trust Office and shall on behalf of the Depositor,
upon reasonable advance written notice, make available during normal business
hours for review by each Rating Agency and by any Certificateholder or any
Certificate Owner or any Person identified to the Trustee by a Certificateholder
or a Certificate Owner as a prospective transferee of a Certificate or interest
therein, originals or copies of the following items: (i) in the case of a Holder
or prospective transferee of a Non-Registered Certificate, any private placement
memorandum or other disclosure document relating to the Class of Certificates to
which such Non-Registered Certificate belongs, in the form most recently
provided to the Trustee; and (ii) in all cases, (A) this Agreement and the
Sub-Servicing Agreements, and any amendments hereto or thereto, (B) all
statements and reports required to be delivered to Holders of the relevant Class
of Certificates pursuant to Section 4.02(a) since the Closing Date, (C) all
reports delivered to the Trustee since the Closing Date pursuant to Section
4.02(b) and Section 4.02(c), (D) all Officer's Certificates delivered to the
Trustee since the Closing Date pursuant to Section 3.13, (E) all accountants'
reports delivered to the Trustee since the Closing Date pursuant to Section
3.14, (F) the most recent inspection report, together with any related
additional written or electronic information, prepared or obtained by, or on
behalf of, the Master Servicer or Special Servicer, as the case may be, and
delivered to the Trustee in respect of each Mortgaged Property pursuant to
Section 3.12(a), (G) all Mortgagor financial statements and Mortgaged Property
operating statements and rent rolls, together with any related additional
written or electronic information, delivered to the Trustee by the Master
Servicer or the Special Servicer pursuant to Section 3.12(b), (H) any and all
notices and reports delivered to the Trustee with respect to any Mortgaged
Property securing a defaulted Mortgage Loan as to which the environmental
testing contemplated by Section 3.09(c) revealed that either of the conditions
set forth in clauses (i) and (ii) of the first sentence thereof was not
satisfied or that any remedial, corrective or other further action contemplated
in such clauses is required (but only for so long as such Mortgaged Property or
the related Mortgage Loan is part of the Trust Fund), and (I) all documents
constituting the Mortgage Files, including, without limitation, any and all
modifications, waivers and amendments of the terms of a Mortgage Loan entered
into by the Master Servicer or the Special Servicer and delivered to the Trustee
pursuant to Section 3.20 (but, in each case, only for so long as the related
Mortgage Loan is part of the Trust Fund). Copies of any and all of the foregoing
items are to be available from the Trustee upon request; however, the Trustee
shall be permitted to require payment of a sum sufficient to cover the
reasonable costs and expenses of providing such service.
In connection with providing access to or copies of the items described in
the immediately preceding paragraph of this Section 8.12(b), the Trustee may
require, unless the Depositor directs otherwise, (i) in the case of Certificate
Owners, a written confirmation executed by the requesting Person, in form
reasonably satisfactory to the Trustee, generally to the effect that such Person
is a beneficial holder of Certificates and will keep such information
confidential and (ii) in the case of any prospective purchaser of a Certificate
or, in the case of a Book-Entry Certificate, of a beneficial ownership interest
therein, a written confirmation executed by the requesting Person, in form
reasonably satisfactory to the Trustee, generally to the effect that such Person
is a prospective purchaser of a Certificate or a beneficial ownership interest
therein, is requesting the information for use in evaluating a possible
investment in Certificates and will otherwise keep such information
confidential. All Certificateholders, by acceptance of their Certificates, shall
be deemed to have agreed to keep such information confidential, except to the
extent that the Depositor grants written permission to the contrary.
Notwithstanding the preceding sentences of this paragraph, the Trustee shall
have no responsibility for the accuracy, completeness or sufficiency of any
information so made available or furnished by it in the manner described in the
immediately preceding paragraph.
SECTION 8.13 Filings with the Securities and Exchange Commission.
The Trustee shall, at the expense of the Depositor, prepare for filing,
execute and properly file with the Commission, any and all reports, statements
and information, including, without limitation, Distribution Date Statements,
Delinquent Loan Status Reports, REO Status Reports, Historical Loan Modification
Reports, Special Servicer Loan Status Reports, Historical Loss Reports and
Operating Statement Analyses, respecting the Trust Fund and/or the Certificates
required or specifically provided herein to be filed on behalf of the Trust
under the Exchange Act; provided that such items shall have been received by the
Trustee (to the extent not generated by the Trustee) in the format required for
electronic filing via the EDGAR system; and provided, further, that any such
items that are required to be delivered by the Master Servicer or the Special
Servicer to the Trustee shall be so delivered in the format required for
electronic filing via the EDGAR system (in addition to any other required
format). The Trustee shall have no responsibility to file any such items that
have not been received in such EDGAR-compatible format nor shall it have any
responsibility to convert any items to such format. The Depositor shall promptly
file, and exercise its reasonable best efforts to obtain a favorable response
to, no-action requests to, or requests for other appropriate exemptive relief
from, the Commission regarding the usual and customary exemption from certain
reporting requirements granted to issuers of securities similar to the
Certificates.
<PAGE>
ARTICLE IX
TERMINATION
SECTION 9.01 Termination Upon Repurchase or Liquidation of All Mortgage
Loans.
Subject to Section 9.02, the Trust and the respective obligations and
responsibilities under this Agreement of the Depositor, the Mortgage Loan
Seller, the Master Servicer, the Special Servicer, the Trustee and the REMIC
Administrator (other than the obligations of the Trustee to provide for and make
payments to Certificateholders as hereafter set forth) shall terminate upon
payment (or provision for payment) to the Certificateholders of all amounts held
by or on behalf of the Trustee and required hereunder to be so paid on the
Distribution Date following the earlier to occur of (i) the purchase by the
Master Servicer or by any Majority Certificateholder of the Controlling Class
(other than the Depositor or the Mortgage Loan Seller) of all Mortgage Loans and
each REO Property remaining in REMIC I at a price (to be calculated by the
Master Servicer and the Trustee as of the close of business on the third
Business Day preceding the date upon which notice of any such purchase is
furnished to Certificateholders pursuant to the third paragraph of this Section
9.01 and as if the purchase was to occur on such Business Day) equal to (A) the
aggregate Purchase Price of all the Mortgage Loans included in REMIC I, plus (B)
the appraised value of each REO Property, if any, included in REMIC I (such
appraisal to be conducted by a Qualified Appraiser selected by the Master
Servicer and approved by the Trustee), minus (C) if such purchase is being made
by the Master Servicer, the aggregate amount of unreimbursed Advances made by
the Master Servicer, together with any Advance Interest payable to the Master
Servicer in respect of such Advances and any unpaid Master Servicing Fees
remaining outstanding (which items shall be deemed to have been paid or
reimbursed to the Master Servicer in connection with such purchase), and (ii)
the final payment or other liquidation (or any Advance with respect thereto) of
the last Mortgage Loan or REO Property remaining in REMIC I; provided, however,
that in no event shall the trust created hereby continue beyond the expiration
of 21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date hereof.
The Majority Certificateholder of the Controlling Class (other than the
Depositor or the Mortgage Loan Seller) has the right, and if the Majority
Certificateholder of the Controlling Class fails to exercise such right, the
Master Servicer has the right, to purchase all of the Mortgage Loans and each
REO Property remaining in REMIC I as contemplated by clause (i) of the preceding
paragraph by giving written notice to the other parties hereto no later than 60
days prior to the anticipated date of purchase; provided, however, that the
Master Servicer and any Majority Certificateholder of the Controlling Class
(other than the Depositor or the Mortgage Loan Seller) each may so elect to
purchase all of the Mortgage Loans and each REO Property remaining in REMIC I
only if the aggregate Stated Principal Balance of the Mortgage Pool at the time
of such election is less than 1.0% of the Initial Pool Balance. In the event
that the Master Servicer or any Majority Certificateholder of the Controlling
Class (other than the Depositor or the Mortgage Loan Seller) elects to purchase
all of the Mortgage Loans and each REO Property remaining in REMIC I in
accordance with the preceding sentence, the Master Servicer or such Majority
Certificateholder, as applicable, shall deposit in the Distribution Account not
later than the Master Servicer Remittance Date relating to the Distribution Date
on which the final distribution on the Certificates is to occur, an amount in
immediately available funds equal to the above-described purchase price
(exclusive of any portion thereof payable to any Person other than the
Certificateholders pursuant to Section 3.05(a), which portion shall be deposited
in the Certificate Account). In addition, the Master Servicer shall transfer all
amounts required to be transferred to the Distribution Account on such Master
Servicer Remittance Date from the Certificate Account pursuant to the first
paragraph of Section 3.04(b). Upon confirmation that such final deposits have
been made, the Trustee shall release or cause to be released to the purchaser or
its designee, the Mortgage Files for the remaining Mortgage Loans and shall
execute all assignments, endorsements and other instruments furnished to it by
the purchaser, as shall be necessary to effectuate transfer of the Mortgage
Loans and REO Properties remaining in REMIC I.
Notice of any termination shall be given promptly by the Trustee by letter
to Certificateholders and, if not previously notified pursuant to the preceding
paragraph, to the other parties hereto mailed (a) in the event such notice is
given in connection with a purchase by the Master Servicer or any Majority
Certificateholder of the Controlling Class (other than the Depositor or the
Mortgage Loan Seller) of all of the Mortgage Loans and each REO Property
remaining in REMIC I, not earlier than the 15th day and not later than the 25th
day of the month next preceding the month of the final distribution on the
Certificates or (b) otherwise during the month of such final distribution on or
before the 5th day of such month, in each case specifying (i) the Distribution
Date upon which the Trust will terminate and final payment on the Certificates
will be made, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the offices of the Certificate Registrar or such other location therein
designated.
Upon presentation and surrender of the Certificates by the
Certificateholders on the Final Distribution Date, the Trustee shall distribute
to each Certificateholder so presenting and surrendering its Certificates such
Certificateholder's Percentage Interest of that portion of the Available
Distribution Amount for such date that is allocable to payments on the relevant
Class in accordance with Section 4.01(a).
Any funds not distributed to any Holder or Holders of Certificates of any
Class on the Final Distribution Date because of the failure of such Holder or
Holders to tender their Certificates shall, on such date, be set aside and held
uninvested in trust and credited to the account or accounts of the appropriate
non-tendering Holder or Holders. If any Certificates as to which notice has been
given pursuant to this Section 9.01 shall not have been surrendered for
cancellation within six months after the time specified in such notice, the
Trustee shall mail a second notice to the remaining non-tendering
Certificateholders to surrender their Certificates for cancellation in order to
receive the final distribution with respect thereto. If within one year after
the second notice all such Certificates shall not have been surrendered for
cancellation, the Trustee, directly or through an agent, shall take such
reasonable steps to contact the remaining non-tendering Certificateholders
concerning the surrender of their Certificates as it shall deem appropriate. The
costs and expenses of holding such funds in trust and of contacting such
Certificateholders following the first anniversary of the delivery of such
second notice to the non-tendering Certificateholders shall be paid out of such
funds. No interest shall accrue or be payable to any former Holder on any amount
held in trust hereunder. If by the second anniversary of the delivery of such
second notice, all of the Certificates shall not have been surrendered for
cancellation, the Class R-I Certificateholders shall be entitled to all
unclaimed funds and other assets which remain subject thereto.
SECTION 9.02 Additional Termination Requirements.
(a) In the event the Master Servicer or a Majority Certificateholder of the
Controlling Class (other than the Depositor or the Mortgage Loan Seller)
purchases all of the Mortgage Loans and each REO Property remaining in REMIC I
as provided in Section 9.01, the Trust (and, accordingly, REMIC I and REMIC II)
shall be terminated in accordance with the following additional requirements,
unless the Master Servicer or such Majority Certificateholder, as applicable,
obtains at its own expense and delivers to the Trustee and the REMIC
Administrator an Opinion of Counsel, addressed to the Trustee and the REMIC
Administrator, to the effect that the failure of the Trust to comply with the
requirements of this Section 9.02 will not result in the imposition of taxes on
"prohibited transactions" of REMIC I or REMIC II as defined in Section 860F of
the Code or cause REMIC I or REMIC II to fail to qualify as a REMIC at any time
that any Certificates are outstanding:
(i) the REMIC Administrator shall specify the first day in the
90-day liquidation period in a statement attached to the final Tax
Return for each of REMIC I and REMIC II pursuant to Treasury regulation
Section 1.860F-1;
(ii) during such 90-day liquidation period and at or prior to the
time of making of the final payment on the Certificates, the Trustee
shall sell all of the assets of REMIC I to the Master Servicer or the
Majority Certificateholder of the Controlling Class, as applicable, for
cash; and
(iii) at the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the applicable Class of
Residual Certificates all cash on hand (other than cash retained to
meet claims), and each of REMIC I and REMIC II shall terminate at that
time.
(b) By their acceptance of Certificates, the Holders thereof hereby agree
to authorize the REMIC Administrator to adopt a plan of complete liquidation of
each of REMIC I and REMIC II in accordance with the terms and conditions of this
Agreement, which authorization shall be binding upon all successor
Certificateholders.
<PAGE>
ARTICLE X
ADDITIONAL REMIC PROVISIONS
SECTION 10.01 REMIC Administration.
(a) The REMIC Administrator shall elect to treat each of REMIC I and REMIC
II as a REMIC under the Code and, if necessary, under Applicable State Law. Each
such election will be made on Form 1066 or other appropriate federal or state
Tax Returns for the taxable year ending on the last day of the calendar year in
which the Certificates are issued.
(b) The REMIC I Regular Interests are hereby designated as the "regular
interests" (within the meaning of Section 860G(a)(1) of the Code), and the Class
R-I Certificates are hereby designated as the sole class of "residual interests"
(within the meaning of Section 860G(a)(2) of the Code), in REMIC I. The Class X,
Class A-1, Class A-2, Class B, Class C, Class D, Class E, Class F, Class G,
Class H, Class J and Class K Certificates are hereby designated as the "regular
interests" (within the meaning of Section 860G(a)(1) of the Code), and the Class
R-II Certificates are hereby designated as the sole class of "residual
interests" (within the meaning of Section 860G(a)(2) of the Code), in REMIC II.
None of the REMIC Administrator, the Master Servicer, the Special Servicer or
the Trustee shall, to the extent it is within the control of such Person, create
or permit the creation of any other "interests" in either REMIC I or REMIC II
(within the meaning of Treasury regulation Section 1.860D-1(b)(1)).
(c) The Closing Date is hereby designated as the "startup day" of each of
REMIC I and REMIC II within the meaning of Section 860G(a)(9) of the Code.
(d) The REMIC Administrator is hereby designated as agent for the Tax
Matters Person of each of REMIC I and REMIC II and shall: act on behalf of the
Trust in relation to any tax matter or controversy, represent the Trust in any
administrative or judicial proceeding relating to an examination or audit by any
governmental taxing authority, request an administrative adjustment as to any
taxable year of REMIC I or REMIC II, seek private letter rulings from the IRS in
accordance with Section 10.01(g), enter into settlement agreements with any
governmental taxing agency, extend any statute of limitations relating to any
tax item of REMIC I or REMIC II, and otherwise act on behalf of each of REMIC I
and REMIC II in relation to any tax matter or controversy involving such REMIC.
By their acceptance thereof, the Holders of the Residual Certificates hereby
agree to irrevocably appoint the REMIC Administrator as their agent to perform
all of the duties of the Tax Matters Person for REMIC I and REMIC II. Subject to
Section 10.01(h), the legal expenses and costs of any action described in this
subsection (d) and any liability resulting therefrom shall be expenses, costs
and liabilities of the Trust, and the REMIC Administrator shall be entitled to
be reimbursed therefor out of any amounts on deposit in the Distribution Account
as provided by Section 3.05(b).
(e) The REMIC Administrator shall prepare and file, and the Trustee shall
sign, all of the Tax Returns in respect of each of REMIC I and REMIC II. The
expenses of preparing and filing such returns shall be borne by the REMIC
Administrator without any right of reimbursement therefor.
(f) The REMIC Administrator shall perform on behalf of each of REMIC I and
REMIC II all reporting and other tax compliance duties that are the
responsibility of each such REMIC under the Code, the REMIC Provisions or other
compliance guidance issued by the IRS or any other taxing authority under
Applicable State Law. Included among such duties, the REMIC Administrator shall
provide to: (i) any Transferor of a Residual Certificate, such information as is
necessary for the application of any tax relating to the transfer of a Residual
Certificate to any Person who is not both a Permitted Transferee and a United
States Person; (ii) the Certificateholders, such information or reports as are
required by the Code or the REMIC Provisions, including, without limitation,
reports relating to interest, original issue discount and market discount or
premium (using the Prepayment Assumption as required); and (iii) the IRS, the
name, title, address and telephone number of the Person who will serve as the
representative of each of REMIC I and REMIC II.
(g) The REMIC Administrator shall perform its duties more specifically set
forth hereunder in a manner consistent with maintaining the status of each of
REMIC I and REMIC II as a REMIC under the REMIC Provisions (and each of the
other parties hereto shall assist it, to the extent reasonably requested by it).
The REMIC Administrator shall not knowingly take (or cause either REMIC I or
REMIC II to take) any action or fail to take (or fail to cause to be taken) any
action within the scope of its duties more specifically set forth hereunder
that, under the REMIC Provisions, if taken or not taken, as the case may be,
could result in an Adverse REMIC Event with respect to either such REMIC, unless
the REMIC Administrator has received an Opinion of Counsel or an IRS private
letter ruling to the effect that the contemplated action will not result in an
Adverse REMIC Event. None of the other parties hereto shall take any action
(whether or not authorized hereunder) as to which the REMIC Administrator has
advised it in writing that it has received an Opinion of Counsel or an IRS
private letter ruling to the effect that an Adverse REMIC Event could occur with
respect to such action. In addi|ion, prior to taking any action with respect to
REMIC I or REMIC II, or causing REMIC I or REMIC II to take any action, that is
not expressly permitted under the terms of this Agreement, each of the other
parties hereto will consult with the REMIC Administrator, in writing, with
respect to whether such action could cause an Adverse REMIC Event to occur. None
of the parties hereto shall take any such action or cause REMIC I or REMIC II to
take any such action as to which the REMIC Administrator has advised it in
writing that an Adverse REMIC Event could occur. The REMIC Administrator may
consult with counsel or seek an IRS private letter ruling to make such written
advice, and the cost of same shall be borne: (i) if such action that is not
expressly permitted by this Agreement would be of a material benefit to or
otherwise in the best interests of the Certificateholders as a whole, by the
Trust and shall be paid by the Trustee at the direction of the REMIC
Administrator out of amounts on deposit in the Distribution Account; and (ii)
otherwise by the party seeking to take the action not permitted by this
Agreement. Without limiting the respective duties and obligations of the parties
hereto, the parties hereto may act hereunder in reliance on any IRS private
letter ruling so obtained by the REMIC Administrator.
(h) In the event that any tax is imposed on REMIC I or REMIC II, including,
without limitation, "prohibited transactions" taxes as defined in Section
860F(a)(2) of the Code, any tax on "net income from foreclosure property" as
defined in Section 860G(c) of the Code, any taxes on contributions to REMIC I or
REMIC II after the Startup Day pursuant to Section 860G(d) of the Code, and any
other tax imposed by the Code or any applicable provisions of state or local tax
laws (other than any tax permitted to be incurred by the Special Servicer
pursuant to Section 3.17(a)), such tax, together with all incidental costs and
expenses (including, without limitation, penalties and reasonable attorneys'
fees), shall be charged to and paid by: (i) the REMIC Administrator, if such tax
arises out of or results from a breach by the REMIC Administrator of any of its
obligations under this Article X; (ii) the Trustee, if such tax arises out of or
results from a breach by the Trustee of any of its obligations under this
Article X; (iii) the Master Servicer, if such tax arises out of or results from
a breach by the Master Servicer of any of its obligations under Article III or
this Article X; (iv) the Special Servicer, if such tax arises out of or results
from a breach by the Special Servicer of any of its obligations under Article
III or this Article X; or (v) the Trust in all other instances. Any tax
permitted to be incurred by the Special Servicer pursuant to Section 3.17(a)
shall be charged to and paid by the Trust. Any such amounts payable by the Trust
in respect of taxes shall be paid by the Trustee at the direction of the REMIC
Administrator out of amounts on deposit in the Distribution Account.
(i) The REMIC Administrator and, to the extent that records are maintained
thereby in the normal course of its business, each of the other parties hereto
shall, for federal income tax purposes, maintain books and records with respect
to each of REMIC I and REMIC II on a calendar year and on an accrual basis.
(j) Following the Startup Day therefor, the Trustee shall not accept any
contributions of assets to REMIC I or REMIC II unless it shall have received an
Opinion of Counsel (at the expense of the party seeking to cause such
contribution) to the effect that the inclusion of such assets in such REMIC will
not cause: (i) such REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding; or (ii) the imposition of any tax on such REMIC
under the REMIC Provisions or other applicable provisions of federal, state and
local law or ordinances.
(k) None of the REMIC Administrator, the Master Servicer, the Special
Servicer or the Trustee shall consent to or, to the extent it is within the
control of such Person, permit: (i) the sale or disposition of any of the
Mortgage Loans (except in connection with (A) a breach of any representation or
warranty of the Mortgage Loan Seller regarding the Mortgage Loans or as
otherwise provided for in Section 2.03, (B) the foreclosure, default or imminent
default of a Mortgage Loan, including but not limited to, the sale or other
disposition of a Mortgaged Property acquired by deed-in-lieu of foreclosure, (C)
the bankruptcy of REMIC I or REMIC II, or (D) the termination of the Trust
pursuant to Article IX of this Agreement); (ii) the sale or disposition of any
investments in the Certificate Account or the REO Account for gain; or (iii) the
acquisition of any assets for the Trust Fund (other than a Mortgaged Property
acquired through foreclosure, deed-in-lieu of foreclosure or otherwise in
respect of a defaulted Mortgage Loan and other than Permitted Investments
acquired in connection with the investment of funds in the Certificate Account
or the REO Account); in any event unless it has received an Opinion of Counsel
(from and at the expense of the party seeking to cause such sale, disposition,
or acquisition) to the effect that such sale, disposition, or acquisition will
not cause: (x) REMIC I or REMIC II to fail to qualify as a REMIC at any time
that any Certificates are outstanding; or (y) the imposition of any tax on REMIC
I or REMIC II under the REMIC Provisions or other applicable provisions of
federal, state and local law or ordinances.
(l) Except as otherwise permitted by Section 3.17(a), none of the REMIC
Administrator, the Master Servicer, the Special Servicer or the Trustee shall
enter into any arrangement by which REMIC I or REMIC II will receive a fee or
other compensation for services or, to the extent it is within the control of
such Person, permit REMIC I or REMIC II to receive any income from assets other
than "qualified mortgages" as defined in Section 860G(a)(3) of the Code or
"permitted investments" as defined in Section 860G(a)(5) of the Code. At all
times as may be required by the Code, the REMIC Administrator shall make
reasonable efforts to ensure that substantially all of the assets of REMIC I and
REMIC II will consist of "qualified mortgages" as defined in Section 860G(a)(3)
of the Code and "permitted investments" as defined in Section 860G(a)(5) of the
Code.
SECTION 10.02 Depositor, Master Servicer, Special Servicer and Trustee to
Cooperate with REMIC Administrator.
(a) The Depositor shall provide or cause to be provided to the REMIC
Administrator, within ten (10) days after the Closing Date, all information or
data that the REMIC Administrator reasonably determines to be relevant for tax
purposes as to the valuations and issue prices of the Certificates, including,
without limitation, the price, yield, prepayment assumption and projected cash
flow of the Certificates.
(b) The Master Servicer, the Special Servicer and the Trustee shall each
furnish such reports, certifications and information, and access to such books
and records maintained thereby, as may relate to the Certificates or the Trust
Fund and as shall be reasonably requested by the REMIC Administrator in order to
enable it to perform its duties hereunder.
SECTION 10.03 Fees of the REMIC Administrator.
In the event the Trustee and the REMIC Administrator are not the same
Person, the Trustee covenants and agrees to pay to the REMIC Administrator from
time to time, and the REMIC Administrator shall be entitled to, reasonable
compensation (as set forth in a written agreement between the Trustee and the
REMIC Administrator) for all services rendered by it in the exercise and
performance of any of the obligations and duties of the REMIC Administrator
hereunder.
SECTION 10.04 Use of Agents.
The REMIC Administrator may execute any of its obligations and duties
hereunder either directly or by or through agents or attorneys-in-fact consented
to by the Trustee, which consent shall not be unreasonably withheld; provided
that the REMIC Administrator shall not be relieved of its liabilities, duties
and obligations hereunder by reason of the use of any such agent or
attorney-in-fact.
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01 Amendment.
(a) This Agreement may be amended from time to time by the mutual agreement
of the parties hereto, without the consent of any of the Certificateholders, (i)
to cure any ambiguity, (ii) to correct, modify or supplement any provision
herein which may be defective or may be inconsistent with any other provision
herein, (iii) to add any other provisions with respect to matters or questions
arising hereunder which shall not be inconsistent with the provisions hereof,
(iv) to relax or eliminate any requirement hereunder imposed by the REMIC
Provisions if the REMIC Provisions are amended or clarified such that any such
requirement may be relaxed or eliminated; (v) if such amendment, as evidenced by
an Opinion of Counsel delivered to the Trustee and the REMIC Administrator, is
reasonably necessary to comply with any requirements imposed by the Code or any
successor or amendatory statute or any temporary or final regulation, revenue
ruling, revenue procedure or other written official announcement or
interpretation relating to federal income tax laws or any such proposed action
which, if made effective, would apply retroactively to REMIC I or REMIC II at
least from the effective date of such amendment, or would be necessary to avoid
the occurrence of a prohibited transaction or to reduce the incidence of any tax
that would arise from any actions taken with respect to the operation of REMIC I
or REMIC II; (vi) to modify, add to or eliminate any provisions of Section
5.02(d)(i), (ii) and (iii) as provided in Section 5.02(d)(iv); or (vii) for any
other purpose; provided that such amendment (other than any amendment for the
specific purposes described in clauses (v) and (vi) above) shall not, as
evidenced by an Opinion of Counsel obtained by or delivered to the Trustee,
adversely affect in any material respect the interests of any Certificateholder
without such Certificateholder's written consent; and provided further that such
amendment (other than any amendment for any of the specific purposes described
in clauses (i) through (vi) above) shall not result in a downgrade,
qualification or withdrawal of any rating then assigned to any Class of
Certificates by either Rating Agency (as evidenced by written confirmation to
such effect from each Rating Agency obtained by or delivered to the Trustee).
(b) This Agreement may also be amended from time to time by the mutual
agreement of the parties hereto, with the consent of the Holders of Certificates
entitled to at least 51% of the Voting Rights allocated to the affected Classes,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders of Certificates; provided, however, that no
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, payments received or advanced on the Mortgage Loans and any REO Properties
which are required to be distributed on any Certificate without the written
consent of the Holder of such Certificate, (ii) adversely affect in any material
respect the interests of the Holders of any Class of Certificates in a manner
other than as described in clause (b)(i) without the written consent of the
Holders of all Certificates of such Class, or (iii) modify the provisions of
this Section 11.01 without the written consent of the Holders of all
Certificates then outstanding. Notwithstanding any other provision of this
Agreement, for purposes of the giving or withholding of consents pursuant to
this Section 11.01, Certificates registered in the name of the Depositor, the
Mortgage Loan Seller, the Master Servicer, the Special Servicer or any of their
respective Affiliates shall be entitled to the same Voting Rights with respect
to matters described above as they would if any other Person held such
Certificates.
(c) Notwithstanding any contrary provision of this Agreement, neither the
Trustee nor the REMIC Administrator shall consent to any amendment to this
Agreement unless it shall first have obtained or been furnished with an Opinion
of Counsel to the effect that such amendment or the exercise of any power
granted to any party hereto in accordance with such amendment will not result in
the imposition of a tax on REMIC I or REMIC II pursuant to the REMIC Provisions
or cause REMIC I or REMIC II to fail to qualify as a REMIC at any time that any
Certificates are outstanding.
(d) Promptly after the execution of any such amendment, the Trustee shall
furnish a copy of the amendment to each Certificateholder.
(e) It shall not be necessary for the consent of Certificateholders under
this Section 11.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe; provided that such consents shall be
in writing.
(f) The Trustee may but shall not be obligated to enter into any amendment
pursuant to this Section that affects its rights, duties and immunities under
this Agreement or otherwise.
(g) The cost of any Opinion of Counsel to be delivered pursuant to Section
11.01(a) or (c) shall be borne by the Person seeking the related amendment,
except that if the Trustee requests any amendment of this Agreement in
furtherance of the rights and interests of Certificateholders, the cost of any
Opinion of Counsel required in connection therewith pursuant to Section 11.01(a)
or (c) shall be payable out of the Distribution Account.
SECTION 11.02 Recordation of Agreement; Counterparts.
(a) To the extent pezmitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer at the expense of the Trust on direction by the Trustee, but
only upon direction accompanied by an Opinion of Counsel (the reasonable cost of
which may be paid out of the Distribution Account) to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.
(b) For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 11.03 Limitation on Rights of Certificateholders.
(a) The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(b) No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement or any Mortgage Loan, unless,
with respect to any suit, action or proceeding upon or under or with respect to
this Agreement, such Holder previously shall have given to the Trustee a written
notice of default hereunder, and of the continuance thereof, as hereinbefore
provided, and (except in the case of a default by the Trustee) the Holders of
Certificates entitled to at least 25% of the Voting Rights shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatsoever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, which priority or
preference is not otherwise provided for herein, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 11.03(c), each and every Certificateholder and
the Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 11.04 Governing Law.
This Agreement and the Certificates shall be construed in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed in said State, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 11.05 Notices.
Any communications provided for or permitted hereunder shall be in writing
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given when delivered to: (1) in the case of the Depositor, NationsLink
Funding Corporation, NationsBank Corporate Center, 100 North Tryon Street,
Charlotte, North Carolina 28255 Attention _________________, telecopy number:
(704)________________ (with copies to Robert W. Long, Esq., Assistant General
Counsel, NationsBank Corporation, NationsBank Corporate Center, 100 North Tryon
Street (20th Floor), Charlotte, North Carolina 28255, telecopy number: (704)
386-6453; (2) in the case of the Mortgage Loan Seller,
_______________________________________________________________________________
_______________________________________________________________________________
Attention: ____________________, telecopy number: __________________; (3) in the
case of the Master Servicer, ________________________________ Attention:
______________________, telecopy number (____) _______________________; (4) in
the case of the Special Servicer, ________________________________ Attention:
______________________, telecopy number (____) _______________________; (with a
copy to the attention of _______________________. at such address); (5) in the
case of the Trustee, ________________________________ Attention:
______________________, telecopy number (____) _______________________; (6) in
the case of the REMIC Administrator, ________________________________ Attention:
______________________, telecopy number (____) _______________________; (7) in
the case of the Rating [Agencies, (A)]
____________________________________________________________________________,
Attention: ___________________________________, telecopy number
____________________________________________________________________; [and (B)
____________________________________________________________________, Attention:
______________________________________, telecopy number: ________________;] or
as to each such Person such other address as may hereafter be furnished by such
Person to the parties hereto in writing. Any communication required or permitted
to be delivered to a Certificateholder shall be deemed to have been duly given
when mailed first class, postage prepaid, to the address of such Holder as shown
in the Certificate Register.
SECTION 11.06 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07 Successors and Assigns; Beneficiaries.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and all
such provisions shall inure to the benefit of the Certificateholders. Except as
specifically contemplated by Sections 3.22, 3.24, 6.03 and 8.05, no other
person, including, without limitation, any Mortgagor, shall be entitled to any
benefit or equitable right, remedy or claim under this Agreement.
SECTION 11.08 Article and Section Headings.
The article and section headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning hereof.
SECTION 11.09 Notices to the Rating [Agencies].
(a) The Trustee shall promptly provide notice to each Rating Agency with
respect to each of the following of which it has actual knowledge:
(i) any material change or amendment to this Agreement;
(ii) the occurrence of any Event of Default hereunder that has not
been cured;
(iii) the resignation or termination of the Master Servicer, the
Special Servicer or the REMIC Administrator and the appointment of a
successor;
(iv) any change in the location of the Distribution Account;
(v) the final payment to any Class of Certificateholders; and
(vi) the repurchase of any Mortgage Loan by the Mortgage Loan Seller
pursuant to Section 2.03.
(b) The Master Servicer shall promptly provide notice to [each] Rating
Agency with respect to each of the following of which it has actual knowledge:
(i) the resignation or removal of the Trustee and the appointment of a
successor;
(ii) any change in the location of the Certificate Account;
[(iii) any event that would result in the voluntary or involuntary
termination of any insurance of the accounts of the Trustee;]
(iv) any material casualty at or condemnation or eminent domain
proceeding in respect of a Mortgaged Property; and
(v) the vacating by an anchor tenant of a retail Mortgaged Property.
(c) Each of the Master Servicer and the Special Servicer, as the case may
be, shall furnish to each Rating Agency such information with respect to the
Mortgage Loans as the Rating Agency shall reasonably request and which the
Master Servicer or the Special Servicer, as the case may be, can reasonably
provide.
(d) Each of the Master Servicer and the Special Servicer shall promptly
furnish to [each] Rating Agency copies of the following:
(i) each of its annual statements as to compliance described in
Section 3.13; and
(ii) each of its annual independent public accountants' servicing
reports described in Section 3.14, if any.
In addition, upon request, each of the Master Servicer and the Special Servicer
shall promptly furnish to each Rating Agency copies or summaries (in such format
as will be acceptable to the Rating Agency) of any of the written reports
(including, without limitation, reports regarding property inspections)
prepared, and any of the quarterly and annual operating statements, rent rolls
and financial statements collected, by it pursuant to Section 3.12(b).
(e) The Trustee shall promptly furnish to each Rating Agency on a monthly
basis copies of the statements to the Holders of the REMIC II Regular
Certificates required by the first paragraph of Section 4.02(a).
(f) To the extent reasonably possible, all information and reports
delivered or made available to the Rating Agencies by any of the Trustee, the
Master Servicer or the Special Servicer pursuant to this Section 11.09, shall be
so delivered or otherwise made available through an electronic medium.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be signed
hereto by their respective officers or representatives thereunto duly
authorized, in each case as of the day and year first above written.
NATIONSLINK FUNDING CORPORATION
Depositor
By:_____________________________
Name:
Title:
________________________________
Mortgage Loan Seller
By:_____________________________
Name:
Title:
________________________________
Master Servicer
By:_____________________________
Name:
Title:
________________________________
Special Servicer
By:_____________________________
Name:
Title:
________________________________
Trustee
By:_____________________________
Name:
Title:
________________________________
REMIC Administrator
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ______ day of _______________, 199__, before me, a notary public in
and for said State, personally appeared ________________ known to me to be a
___________ of NATIONSLINK FUNDING CORPORATION [one of] the entities that
executed the within instrument, and also known to me to be the person who
executed it on behalf of such entity, and acknowledged to me that such entity
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of _____________, 199__, before me, a notary public in and
for said State, personally appeared ________________ known to me to be a
_______________ of ___________________________________, [one of] the _________
that executed the within instrument, and also known to me to be the person who
executed it on behalf of such _______, and acknowledged to me that such ______
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ______ day of ___________________, 199__, before me, a notary public
in and for said State, personally appeared ___________________ known to me to be
a _______________________ of ___________________________________ [one of] the
_______ that executed the within instrument, and also known to me to be the
person who executed it as an officer of the __________ on behalf of such
________, and acknowledged to me that such entity executed the within
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ______ day of _____________________, 199___, before me, a notary
public in and for said State, personally appeared ___________________ known to
me to be a ___________________________ of
_______________________________________________ one of the _______ that executed
the within instrument, and also known to me to be the person who executed it as
an officer of the general partner on behalf of such ______, and acknowledged to
me that such ______ executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ______ day of _______________, 199__, before me, a notary public in
and for said State, personally appeared ___________________ known to me to be a
__________________________ of ________________________________________________,
[one of] the_______ that executed the within instrument, and also known to me to
be the person who executed it on behalf of such ______, and acknowledged to me
that such _________ executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the _____ day of ____________________, 199__, before me, a notary public
in and for said State, personally appeared ________________ known to me to be a
_________________ of _________________________________________________, [one of]
the _________ that executed the within instrument, and also known to me to be
the person who executed it on behalf of such ______, and acknowledged to me that
such _______ executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the _____ day of _______________________, 199__, before me, a notary
public in and for said State, personally appeared ________________ known to me
to be a _________________ of __________________________________, and
_________________ known to me to be a ______________ of
__________________________________, one of the _________ that executed the
within instrument, and also known to me to be the persons who executed it on
behalf of such ______, and acknowledged to me that such _______ executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
[CADWALADER LETTERHEAD]
June 23, 1998
NationsLink Funding Corporation
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28225
Re: NationsLink Funding Corporation
Mortgage Pass-Through Certificates
Registration Statement on Form S-3
Dear Sirs:
We have acted as special counsel to NationsLink Funding Corporation, a
Delaware corporation (the "Registrant"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Mortgage
Pass-Through Certificates (the "Certificates"), and the related filing of a
Registration Statement on Form S-3 (the "Registration Statement") relating to
the Certificates. The Certificates are issuable in series under separate pooling
and servicing agreements (each such agreement, a "Pooling and Servicing
Agreement") among the Registrant and a trustee, a master servicer, a special
servicer and/or a REMIC administrator to be identified in the prospectus
supplement for each such series of Certificates.
In connection with rendering this opinion letter, we have examined the form
of the Pooling and Servicing Agreement filed as an Exhibit to the Registration
Statement, the Registration Statement and such other documents as we have deemed
necessary as a basis for the opinions expressed below. As to matters of fact, we
have relied upon representations or certifications of officers of the Registrant
and its affiliates or public officials. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
documents submitted to us as copies. We have assumed that all parties had the
corporate power and authority to enter into and perform all obligations
thereunder. As to such parties, we also have assumed the due authorization by
all requisite corporate action, the due execution and delivery and, except as
expressed in opinion 2 below, the enforceability of such documents.
In rendering this opinion letter, we express no opinion as to the laws of
any jurisdiction other than the substantive laws of the State of New York,
(without regard to conflicts of laws principles), nor do we express any opinion,
either implicitly or otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not pass upon the
application of the "doing business" or securities laws of any jurisdiction. This
opinion letter is further subject to the qualification that enforceability may
be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other laws affecting the enforcement of the rights of
creditors generally and (ii) general principles of equity, whether enforcement
is sought in a proceeding in equity or at law.
Based upon and subject to the foregoing, we are of the opinion that, with
respect to a series of Certificates as to which we are designated as counsel in
the applicable prospectus supplement:
1. When a Pooling and Servicing Agreement for such series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the parties thereto, the Pooling and Servicing Agreement will be a legal and
valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement for such series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the parties thereto, and when the Certificates of such series have been duly
executed and authenticated in accordance with the provisions of the Pooling and
Servicing Agreement and issued and sold as contemplated in the Registration
Statement and the prospectus and prospectus supplement delivered in connection
therewith, the Certificates will be legally and validly issued and outstanding,
fully paid and non-assessable, and the holders of the Certificates will be
entitled to the benefits of the Pooling and Servicing Agreement.
3. The description of federal income tax consequences appearing under the
heading "Certain Federal Income Tax Consequences" in the prospectus contained in
the Registration Statement accurately describes the material federal income tax
consequences to holders of Offered Certificates, under existing law and subject
to the qualifications and assumptions stated therein.
We hereby consent to the filing of this opinion letter as an Exhibit to the
Registration Statement, and to the use of our name in the prospectus included in
the Registration Statement under the headings "Legal Matters" and "Certain
Federal Income Tax Consequences". This consent is not to be construed as an
admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
CONSENT
I, Robert W. Long, Jr., Assistant General Counsel of NationsBank Corporation, do
hereby consent to the use of my name in the prospectus included in the
Registration Statement on Form S-3 filed by NationsLink Funding Corporation with
the Securities and Exchange Commission.
/s/ Robert W. Long, Jr.
- ----------------------
Robert W. Long, Jr.
NATIONSLINK FUNDING CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Robert W. Long, Esq., John T. McCarthy
and James E. Naumann as his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (including his capacity as director and/or
officer of NationsLink Funding Corporation), to sign any or all amendments
(including post-effective amendments) to the Registration Statement on Form S-3,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
SIGNATURE TITLE DATE
/s/ William L. Maxwell Director (President) June 23, 1998
- -----------------------
William L. Maxwell
/s/ Richard Gross Director June 23, 1998
- -----------------------
Richard Gross
/s/ James E. Naumann Chief Accounting June 23, 1998
- ------------------------ Officer and Chief
James E. Naumann Financial Officer
