As filed with the Securities and Exchange Commission on July 11, 1997
Registration No. 333-
_____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
(Exact name of registrant as specified in its governing instruments)
_____________________________
Delaware 13-3789046
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
60 Wall Street
New York, New York 10260-0060
(212) 648-3636
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
_____________________________
MICHAEL A. JUNGMAN
J.P. Morgan Commercial Mortgage Finance Corp.
60 Wall Street
New York, New York 10260-0060
(212) 648-3636
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
_____________________________
Copy to:
CARLOS A. RODRIGUEZ
Brown & Wood LLP
One World Trade Center
New York, New York 10048
(212) 839-5300
Approximate Date of Commencement of Proposed Sale to the Public: From time
to time on or after the effective date of this Registration Statement, as
determined by market conditions.
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 reinvestment plans, 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>
Title of Shares AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
to be Registered TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C>
Mortgage Pass-Through Certificates . . . . $2,000,000,000(1) 100% $2,000,000,000 $606,061
</TABLE>
(1) $226,355,000 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
333-4554 referred to below and not previously sold is carried forward in this
Registration Statement pursuant to Rule 429. A registration fee of
$78,053.45 in connection with such unsold amount of Mortgage Pass-Through
Certificates was paid previously under the foregoing Registration Statement.
(2) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum aggregate offering price.
_____________________________
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 A 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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429 OF THE SECURITIES ACT OF 1933, THE PROSPECTUS WHICH
IS PART OF THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND INCLUDES
ALL THE INFORMATION CURRENTLY REQUIRED IN A PROSPECTUS RELATING TO THE
SECURITIES COVERED BY REGISTRATION STATEMENT NO. 333-4554 PREVIOUSLY FILED BY
THE REGISTRANT.
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.
SUBJECT TO COMPLETION, DATED JULY 11, 1997
$________________ (approximate)
PROSPECTUS SUPPLEMENT
(To Prospectus dated ____, 199_)
J.P. Morgan Commercial Mortgage Finance Corp.,
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
The Series 199_-_ Mortgage Pass-Through Certificates (the "Certificates")
will include the following ____ classes of Certificates, designated as the
Class ( ) Certificates, Class ( ) Certificates and Class ( ) Certificates
(the "Offered Certificates"). In addition to the Offered Certificates, the
Certificates will also include the Class ( ), the Class ( ) Certificates and
Class ( ). Only the Offered Certificates are offered hereby.
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 OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICERS, THE PRIMARY SERVICERS, J.P. MORGAN & CO. INCORPORATED OR ANY OF
THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICERS, THE PRIMARY SERVICERS, J.P. MORGAN & CO. INCORPORATED OR ANY OF
THEIR 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" AFTER THE SECTION CAPTIONED "SUMMARY OF PROSPECTUS
SUPPLEMENT" HEREIN AND AFTER THE SECTION CAPTIONED "SUMMARY OF PROSPECTUS" IN
THE PROSPECTUS BEFORE PURCHASING ANY CERTIFICATES.
There is currently no secondary market for the Class ( ) Certificates. J.P.
Morgan Securities Inc. (the "Underwriter") currently expects to make a
secondary market in the Class ( ) Certificates, but has no obligation to do
so. There can be no assurance that such a market will develop or, if it does
develop, that it will continue. See "Plan of Distribution" herein.
The Offered Certificates offered hereby will be purchased by the Underwriter
from the Depositor and will be offered by the Underwriter from time to time
to the public 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 will be ___% of the initial aggregate principal
balance thereof as of ____________ 1, 199_ (the "Cut-off Date") plus accrued
interest from the Cut-off Date, before deducting expenses payable by the
Depositor.
The Offered Certificates are offered by the Underwriter when, at and if
issued and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. It is expected that the Certificates will be
delivered in definitive (fully-registered form at the office of the
Underwriter)(book-entry form through the facilities of the Depository Trust
Company) on or about _______________, 199__, against payment therefor in
immediately available funds.
J.P. Morgan Securities Inc.
, 199
- ----------- --
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "Trust Fund") to be established by J.P. Morgan
Commercial Mortgage Finance Corp. (the "Depositor"). The Trust Fund will
consist primarily of a pool (the "Mortgage Pool") of (fixed rate) (floating
rate) (partially fixed-partially floating rate) mortgage loans, with original
terms to maturity of not more than ___ years (the "Mortgage Loans"), secured
by first liens on (retail)(multifamily)(industrial)(hotel)(retail/office)
(office)(commercial) properties. The Mortgage Loans were originated by
several institutions identified herein (collectively, the "Originators"),
acquired by an affiliate of the Depositor and will be sold to the Depositor
on or prior to the date of initial issuance of the Certificates.
(As more fully described herein, each Mortgage Loan provides for periodic
adjustments (which may occur monthly, quarterly, semi-annually or annually)
of the mortgage interest rate (the "Mortgage Rate") thereon and the monthly
payment due thereon, in each case subject to the limitations described
herein. Accordingly, a significant increase in the Mortgage Rate and the
amount of the scheduled monthly payment due thereafter may result, which may
increase the likelihood of default on and prepayment of such Mortgage Loan.
In most cases, because the Mortgage Rate on a Mortgage Loan will be subject
to adjustment monthly, while the monthly payment due thereon will be subject
to adjustment annually, in each case subject to the limitations described
herein, and because the application of payment caps limits adjustments to the
monthly payments on certain Mortgage Loans, the Mortgage Loans (and
consequently the Class ( ) Certificates) may be subject to accelerated,
reduced or negative amortization. Certain of the Mortgage Loans continue to
be in an initial fixed interest rate period and have not experienced the
first adjustment to their respective Mortgage Rates.) The characteristics of
the Mortgage Loans are more fully described herein under "Description of the
Mortgage Pool."
Distributions on the Class ( ) 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, on the next succeeding business day, beginning in _______,
199__ (each, a "Distribution Date"). (As more fully described herein,
distributions allocable to interest, if any, on the Class ( ) Certificates on
each Distribution Date will be based on the (applicable) (then-applicable
variable) pass-through rate (the "Pass-Through Rate") and the aggregate
principal balance (the "Class Balance") (or the related notional balance (the
"Notional Amount") in the case of the Class( ) Certificates (the "Interest
Only Certificates")) of such class outstanding immediately prior to such
Distribution Date. (The Pass-Through Rate applicable to the Class ( )
Certificates from time to time will equal the (sum of __% and the Index (as
defined herein) subject to certain limitations) (weighted average of the
Class ( ) Remittance Rates (as defined herein) on the Mortgage Loans. (The
Pass-Through Rates on the Class( ) for the Distribution Date in ____ 199_
will be as set forth above. The Pass-Through Rates for the Class ( ) will be
as set forth above.) (The Pass-Through Rate for the Class ( ) Certificates
on the first Distribution Date will be _% per annum and is expected to change
thereafter because the weighted average of the Class ( ) Remittance Rates is
expected to change for succeeding Distribution Dates.) Distributions in
respect of principal, if any, of the Class ( ) Certificates will be made as
described herein under "Description of the Certificates -- Distributions --
Priority" and "--Calculations of Principal".)
The Class ( ) Certificates will evidence approximately an initial ___%
undivided interest in the Trust Fund.
It is a condition of the issuance of the Class ( ) Certificates that they be
rated (not lower than) "_______________" by _________________.
(_______________________ will act as master servicer of the Mortgage Loans
(the "Master Servicer"). _____________ will act as special servicer of the
Mortgage Loans (the "Special Servicer"). The obligations of the Master
Servicer and the Special Servicer with respect to the Certificates will be
limited to their contractual servicing obligations and the obligation under
certain circumstances to make Advances (as defined herein) to the
Certificateholders. (If the Master Servicer fails to make any such Advance
or otherwise fails to perform its servicing obligations, the Trustee will be
obligated to assume such servicing obligations and to make such Advance to
the extent described herein. See "Description of the Certificates --
Advances" herein.) (The only obligation of the Depositor with respect to the
Certificates will be to obtain from the Originators certain representations
and warranties with respect to the Mortgage Loans and to assign to the
Trustee the obligation of the Originators to repurchase any Mortgage Loan as
to which there exists an uncured material breach of any such representation
or warranty.)
----------------------
As described herein, an election will (not) be made to treat the Trust Fund
as a "real estate mortgage investment conduit" (a "REMIC") for federal income
tax purposes. (The Class ( ) Certificates will constitute "regular
interests" in the REMIC.) See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
THE YIELD TO MATURITY ON THE CLASS ( ) CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS. SEE "RISK FACTORS" HEREIN AND "RISK
FACTORS -- AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS" AND "YIELD
CONSIDERATIONS" IN THE PROSPECTUS. AS FURTHER DESCRIBED HEREIN, LOSSES ON
THE MORTGAGE LOANS WILL BE ALLOCATED TO THE SUBORDINATE CERTIFICATES PRIOR TO
ALLOCATION TO THE CLASS ( ) CERTIFICATES. SEE "DESCRIPTION OF THE
CERTIFICATES -- DISTRIBUTIONS -- PRIORITY" HEREIN.
-----------------------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, DATED ____________, 199_, AND ATTACHED HERETO,
AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
(IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.)
UNTIL ______________, 199_, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CLASS ( ) 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.
Table of Contents
-----------------
Page
----
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . S-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . S-
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . S-
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS . . . . . . . . . S-
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT . . . . . . . . . . S-
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . S-
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . S-
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . S-
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . S-
ANNEX ( ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( )-1
PROSPECTUS
((Include Prospectus T of C))
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 used in this Summary
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Title of Certificates Mortgage Pass-Through Certificates, Series
199_-_, (the "Certificates").
Depositor J.P. Morgan Commercial Mortgage Finance Corp.,
a Delaware corporation and an indirect
wholly-owned limited purpose finance subsidiary
of J.P. Morgan & Co. Incorporated. See "The
Depositor" in the Prospectus.
Master Servicer ______________________, a ___________
corporation. See "Pooling and Servicing
Agreement -- The Master Servicer" herein.
(Primary Servicers _______________________________________________
____. See "Primary Servicers" in the
Prospectus.)
(Special Servicer _______________________________, a ___________
corporation.)
Trustee _____________, a ____________________.
(Custodian _____________, a (state) (national) (bank)
(trust company) in its capacity as custodian
for the Trustee.)
Cut-off Date ____________ 1, 199_.
Closing Date ______________ 1, 199_.
Distribution Dates 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, beginning
in ________ 19__ (each, a "Distribution Date"),
to the holders of record as of the close of
business on the (last business day of the month
preceding the month) of each such distribution
(each, a "Record Date"). Notwithstanding the
above, the final distribution on any
Certificate will be made after due notice by
the Trustee of the pendency of such
distribution and only upon presentation and
surrender of such Certificates at the location
to be specified in such notice.
(Registration of the
Class Certificates The Class ( ) Certificates will be represented
by one or more global certificates registered
in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the Class ( )
Certificates (any such person, a "Class ( )
Beneficial Owner") will be entitled to receive
a Certificate of such class in fully
registered, certificated form (a "Definitive
Class ( ) Certificate"), except under the
limited circumstances described in the
Prospectus under "Description of the
Certificates-Book-entry Registration and
Definitive Certificates". Instead, DTC will
effect payments and transfers in respect of the
Class ( ) Certificates by means of its
electronic recordkeeping services, acting
through certain participating organizations
("Participants"). This may result in certain
delays in receipt of payments by an investor
and may restrict an investor's ability to
pledge its securities. Unless and until
Definitive Class ( ) Certificates are issued,
all references herein to the rights of holders
of a Class ( ) Certificate are to the rights of
Class ( ) Beneficial Owners of such class as
they may be exercised through DTC and its
Participants, except as otherwise specified
herein. See "Description of the Certificates-
General" herein and "Description of the
Certificates-Book-Entry Registration and
Definitive Certificates" in the Prospectus.)
Denominations The Class ( ) Certificates will be issuable (on
the book-entry records of DTC and its
Participants) (in registered, certified form)
in denominations of $_______ and integral
multiples of $_____________ in excess thereof(,
with one Certificate of such class evidencing
an additional amount equal to the remainder of
the Certificate Balance thereof).
The Mortgage Pool The Mortgage Pool will consist of (fixed rate)
(floating rate) (partially fixed-partially
floating rate) Mortgage Loans secured by first
liens on (retail) (multifamily) (industrial)
(hotel) (retail/office) (office) (commercial)
properties (the "Mortgaged Properties") located
in __ different states. The Mortgage Pool will
also include (mortgage participations,)
(mortgage pass-through certificates) (or other
mortgage-backed securities) evidencing
interests in or secured by commercial and/or
multifamily mortgage loans (collectively, the
"CMBS"). The Mortgage Loans will have an
aggregate principal balance as of the Cut-off
Date of $_________ and individual principal
balances at origination of at least
$______________ but not more than $__________,
with an average principal balance at
origination of approximately $_________. The
Mortgage Loans will have terms to maturity from
the date of origination or modification of not
more than ____ years, and a weighted average
remaining term to maturity of approximately
_____ months as of the Cut-off Date. The
Mortgage Loans will bear interest at Mortgage
Rates of at least _____% per annum but not more
than _____% per annum, with a weighted average
Mortgage Rate of approximately ____% per annum
as of the Cut-off Date. The Mortgage Loans
will be acquired by the Depositor on or before
the Delivery Date. In connection with its
acquisition of the Mortgage Loans, the
Depositor will be assigned (and will in turn
assign to the Trustee for the benefit of the
holders of the Certificates) certain rights in
respect of representations and warranties
described herein that were made by the
Originators.
(_____ of the Mortgage Loans, representing
_____% of the Mortgage Loans by aggregate
principal balance as of the Cut-off Date,
provide for scheduled payments of principal
and/or interest ("Monthly Payments") to be due
on the _____ day of each month; the remainder
of the Mortgage Loans provide for Monthly
Payments to be due on the __th, __th or __th
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 rate per
annum at which interest accrues on each
Mortgage Loan is subject to adjustment on
specified Due Dates (each such date, an
"Interest Rate Adjustment Date") by adding a
fixed percentage amount (a "Gross Margin") to
the value of the then-applicable Index (as
described below) subject, in the case of
substantially all of the Mortgage Loans, to
maximum and minimum lifetime Mortgage Rates as
described herein. ___ of the Mortgage Loans,
representing ___% of the Mortgage Loans by
aggregate principal balance as of the Cut-off
Date, provide for Interest Rate Adjustment
Dates to occur (monthly); the remainder of the
Mortgage Loans provide for adjustments to the
Mortgage Rate to occur quarterly, semi-annually
or annually. (Each of the Mortgage Loans
provides for an initial fixed interest rate
period;) ____________ of the Mortgage Loans,
representing _____% of the Mortgage Loans by
aggregate principal balance as of the Cut-off
Date, have not yet experienced their first
Interest Rate Adjustment Date. The latest
initial Interest Rate Adjustment Date for any
Mortgage Loan is scheduled to occur on
________.))
(The amount of the Monthly Payment on each
Mortgage Loan is also 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
applicable Mortgage Rate, (without affecting
the amount of the originally scheduled monthly
principal payments) (subject, in the case of
several Mortgage Loans, to payment caps, which
limit the amount by which the Monthly Payment
may adjust on any Payment Adjustment Date as
described herein. _______ of the Mortgage
Loans, representing __% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date, provide for Payment Adjustment
Dates to occur annually, while the remainder of
the Mortgage Loans provide for adjustments of
the Monthly Payment to occur monthly, quarterly
or semi-annually.)
(Only in the case of ______________ Mortgage
Loans, representing ____% of the Mortgage Loans
by aggregate principal balance as of the
Cut-off Date, does a Payment Adjustment Date
immediately follow each Interest Rate
Adjustment Date. As a result, and because the
application of payment caps may limit the
amount by which the Monthly Payments may adjust
in respect of certain Mortgage Loans, the
amount of a Monthly Payment may be more or less
than the amount necessary to amortize the
remaining principal balance of the Mortgage
Loan over its then remaining amortization
schedule and pay interest at the
then-applicable Mortgage Rate. Accordingly,
Mortgage Loans may be subject to slower
amortization (if the Monthly Payment due on a
Due Date is sufficient to pay interest accrued
to such Due Date at the then-applicable
Mortgage Rate but is not sufficient to reduce
principal in accordance with the applicable
amortization schedule), to negative
amortization (if interest accrued to a Due Date
at the applicable Mortgage Rate is greater than
the entire Monthly Payment due on such Due
Date) or to accelerated amortization (if the
Monthly Payment due on a Due Date is greater
than the amount necessary to pay interest
accrued to such Due Date at the then-applicable
Mortgage Rate and to reduce principal in
accordance with the applicable amortization
schedule).)
(__ Mortgage Loans, representing ____% of the
Mortgage Loans by aggregate principal balance
as of the Cut-off Date, permit negative
amortization. Substantially all of the
Mortgage Loans that permit negative
amortization contain provisions that limit the
extent to which the amount of their respective
original principal balances may be exceeded as
a result thereof.)
(All of the Mortgage Loans provide for monthly
payments of principal based on amortization
schedules significantly longer than the
remaining term of such Mortgage Loans, thereby
leaving substantial outstanding principal
amounts due and payable (each such payment, a
"Balloon Payment") on their respective maturity
dates, unless prepaid prior thereto.)
For a further description of the Mortgage
Loans, see "Description of the Mortgage Pool"
herein.
(The (Index) (Indices) As of any Interest Rate Adjustment Date, the
(Index) (Indices) used to determine the
Mortgage Rate on each Mortgage Loan will be the
____________. See "Description of the Mortgage
Pool -- The Index" herein.)
(Conversion of
Mortgage Loans Approximately __% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off
Date) (the "Convertible Mortgage Loans")
provide that, at the option of the related
mortgagor (the "Mortgagor"), the adjustable
interest rate on such Mortgage Loans may be
converted to a fixed interest rate, provided
that certain conditions have been satisfied.
Upon notification from a Mortgagor of such
Mortgagor's intent to convert from an
adjustable interest rate to a fixed interest
rate, and prior to the conversion of any such
Mortgage Loan, the related Warrantying Party
(as defined herein) will be obligated to
purchase the Converting Mortgage Loan (as
defined herein) at the Conversion Price (as
defined herein). (In the event of a failure by
a Subservicer to purchase a "Converting
Mortgage Loan"), the Master Servicer is
required to use its best efforts to purchase
such Converted Mortgage Loan (as defined
herein) from the Mortgage Pool at the
Conversion Price during the one-month period
following the date of conversion.) In the
event that neither the related Warrantying
Party nor the Master Servicer purchases a
Converting or Converted Mortgage Loan, the
Mortgage Pool will thereafter include both
fixed-rate and adjustable-rate Mortgage Loans.
See "Certain Yield and Prepayment
Considerations" herein.)
The Class ( ) Certificates The Class ( ) 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 and the Trustee
(the "Pooling and Servicing Agreement"). The
Class ( ) Certificates have an initial
Certificate Balance of $_______ (the initial
"Class ( ) Balance"), representing an initial
interest of approximately ___% in a trust fund
(the "Trust Fund"), which will consist
primarily of the Mortgage Pool (The Class ( )
Certificates will not have a Certificate
Balance.)
Distributions on the Class ( ) Certificates
will be made on the ____ day of each (month)
(__) or, if such day is not a business day, on
the succeeding business day, beginning on
____________ __, 199_ (each, a "Distribution
Date"). Distributions on each Distribution
Date will be made by check or wire transfer of
immediately available funds, as provided in the
Pooling and Servicing Agreement, to the Class
( ) Certificateholders of record as of the
(last business day of the month preceding the
month) of such Distribution Date (each, a
"Record Date"), except that the final
distribution on the Class ( ) Certificates will
be made only upon presentation and surrender of
the Class ( ) Certificates at the office or
agency specified in the Pooling and Servicing
Agreement. (As more specifically described
herein, the Class ( ) Balance will be adjusted
from time to time on each Distribution Date to
reflect any additions thereto resulting from
allocations of Mortgage Loan negative
amortization to the Class ( ) Certificates and
any reductions thereof resulting from
distributions of principal of the Class ( )
Certificates. As further described herein,
interest shall accrue on the Class ( ) Balance
at a Pass-Through Rate thereon.
Pass-Through Rate on the
Class ( ) Certificates (The Pass-Through Rate on the Class ( )
Certificates is fixed and is set forth on the
cover hereof.) (The Pass-Through Rate on the
Class ( ) Certificates will be equal to the
weighted average of the Class ( ) Remittance
Rates in effect from time to time on the
Mortgage Assets. The Class ( ) Remittance Rate
in effect for any Mortgage Assets as of any
date of determination (is equal to the excess
of the Mortgage Rate thereon over __% per
annum) ((i) prior to its first Interest Rate
Adjustment Date is equal to the related
Mortgage Rate then in effect minus __ basis
points (the "Net Mortgage Rate") and (ii) from
and after its first Interest Rate Adjustment
Date is equal to the related Mortgage Rate then
in effect minus the excess of the related Gross
Margin over __ basis points.)) (The Class ( )
Certificates (or a component thereof) will not
be entitled to distributions of interest and
will not have a Pass-Through Rate.) (Describe
any other method used to calculate the Pass-
Through Rate.)
Interest Distributions on the
Class ( ) Certificates Holders of the Class ( ) Certificates will be
entitled to receive on each Distribution Date,
to the extent of the Available Distribution
Amount for such Distribution Date,
distributions allocable to interest in an
aggregate amount (the "Class ( ) Interest
Distribution Amount") equal to thirty days'
interest accrued on the Class ( ) Balance)
(Class ( ) Notional Amount) outstanding
immediately prior to such Distribution Date at
the then-applicable Pass-Through Rate less the
Class ( ) Certificates' allocable share
(calculated as described herein) of (the
aggregate amount of negative amortization in
respect of the Mortgage Loans for their
respective Due Dates occurring during the
related Due Period) (The amount, if any, by
which the Class ( ) Interest Distribution
Amount for any Distribution Date is reduced as
a result of negative amortization on the
Mortgage Loans shall constitute the "Class
Negative Amortization" for such Distribution
Date in respect of the Class ( ) Certificates
and shall be added to the Class ( ) Balance on
such Distribution Date.) (The Class ( )
Notional Amount will equal the (sum of the)
Class ( ) Balance. The Class ( ) Notional
Amount does not entitle the Class ( )
Certificates (or a component thereof) to any
distributions of principal.) If the Available
Distribution Amount for any Distribution Date
is less than the Class ( ) Interest
Distribution Amount for such Distribution Date,
the shortfall will be part of the Class ( )
Interest Distribution Amount distributable to
holders of Class ( ) Certificates on subsequent
Distribution Dates, to the extent of available
funds.
The Available Distribution Amount for any
Distribution Date generally includes: (i)
scheduled payments on the Mortgage Assets due
during or prior to the related Due Period and
collected as of the related Determination Date
(to the extent not distributed on previous
Distribution Dates) and certain unscheduled
payments and other collections on the Mortgage
Assets collected during the related Due Period,
net of amounts payable or reimbursable to the
Master Servicer therefrom; (ii) any Advances
made by the Master Servicer for the related
Distribution Date; and (iii) that portion of
the Master Servicer's servicing compensation
for the related Due Period applied to cover
Prepayment Interest Shortfalls incurred during
the related Due Period . See " Description of
the Certificates -- Distributions --
Calculations of Interest" herein.
Principal Distributions on the
Class ( ) Certificates Holders of the Class ( ) Certificates will be
entitled to receive on each Distribution Date,
to the extent of the balance of the Available
Distribution Amount remaining after the payment
of the Class ( ) Interest Distribution Amount
for such Distribution Date, distributions in
respect of principal in an amount (the "Class (
) Principal Distribution Amount") generally
equal to the aggregate of (i) the then Class (
) Scheduled Principal Distribution Percentage
(calculated as described herein) of all
scheduled payments of principal (including the
principal portion of any Balloon Payments) due
on the Mortgage Loans during or, if and to the
extent not previously received or advanced and
distributed on prior Distribution Dates, prior
to the related Due Period that were paid by the
Mortgagors as of the related Determination Date
or advanced by the Master Servicer in respect
of such Distribution Date, (ii) (the Senior
Accelerated Percentage of) (all principal
prepayments received during the related Due
Period and (iii), to the extent not previously
advanced (the (lesser of the) Class ( )
Scheduled Principal Distribution Percentage of
the Stated Principal Balance of the Mortgage
Loans) (and the) (Senior Accelerated Percentage
of any unscheduled principal recoveries
received during the related Due Period in
respect of the Mortgage Loans, whether in the
form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts
received as a result of the purchase of any
Mortgage Loan out of the Trust Fund.))
Distributions in respect of principal of the
Class ( ) Certificates on any Distribution Date
shall be limited to the sum of (i) the Class (
) Balance outstanding immediately prior to such
Distribution Date and (ii) the Class Negative
Amortization, if any, for such Distribution
Date in respect of the Class ( ) Certificates.
(Initially, the "Senior Accelerated
Percentage" will equal 100% thereafter, as
further described herein, the Senior
Accelerated Percentage may be reduced under
certain circumstances.) See "Description of
the Certificates --Distributions --
Calculations of Principal" herein. (The Class
( ) Certificates do not have a Certificate
Balance and are therefore not entitled to any
principal distributions).
Advances The Master Servicer is required to make
advances ("Advances") in respect of delinquent
Monthly Payments on the Mortgage Loans, subject
to the limitations described herein. The
Trustee will be obligated to make any such
Advance if the Master Servicer fails in its
obligation to do so, to the extent provided in
the Pooling and Servicing Agreement. See
"Description of the Certificates -- Advances"
herein and "Description of the Certificates --
Advances in Respect of Delinquencies" in the
Prospectus.
Subordination The rights of holders of the Subordinate
Certificates to receive distributions of
amounts collected on the Mortgage Loans will be
subordinate, to the extent described herein, to
the rights of holders of the Class ( )
Certificates. This subordination is intended
to enhance the likelihood of receipt by the
holders of the Class ( ) Certificates of the
full amount of the Class ( ) Interest
Distribution Amount and the (ultimate receipt
of principal equal to the initial Class ( )
Balance). The protection afforded to the
holders of the Class ( ) Certificates by means
of the subordination, to the extent provided
herein, will be accomplished by the application
of the Available Distribution Amount to the
Class ( ) Certificates prior to the application
thereof to the Subordinate Certificates (and by
reducing the Class ( ) Interest Distribution
Amount and the Class ( ) Balance by an amount
equal to the interest portion and the principal
portion, respectively, of Realized Losses
allocated to such class). See "Description of
the Certificates -- Subordination" herein.
(The Subordinate
Certificates The Class ( ) Certificates have an initial
Certificate Balance of $____________ (the
initial "Class ( ) Balance") and the Class ( )
Certificates have an initial Certificate
Balance of $________ (the initial "Class ( )
Balance"), representing ____% and _____%,
respectively, of the Mortgage Loans by
aggregate principal balance as of the Cut-off
Date. Interest shall accrue on the Class ( )
Balance and Class ( ) Balance at a Pass-Through
Rate equal to (____% per annum) (the weighted
average of the Net Mortgage Rates in effect
from time to time on the Mortgage Loans).
(The Class ( ) Certificates, which have no
Pass-Through Rate and initially have a
Certificate Balance of $______________ (the
initial "Class ( ) Balance"), represent the
right to receive on any Distribution Date the
balance, if any, of the Available Distribution
Amount remaining after the payment of all
interest and principal due on the other Classes
of Certificates. Subsequent to the first
Distribution Date, the Class ( ) Balance will
equal the excess, if any, of the aggregate
Stated Principal Balance of the Mortgage Loans
over the sum of the Class ( ) Balance, Class
( ) Balance and Class ( ) Balance.)
(The Subordinate Certificates are not offered
hereby.)
Optional Termination At its option, the Master Servicer may purchase
all of the Mortgage Assets, and thereby effect
termination of the Trust Fund and early
retirement of the then outstanding
Certificates, on any Distribution Date on which
the aggregate Stated Principal Balance of the
Mortgage Loans remaining in the Trust Fund is
less than __% of the aggregate principal
balance of such Mortgage Loans as of the
Cut-off Date. (At its option the Master
Servicer may also purchase any Class ( )
Certificates on any Distribution Date on which
the Class ( ) Balance is less than ___% of the
original balance thereof.) See "Pooling and
Servicing Agreement -- Termination" herein and
"Description of the Certificates --
Termination" in the Prospectus.
Certain Federal Income Tax
Consequences (An election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit ("REMIC") for federal income tax
purposes. Upon the issuance of the Class ( )
Certificates, Brown & Wood LLP, 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 Internal
Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Class ( )
Certificates will be the sole class of
"residual interests" in the REMIC and the Class
( ), Class ( ) and Class ( ) Certificates will
be the "regular interests" in the REMIC and
will be treated as debt instruments of the
REMIC.
The Class ( ) Certificates (may(will))(will
not) be treated as having been issued with
original issue discount for federal income tax
purposes. The prepayment assumption that will
be used for purposes of computing the accrual
of original issue discount, market discount and
premium, if any, for federal income tax
purposes will be equal to a (constant
prepayment rate ("CPR")) of ____%. However, no
representation is made that the Mortgage Loans
will prepay at that rate or at any other rate.)
For further information regarding the federal
income tax consequences of investing in the
Class ( ) Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.)
ERISA Considerations (A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERlSA"), or Section 4975 of
the Code should review carefully with its legal
advisors whether the purchase or holding of
Class ( ) 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 to an investment therein.)
(The U.S. Department of Labor has issued an
individual exemption, Prohibited Transaction
Exemption (___-___), to the Underwriter that
generally exempts from the application of
certain of the prohibited transaction
provisions of Section 406 of ERISA, and the
excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b) of the
Code and Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding of
pass-through certificates underwritten by the
Underwriter such as the Class ( ) Certificates
and the servicing and operation of asset pools,
provided that certain conditions are satisfied.
A fiduciary of any employee benefit plan
subject to ERISA or the Code should consult
with its legal advisors regarding the
requirements of ERISA and the Code.) See
"ERISA Considerations" herein and in the
Prospectus.
Rating It is a condition to the issuance of the Class
( ) Certificates that they be rated (not lower
than) "___" by ___________. 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. A security rating does not
address the frequency of prepayments (whether
voluntary or involuntary) of Mortgage Loans, or
the corresponding effect on yield to investors.
(The rating of the Class ( ) Certificates does
not address the possibility that the holders of
such Certificates may fail to fully recover
their initial investments.) See "Risk Factors"
and "Rating" herein and "Yield Considerations"
in the Prospectus.
Legal Investment The appropriate characterization of the Class
( ) Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase the
Class ( ) Certificates, may be subject to
significant interpretative uncertainties. The
Class ( ) Certificates (will) (will not) be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") (so long as
they are rated in at least the second highest
rating category by the Rating Agency, and, as
such, are legal investments for certain
entities to the extent provided in SMMEA).
Accordingly, investors should consult their own
legal advisors to determine whether and to what
extent the Class ( ) Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the Prospectus.
RISK FACTORS
(Description will depend on the particulars of the Mortgage Assets)
Prospective purchasers of 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.
Special Prepayment Considerations. The rate and timing of principal
payments on the Class ( ) Certificates will depend, among other things, on
the rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Assets due to a breach of
representation and warranty) on the Mortgage Assets. The rate at which
principal prepayments occur on the Mortgage Loans will be affected by a
variety of factors, including, without limitation, the terms of the Mortgage
Loans, the level of prevailing interest rates, the availability of mortgage
credit and economic, demographic, geographic, tax, legal and other factors.
In general, however, if prevailing interest rates fall significantly below
the Mortgage Rates on the Mortgage Loans, such Mortgage Loans are likely to
be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by such Mortgage Loans. (The rate of
principal payments on the Class ( ) Certificates will correspond to the rate
of principal payments on the Mortgage Loans and is likely to be affected by
the Lock-out Periods and Prepayment Premium Provisions applicable to the
Mortgage Loans and by the extent to which the Master Servicer is able to
enforce such provisions. Mortgage loans with a lock-out period or a
prepayment premium provision, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical mortgage loans without such provisions, with shorter lock-out
periods or with lower prepayment premiums.) (As is the case with
mortgage-backed securities generally, the Class ( ) Certificates are subject
to substantial inherent cashflow uncertainties because the Mortgage Loans may
be prepaid at any time.)
(As described herein, prior to reduction of the Class ( ) Balance to
zero, all principal prepayments on and other unscheduled recoveries of
principal of the Mortgage Loans will be allocated to the Class ( )
Certificates. To the extent that no prepayments or other unscheduled
recoveries of principal are distributed on the Subordinate Certificates, the
subordination afforded the Class ( ) Certificates by the Subordinate
Certificates, in the absence of offsetting losses on the Mortgage Loans
allocated thereto, will be increased.)
See "Description of the Certificates -- Distributions -- Priority" and
"Certain Yield, Prepayment and Maturity Considerations" herein and "Yield
Considerations" in the Prospectus.
Special Yield Considerations. The yield to maturity on the Class ( )
Certificates will depend, among other things, on the rate and timing of
principal payments (including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of representation and warranty)
on the Mortgage Loans and the allocation thereof to reduce the Certificate
Balance of such class. (The yield to maturity on the Class ( ) Certificates
will also depend on changes in the Index and the effect of any maximum
lifetime Mortgage Rate, minimum lifetime Mortgage Rate, Payment Cap and
Periodic Rate Cap applicable to each Mortgage Loan.) The yield to investors
on the Class ( ) Certificates will be adversely affected by any allocation
thereto of Prepayment Interest Shortfalls on the Mortgage Loans, which are
expected to result from the distribution of interest only to the date of
prepayment (rather than a full month's interest) in connection with
prepayments in full, and the lack of any distribution of interest on the
amount of any partial prepayments. Neither the Certificates not the Mortgage
Loans are guaranteed by any governmental entity or private insurer.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Certificate is purchased
at a discount and principal distributions thereon occur at a rate slower than
that assumed at the time of purchase, the investor's actual yield to maturity
will be lower than assumed at the time of purchase.
See "Certain Federal Income Tax Consequences" herein and in the
Prospectus and "Yield Considerations" in the Prospectus.
(Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties.) (Description of type of property, lease provisions, nature of
tenants and operating income.)
(Because the Mortgage Loans are floating rate mortgage loans, the
Mortgage Rates and Monthly Payments will increase in a rising interest rate
environment, perhaps without a corresponding increase in the Mortgagors' net
operating income. In such event, as the Debt Service Coverage Ratios (as
defined herein) for such Mortgage Loans decrease, the related Mortgagor's
ability to make Monthly Payments may be impaired, and a Mortgagor payment
default would be more likely to occur.)
(Commercial and multifamily lending is generally viewed as exposing the
lender to a greater risk of loss than one- to four-family residential
lending. Commercial and multifamily lending typically involves larger loans
to single borrowers or groups of related borrowers than residential one- to
four-family mortgage loans. Further, the repayment of loans secured by
income producing properties is typically dependent upon the successful
operation of the related real estate project. If the cash flow from the
project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. Commercial and
multifamily real estate can be affected significantly by the supply and
demand in the market for the type of property securing the loan and,
therefore, may be subject to adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, such as rent control laws in the case of
multifamily mortgage loans, which impact the future cash flow of the
property.
The available appraisals of the Mortgaged Properties were made at
varying times and may date back to the origination of the subject Mortgage
Loan. No additional appraisals of the Mortgaged Properties for any Mortgage
Loan have been or will be obtained and no new valuations have been assigned
to the Mortgage Loans by the Depositor in connection with the offering of the
Offered Certificates. It is possible that the market values of the Mortgaged
Properties for any Mortgage Loan have declined since the most recent
appraisal of the related Mortgaged Property.
(Geographic Concentration. _____ of the Mortgaged Properties, representing
approximately ____% of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, are located in the State of ______, with the
remaining Mortgaged Properties located in the States of
______________________________________. Repayments by borrowers and the
market value of the Mortgaged Properties could be affected by economic
conditions generally or in regions where the borrowers and the Mortgaged
Properties are located, conditions in the real estate market where the
Mortgaged Properties are located, changes in governmental rules and fiscal
policies, acts of nature, including earthquakes (which may result in
uninsured losses), and other factors which are beyond the control of the
borrowers. (Improvements on Mortgaged Properties located in California may
be more susceptible to earthquakes than properties located in other parts of
the country.) In addition, the economies of the States of
___________________________________ may be adversely affected to a greater
degree than that of other areas of the country by developments affecting
industries concentrated in such states. Moreover, in recent periods, several
regions of the United States in which one or more of the Mortgaged Properties
are located, including _________, have experienced significant downturns in
the market value of real estate. Because of the relative lack of geographic
diversity in the Mortgaged Properties, losses on the Mortgage Loans may be
higher than would be the case if the location of the Mortgaged Properties
were more diverse.) (Will set forth risks specific to the state or region in
which Mortgaged Properties are located to the extent material in light of
geographic concentration.)
Effect of Mortgagor Defaults. The aggregate amount of distributions on
the Class ( ) Certificates, the yield to maturity of the Class ( )
Certificates, the rate of principal payments on the Class ( ) Certificates
and the weighted average life of the Class ( ) Certificates will be affected
by the rate and the timing of delinquencies and defaults on the Mortgage
Loans. If a purchaser of a Class ( ) Certificate calculates its anticipated
yield based on an assumed rate of default and amount of losses on the
Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such additional losses are allocable to such class
of Certificates, such purchaser's actual yield to maturity will be lower than
that so calculated and could, under certain extreme scenarios, be negative.
The timing of any loss on a liquidated Mortgage Loan will also affect the
actual yield to maturity of the Class ( ) Certificates to which a portion of
such loss is allocable, even if the rate of defaults and severity of losses
are consistent with an investor's expectations. In general, the earlier a
loss borne by an investor occurs, the greater is the effect on such
investor's yield to maturity.
As and to the extent described herein, the Master Servicer will be
entitled to receive interest on unreimbursed Advances and unreimbursed
servicing expenses that (i) are recovered out of amounts received on the
Mortgage Loan as to which such Advances were made or such servicing expenses
were incurred, which amounts are in the form of late payments, liquidation
proceeds, insurance proceeds, condemnation proceeds or amounts paid in
connection with the purchase of such Mortgage Loan out of the Trust Fund or
(ii) are determined to be nonrecoverable Advances. The Master Servicer's
right to receive such payments of interest are prior to the rights of
Certificateholders to receive distributions on the Certificates and,
consequently, may result in losses being allocated to the Class ( )
Certificates that would not otherwise have resulted absent the accrual of
such interest.
Even if losses on the Mortgage Loans are not borne by an investor in the
Class ( ) Certificates, such losses may affect the weighted average life and
yield to maturity of such investor's Certificates. Losses on the Mortgage
Loans, to the extent not allocated to the Class ( ) Certificates, may result
in a higher percentage ownership interest evidenced by such Certificates than
would otherwise have resulted absent such loss. The consequent effect on the
weighted average life and yield to maturity of the Class ( ) Certificates
will depend upon the characteristics of the remaining Mortgage Loans.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of
payments by the holder of a Class ( ) Certificate, to the extent that
Advances or the subordination of another class of Certificates does not fully
offset the effects of any such delinquency or default. The Scheduled
Principal Distribution Amount and the Unscheduled Principal Distribution
Amount generally consist of, as more fully described herein, principal of the
Mortgage Loans actually collected or advanced. The Master Servicer has the
ability to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent, including the ability to extend the date
on which a Balloon Payment is due by up to __ months, subject to certain
conditions described in the Pooling and Servicing Agreement. The Master
Servicer's obligation to make Advances in respect of a Mortgage Loan that is
delinquent as to its Balloon Payment is limited, however, to the extent
described under "Description of the Certificates -- Advances". Until such
time as any Mortgage Loan delinquent in respect of its Balloon Payment is
liquidated, the entitlement of the holders of Class ( ) Certificates on each
Distribution Date in respect of principal of such Mortgage Loan will be
limited to the Class ( ) Scheduled Principal Distribution Percentage of that
portion of the Available Distribution Amount that represents the principal
portion of (i) any payment made by the related Mortgagor under a forbearance
arrangement or (ii) any related Advance made by the Master Servicer.
Consequently, any delay in the receipt of a Balloon Payment that is payable,
in whole or in part, to holders of Class ( ) Certificates will extend the
weighted average life of the Class ( ) Certificates.
As described under "Description of the Certificates -- Distributions"
herein, if the portion of Available Distribution Amount distributable in
respect of interest on the Class ( ) 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 and will therefore negatively affect the
yield to maturity of such class of Certificates for so long as it is
outstanding.
(The following paragraphs will be included in the event any of the Mortgage
Loans are acquired from the Resolution Trust Corporation:)
(Troubled Originators. The Mortgage Loans were originated or purchased
by the (Originating Institutions), each of which is subject to an RTC
receivership. It is possible that the financial difficulties experienced by
the (Originating Institutions) may have adversely affected either or both of
(i) the standards and procedures pursuant to which the Mortgage Loans were
originated or purchased by such (Originating Institutions) and (ii) the
manner in which such Mortgage Loans have been serviced prior to assumption of
servicing responsibilities by the Master Servicer. The Mortgage Loans will
be acquired by the Depositor on or before the Delivery Date from the
Originator, which acquired the Mortgage Loans from the RTC in its capacity as
receiver of each of the associations pursuant to a certain commercial
mortgage loan sale agreement, dated ______, 199_ (as amended, the "Loan Sale
Agreement"). Pursuant to the Loan Sale Agreement, the RTC as receiver of the
(Originating Institutions), has made certain representations and warranties
regarding the Mortgage Loans and is obligated to cure such breaches or
repurchase those Mortgage Loans as to which there is a breach of such
representations and warranties. The RTC repurchase price for the Mortgage
Loans is par plus accrued interest at the related Mortgage Rate(,except in
the case of ___________ Mortgage Loans as to which a repurchase for a breach
of the representation and warranty relating to certain environmental matters
would be accomplished at a price that initially is discounted but increases
to par over approximately __ years). See "Description of the Mortgage Pool -
- - Representations and Warranties of the Originating Institutions" herein.
The RTC, acting in its corporate capacity, has guaranteed such obligations of
the RTC, acting in its capacity as receiver. The agreement pursuant to which
such guarantee was made by the RTC is hereinafter referred to as the
"Guarantee Agreement".)
(Special Servicer Actions. In connection with the servicing of Specially
Serviced Mortgage Loans (as defined herein), the Special Servicer may take
actions with respect to such Mortgage Loans that could adversely affect the
holders of some or all of the classes of Offered Certificates. As described
herein under "Description of Agreement - Special Servicer" and " - The
Directing Party", upon the occurrence of a "Trigger Event" (as defined
herein), certain actions of the Special Servicer will, after the occurrence
of significant losses, be monitored during certain periods by (a
representative of the holders of the Class ( ) Certificates, who may have
interests in conflict with those of the holders of the other Classes of
Certificates. As a result, it is possible that such representative may
direct the Special Servicer to take actions which conflict with the interests
of certain Classes of Certificates.)
(Limited Information. The information set forth in this Prospectus
Supplement with respect to the Mortgage Loans is derived from books and
records of the (Originating Institutions), as well as a limited review of the
credit and legal files relating to the Mortgage Loans. Accordingly,
available information does not permit the Depositor to determine fully the
origination, credit appraisal and underwriting practices of the originators
of the Mortgage Loans. Furthermore, it is possible that this Prospectus
Supplement does not contain material information regarding the Mortgage Loans
that would have been disclosed if the structure and personnel of the
(Originating Institutions) had not been affected by such institutions having
been placed in receivership. While the Depositor has undertaken a limited
review of the records and files related to the Mortgage Loans in connection
with the issuance of the Class ( ) Certificates the Mortgage Loans have not
been "re-underwritten" or subjected to the type of review that would
typically be made in respect of a newly originated mortgage loan.))
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of ___ (fixed interest)
(adjustable interest) rate Mortgage Loans with an aggregate principal balance
as of the Cut-off Date, after deducting payments of principal due on such
date, 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" creating a first fee lien on a (retail)
(multifamily)(industrial)(hotel)(retail/office)(office)(commercial) property
(a "Mortgaged Property"). The Mortgaged Properties consist of (description
of commercial or multifamily residential properties). (Because no evaluation
of any Mortgagor's financial condition has been conducted, investors should
consider all of the Mortgage Loans to be non-recourse loans so that, in the
event of a Mortgagor default, recourse may be had only against the specific
property and such limited other assets as have been pledged to secure a
Mortgage Loan, and not against the Mortgagor's other assets.) All
percentages of the Mortgage Loans described herein are approximate
percentages (except as otherwise indicated) by aggregate principal balance as
of the Cut-off Date.
The Mortgage Loans to be included in the Trust Fund will have been
originated by ________________ (collectively, the "Originators") and will
comply with the underwriting criteria described herein. An affiliate of the
Depositor will purchase the Mortgage Loans to be included in the Mortgage
Pool prior to the Delivery Date from the each Originator pursuant to a
mortgage loan purchase agreement (the "Mortgage Loan Purchase Agreement").
The Depositor will acquire the Mortgage Loans to be included in the Mortgage
Pool on or before the Delivery Date from such affiliate. The Depositor will
cause the Mortgage Loans in the Mortgage Pool to be assigned to
_______________, as Trustee, pursuant to the Pooling and Servicing Agreement.
______________________________________________, in its capacity as Master
Servicer, will service the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
REPRESENTATIONS AND WARRANTIES
(Under each Mortgage Loan Purchase Agreement, _______________, as seller
of the Mortgage Loans, will make certain representations, warranties and
covenants. Pursuant to the terms of each Mortgage Loan Purchase Agreement,
the Originator will be obligated to repurchase any Mortgage Loans as to which
there exists deficient documentation or an uncured material breach of any
such representation, warranty or covenant.) (In connection with the transfer
of the Mortgage Loans to the Depositor, the Originator's representations,
warranties and covenants shall be assigned to the Depositor, along with the
related remedies in the event of a breach thereof. The Depositor will make
no representations or warranties with respect to the Mortgage Loans and will
have no obligation to repurchase for Mortgage Loans with deficient
documentation or which are otherwise defective.) (Under the Pooling and
Servicing Agreement the Depositor will make certain representations,
warranties and covenants to the Trustee for the Trust Fund.) (_____________,
as seller of the Mortgage Loans, is selling such Mortgage Loans without
recourse and, accordingly, in such capacity, will have no obligations with
respect to the certificates other than pursuant to such representations,
warranties, covenants and repurchase obligations.) See "Description of the
Agreements -- Representations and Warranties; Repurchases" in the Prospectus.
(In general, (the Depositor) (each Originator) will represent and
warrant as of the date of origination, among other things, that: (i) each
Mortgage Loan was originated in accordance with, and complies in all material
respects with the Program Guidelines and all applicable laws; (ii)
(Originator was authorized to originate each related Mortgage Loan at the
time of origination and to transact and do business at all times while it
held such Mortgage Loan); (iii) to __________'s best knowledge, each
borrower is an entity organized under the laws of the United States of
America and at the time the related Mortgage Loan was originated satisfied
the requirements of the Program Guidelines; (iv) to _____________'s best
knowledge, the related borrower is not a party to any bankruptcy,
reorganization, insolvency or comparable proceeding; (v) to ____________'s
best knowledge in reliance on a title insurance policy each related Mortgage
Loan is secured by a mortgage that is a valid and subsisting first priority
lien free of any liens, claims or encumbrances; (vi) to _____________'s best
knowledge in reliance on a UCC search, each related mortgage, together with
any separate security agreements, establishes a first priority security
interest in favor of _____________ in all the related borrower's personal
property used in operating the Mortgaged Property, the proceeds arising from
the Mortgaged Property and any other collateral securing such mortgage; (vii)
to _____________'s best knowledge in reliance on a title insurance policy,
there is an enforceable assignment of leases, rents and profits provision
creating a first priority security interest in leases and rents arising in
respect of the related Mortgaged Property; (viii) to _____________'s best
knowledge in reliance on a title insurance policy, there are no mechanics' or
other similar liens affecting the Mortgaged Property; (ix) to _____________'s
best knowledge in reliance on a title insurance policy, the related borrower
has good and indefeasible title to and no person has any outstanding
exercisable rights of record with respect to the related Mortgaged Property,
no claims have been made under the title insurance policy and such policy is
in full force and effect; (x) _____________ is the sole owner of each
applicable Mortgage Loan; (xi) _____________ has good, valid and indefeasible
title to the related Mortgage Loan and related Mortgage Documents and is
transferring them free and clear of any encumbrance; (xii) each Mortgage has
been recorded in the appropriate recording office (or if not recorded, has
been submitted for recordation to the appropriate recording office and is in
recordable form); (xiii) each related assignment of mortgage and related
assignment of rents and leased is legal, valid and binding and has been
recorded in the applicable jurisdiction; (xiv) _____________'s endorsement of
the related Mortgage Note constitutes the legal and binding assignment of
such Mortgage Note and together with an assignment of mortgage, legally and
validly coveys all right title and interest in a Mortgage Loan and related
Mortgage Loan Documents; (xv) UCC-2 or UCC-3 financing statements have been
filed in the appropriate state and county recording offices; (xvi) the
information set forth in the relevant Mortgage Loan Schedule is complete,
true and correct as of the date set forth therein; (xvii) each Mortgage Loan
Document is a legal, valid and binding obligation of the parties thereto,
enforceable in accordance with its terms; (xviii) the terms of each related
Mortgage Loan and related Mortgage Loan Documents have not been modified or
waived except as approved by ___________________ and set forth in writing in
the relevant documents; (ixx) if the related Mortgage is a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the deed of trust
or has been substituted in accordance with applicable law; (xx) no Mortgage
Loan has been satisfied, canceled, subordinated, released or rescinded and no
related borrower has been released from its obligations under any Mortgage
Loan Document, (xxi) to _____________'s best knowledge, none of the Mortgage
Loan Documents are subject to any right of rescission, set-off, counterclaim,
default or breach; (xxii) _____________ has fully disbursed the principal
amount stated on the Mortgage Loan Schedule related to each Mortgage Loan and
has neither advanced funds or received advanced funds other than interest
accruing on such Mortgage Loan; (xxiii) no Mortgage Loan has capitalized
interest included in its principal balance; (xxiv) no Mortgage Loan provides
for shared appreciation rights or other equity participation; (xxv) as of the
date of origination and the date of sale to _________ pursuant to the related
Mortgage Loan Purchase Agreement, each Mortgage Loan Document complied with
all material applicable local, state and federal laws; (xxvi) to
_____________'s best knowledge in reliance on a title insurance policy,
engineering report and other reports issued by governmental or other third
parties, each Mortgaged Property: is located on a dedicated road or has
access to an irrevocable easement permitting ingress and egress, is served by
adequate public utilities and services, is serviced by adequate public water
and sewer systems (or septic facilities), has parking and other amenities
necessary for the operation of the business currently conducted thereon, is
on a single parcel of real estate if the property is a dwelling or mixed
residential and commercial structure, is a separate tax parcel, is not relied
upon by and does not rely on any building or improvement not part of the
Mortgaged Property to comply with zoning, building code or other government
requirements, is in compliance with, and is used and occupied in accordance
with, all material contractual obligations and restrictive covenants of
record, no delinquent taxes, ground rents, water charges or other outstanding
charges adversely affect the property, and if the Mortgaged Property
represents a legal nonconforming use under applicable zoning and use
regulations, _____________ has received a damage restoration statement from
the appropriate governmental authority; (xxvii) to _____________'s best
knowledge, each related borrower is in possession of, and in compliance with,
all material licenses, permits and other governmental authorizations
necessary or required by applicable law for the conduct of its business or
the use or occupancy of the Mortgaged Property; (xxviii) to _____________'s
best knowledge in reliance on the title insurance policy and survey, there
are no material encroachments upon any Mortgaged Property; (xxix) to
_____________'s best knowledge in reliance on engineering report and other
third party reports, the related Mortgaged Property is in good repair and no
condemnation proceedings are pending or threatened; (xxx) no Mortgage Loan
is secured in whole or in part by a leasehold estate (other than ground
leases that comply with certain guidelines); (xxxi) to _____________'s best
knowledge in reliance on an environmental site assessment, there are no
circumstances or conditions that would reasonably be expected to constitute
or result in a violation of any environmental laws, require any expenditure
material in relation to the principal balance of the related Mortgage Loan to
achieve or maintain compliance in all material respects with any
environmental laws or require substantial cleanup or remedial action or any
other extraordinary action in excess of the amount escrowed for such
purposes; (xxxii) the Mortgage Loan Documents obligate a borrower to comply
with any and all environmental laws; (xxxiii) each Mortgaged Property is
covered by insurance policies satisfying Program Guidelines; (xxxiv) all
escrow deposits and payments related to each Mortgage Loan are in the
possession or control of the _____________ and all amounts required to be
deposited by the borrower have been deposited; (xxxv) to _____________'s
best knowledge in reliance on a rent roll and as tested by the _____________
in accordance with the Program Guidelines, the information set forth in the
rent roll is true and correct as of its date, all significant leases and
operating agreements are in full force and effect, and there has been no
default by the related borrower or lessee; (xxxvi) _____________ has
reviewed a certificate of the related borrower setting forth all the
financial information of the borrower required by the Program Guidelines and
_____________ has no actual knowledge that such financial data is not true
and correct in all material respects; (xxxvii) _____________ has no notice
of any pending or threatened actions, suits or proceedings by or before any
court or other governmental authority against the related borrower under any
Mortgage Loan or any of the Mortgaged Properties which, if determined against
such borrower or property would be expected to materially and adversely
affect the value of such property or ability of the borrower to pay
principal, interest and other amounts due under the related Mortgage Loan;
(xxxviii) _____________ has inspected the property securing the mortgage
within the last four months; (xxxix) each mortgage is secured by commercial
property and either substantially all of the proceeds of the related Mortgage
Loan were used to acquire, improve or protect an interest in "real property"
with the meaning of Treasury Regulation Section 1.8606-2(a)(4) or the fair
market value of such interest in real property was at least equal to 80% of
the principal amount of the Mortgage Loan at origination; and (xxxx) if a
Mortgage Loan was originated as a loan secured by Multifamily Property as
described in the Program Guidelines, the related Mortgaged Property is a loan
secured by an interest in residential real property within the meaning of
Section 7701(a)(19C)(v) of the Code.)
(CONVERTIBLE MORTGAGE LOANS
____% of the Mortgage Loans ("Convertible Mortgage Loans") provide that,
at the option of the related Mortgagors, the adjustable interest rate on such
Mortgage Loans may be converted to a fixed interest rate. The first month in
which any of the Mortgage Loans may convert is ____________, and the last
month in which any of the Mortgage Loans may convert is _____________. Upon
conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage
Note which formula is intended to result in a Mortgage Rate which is not less
than the then current market interest rate (subject to applicable usury
laws). After such conversion, the monthly payments of principal and interest
will be adjusted to provide for full amortization over the remaining term to
scheduled maturity. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable interest rate to a fixed interest rate
and prior to the conversion of any such Mortgage Loan (a "Converting Mortgage
Loan"), the related Warrantying Party will be obligated to purchase the
Converting Mortgage Loan at a price equal to the outstanding principal
balance thereof plus accrued interest thereon net of any subservicing fees
(the "Conversion Price"). In the event of a failure by a Warrantying Party
to purchase a converting Mortgage Loan, the Master Servicer is required to
use its best efforts to purchase such Mortgage Loan following its conversion
(a "Converted Mortgage Loan") during the one-month period following the date
of conversion at the Conversion Price.
In the event that the related Warrantying Party fails to purchase a
Converting Mortgage Loan and the Master Servicer does not purchase a
Converted Mortgage Loan, neither the Depositor nor any of its affiliates nor
any other entity is obligated to purchase or arrange for the purchase of any
Converted Mortgage Loan. Any such Converted Mortgage Loan will remain in the
Mortgage Pool as a fixed-rate Mortgage Loan and will result in the Mortgage
Pool's having both fixed rate and floating rate Mortgage Loans. See "Certain
Yield and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the
Trustee of such Mortgage Loan and the purchaser will thereafter own such
Mortgage Loan free of any further obligation to the Trustee or the
Certificateholders with respect thereto.)
(HYBRID RATE MORTGAGE LOANS
__% of the Mortgage Loans are partially fixed-partially floating rate
Mortgage Loans (the "Hybrid Rate Mortgage Loans").)
(THE (INDEX) (INDICES)
As of any Payment Adjustment Date, the (Index) (Indices) applicable to
the determination of the related Mortgage Rate will be a per annum rate equal
to ______________, as most recently available as of the date days prior
----
to the Payment Adjustment Date (the "Index"). Such average yields reflect
the yields for the week prior to that week in which the information is
reported. In the event that (the Index) (any related Index) is no longer
available, an index reasonably acceptable to the Trustee that is based on
comparable information will be selected by the Master Servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Such average yields may fluctuate significantly from week
to week as well as over longer periods and may not increase or decrease in a
constant pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such _______________ on any Payment Adjustment Date or
during the life of any Mortgage Loan.)
(name of Index)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustment Date 199_ 199_ 199_ 199_ 199_ 199_ 199_
- --------------- ---- ---- ---- ---- ---- ---- ----
January ( ) . . . . . . . . . . .
February ( ) . . . . . . . . . .
March ( ) . . . . . . . . . . . .
April ( ) . . . . . . . . . . . .
May ( ) . . . . . . . . . . . . .
June ( ) . . . . . . . . . . . .
July ( ) . . . . . . . . . . . .
August ( ) . . . . . . . . . . .
September ( ) . . . . . . . . . .
October ( ) . . . . . . . . . . .
November ( ) . . . . . . . . . .
December ( ) . . . . . . . . . .
</TABLE>
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
(Approximately ___% of the Mortgage Loans have Due Dates that occur on
the ___ day of each month; approximately ___% of the Mortgage Loans have Due
Dates that occur on the ___ day of each month; approximately _____% of the
Mortgage Loans have Due Dates that occur on the ___ day of each month; and
the remainder of the Mortgage Loans have Due Dates that occur on the
____________ day of each month.)
(As of the Cut-off Date, the Mortgage Loans had the following
characteristics: (i) Mortgage Rates ranging from _____% per annum to _______%
per annum; (ii) a weighted average Mortgage Rate of ______% per annum; (iii)
Gross Margins ranging from ____ basis points to ______ basis points; (iv) a
weighted average Gross Margin of ____ basis points; (v) principal balances
ranging from $_______ to $______; (vi) an average principal balance of
$_________; (vii) original terms to scheduled maturity ranging from _____
months to _________ months; (viii) a weighted average original term to
scheduled maturity of _____ months; (ix) remaining terms to scheduled
maturity ranging from ____ months to _____ months; (x) a weighted average
remaining term to scheduled maturity of ________ months; (xi) Cut-off Date
Loan-to-Value ("LTV") Ratios ranging from ______% to ________%; (xii) a
weighted average Cut-off Date LTV Ratio of _____%; (xiii) as to the _______%
of the Mortgage Loans to which such characteristic applies, (A) minimum
lifetime Mortgage Rates ranging from ____% per annum to ______ % per annum
and (B) a weighted average minimum lifetime Mortgage Rate of _______% per
annum; (xiv) as to the__________% of Mortgage Loans to which such
characteristic applies and for which it may be currently calculated, (A)
maximum lifetime Mortgage Rate ranging from _______% per annum to ________%
per annum and (B) a weighted average maximum lifetime Mortgage Rate of
_________% per annum; (xv) Cut-off Date Debt Service Coverage Ratios ranging
from ______% to _____% and (xvi) a weighted average Cut-off Date Debt Service
Coverage Ratio of _________%.)
(___% of the Mortgage Loans provide for Balloon Payments on their
respective maturity dates. Loans providing for Balloon Payments involve a
greater degree of risk than self-amortizing loans. See "Risk Factors --
Balloon Payments" in the Prospectus.)
(The Mortgage Rate on each Mortgage Loan is subject to adjustment on
each Interest Rate Adjustment Date by adding the related Gross Margin to the
value of the Index (described below) as most recently announced a specified
number of days prior to such Interest Rate Adjustment Date, subject, in the
case of substantially all of the Mortgage Loans, to minimum and maximum
lifetime Mortgage Rates, with ranges specified below. The Mortgage Rates on
the Mortgage Loans generally are adjusted monthly; however, certain of the
Mortgage Loans provide for Interest Rate Adjustment Dates to occur quarterly
(___% of the Mortgage Loans), semi-annually ( % of the Mortgage Loans) or
---
annually (____% of the Mortgage Loans). Each of the Mortgage Loans provided
for an initial fixed interest rate period; ___________ Mortgage Loans,
representing ___% of the Mortgage Loans, have not experienced their first
Interest Rate Adjustment Dates. The latest initial Interest Rate Adjustment
Date for any Mortgage Loan is to occur in ____________________________).
(Subject to the Payment Caps described below, the amount of the Monthly
Payment on each Mortgage Loan adjusts periodically on each Payment Adjustment
Date to an amount that would fully amortize 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. Approximately __% of the Mortgage Loans provide
that an adjustment of the amount of the Monthly Payment on a Payment
Adjustment Date may not result in a Monthly Payment that increases by more
than ___% (nor, in some cases, decreases by more than ____%) of the amount of
the Monthly Payment in effect immediately prior to such Payment Adjustment
Date (each such provision, a "Payment Cap"); however, certain of those
Mortgage Loans also provide that the Payment Cap will not apply on certain
Payment Adjustment Dates or if the application thereof would result in the
principal balance of the Mortgage Loan exceeding (through negative
amortization) by a specified percentage the original principal balance
thereof. Generally, the related Mortgage Note provides that if, as a result
of negative amortization, the respective principal balance of the Mortgage
Loan reaches an amount specified therein (which as to most Mortgage Loans is
not greater than _% of the Mortgage Loan principal balance as of the
origination date thereof), the amount of the Monthly Payments due thereunder
will be increased as necessary to prevent further negative amortization.
(Only in the case of _____% of the Mortgage Loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment Date. As a
result, and because application of Payment Caps may limit the amount by which
the Monthly Payments due on certain of the Mortgage Loans may adjust, the
amount of a Monthly Payment may be more or less than the amount necessary to
amortize the Mortgage Loan principal balance over the then remaining
amortization schedule at the applicable Mortgage Rate. Accordingly, Mortgage
Loans may be subject to slower amortization (if the Monthly Payment due on a
Due Date is sufficient to pay interest accrued to such Due Date at the
applicable Mortgage Rate but is not sufficient to reduce principal in
accordance with the applicable amortization schedule), to negative
amortization (if interest accrued to a Due Date at the applicable Mortgage
Rate is greater than the entire Monthly Payment due on such Due Date) or to
accelerated amortization (if the Monthly Payment due on a Due Date is greater
than the amount necessary to pay interest accrued to such Due Date at the
applicable Mortgage Rate and to reduce principal in accordance with the
applicable amortization schedule).)
(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. Although
Prepayment Premiums are payable to the Master Servicer as additional
servicing compensation, the Master Servicer may waive the payment of any
Prepayment Premium only in connection with a principal prepayment that is
proposed to be made during the three month period prior to the scheduled
maturity of the related Mortgage Loan, or under certain other limited
circumstances.)
The following table sets forth the range of Mortgage Rates on the
Mortgage Loans as of the Cut-off Date:
Mortgage Rates as of the Cut-off Date
-------------------------------------
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------ ------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of Mortgaged Properties
securing the Mortgage Loans:
Property Type
-------------
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-off Date the Cut-off Date
- ------ ---------------- ------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
(The following table sets forth the range of Gross Margins for the
Mortgage Loans:)
(Gross Margins)
---------------
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
(The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-off Date:)
(Frequency of Adjustments to Mortgage Rates)
--------------------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) _______ or ___% of Mortgage Loans have not experienced their first
Interest Rate Adjustment Date.
(The following table sets forth the frequency of adjustments to the
Monthly Payments on the Mortgage Loans as of the Cut-off Date:)
(Frequency of Adjustments to Monthly Payments)
----------------------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
(The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:)
(Maximum Lifetime Mortgage Rates)
---------------------------------
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without a lifetime rate cap.
(B) The lifetime rate caps for these Mortgage Loans are based upon the Index
as determined at a future point in time plus a fixed percentage.
Therefore, the rate is not determinable as of the Cut-off Date.
(C) This calculation does not include the ____ Mortgage Loans without a
lifetime rate cap or the _____ Mortgage Loans with lifetime rate caps
which are currently not determinable.
(The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:)
(Minimum Lifetime Mortgage Rates)
---------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Minimum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without interest rate floors.
(B) This calculation does not include the ____ Mortgage Loans without
interest rate floors.
The following table sets forth the range of principal balances of the
Mortgage Loans as of the Cut-off Date:
Principal Balances as of the Cut-off Date
-----------------------------------------
<TABLE>
<CAPTION> Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-off Date Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
The following tables set forth the original and remaining terms to
maturity (in months) of the Mortgage Loans:
Original Term to Maturity in Months
-----------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Original Number of Percent Principal Principal
Term in Months Mortgage by Balance as of Balance as of
Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
Remaining Term to Maturity in Months
------------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the respective years in which the
Mortgage Loans were originated and are scheduled to mature:
Mortgage Loan Year of Origination
---------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
Mortgage Loan Year of Scheduled Maturity
----------------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Cut-off Date LTV Ratios of
the Mortgage Loans. A "Cut-off Date LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the Cut-off Date Balance of a Mortgage
Loan, 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. There can be no
assurance that the value (determined through an appraisal or otherwise) of a
Mortgaged Property determined after origination of the related Mortgage Loan
will be equal to or greater than the appraised value thereof obtained in
connection with the origination. As a result, there can be no assurance that
the loan-to-value ratio for any Mortgage Loan determined at any time
following origination thereof will be lower than the Cut-off Date LTV Ratio,
notwithstanding any positive amortization of such Mortgage Loan.
Cut-off Date LTV Ratios
-----------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Cut-off Number of Percent Principal Principal
Date Mortgage by Balance as of Balance as of
LTV Ratio Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average Cut-off
Date LTV Ratio:
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Debt Service Coverage Ratios
for the Mortgage Loans. The "Debt Service Coverage Ratio" for any Mortgage
Loan is the ratio of Net Operating Income produced by the related Mortgaged
Property for the period covered by the annual operating statement to the
amounts of principal, interest and other sums due under such Mortgage Loan
for the same period. "Net Operating Income" is the rent from all leases
under which the tenants have taken occupancy at the time of calculation
(including only rents prior to expiration for those leases whose terms expire
within one year of the calculation and pass-through for utilities and
excluding all free rent) less operating expenses (such as utilities,
administrative expenses, repairs and maintenance) and less fixed expenses
(such as insurance, real estate and other taxes to be paid by the Mortgagor).
The annual operating statements for the Mortgaged Properties used in
preparing the following table were obtained from the respective Mortgagors.
The information contained therein was unaudited, and the Depositor has made
no attempt to verify its accuracy. The last day of the twelve-month period
covered by each such operating statement is set forth in Annex A with respect
to the related Mortgage Loan. (Certain of the Mortgaged Properties have
relatively short operating histories, and such performance may be less
indicative of future performance than in the case of a property with a stable
operating history over an extended period of time. However, even with
respect to Mortgaged Properties with longer operating histories, operating
income produced by Mortgaged Properties in the past should not be construed
as indicative of the future performance of any Mortgaged Property. (Annual
operating statements for any year following 19__ could not be obtained with
respect to _______ of the Mortgaged Properties and, consequently, the Debt
Service Coverage Ratios for the related Mortgage Loans were not calculated.
As a result, no conclusions should be drawn as to those _____ Mortgage Loans
on the basis of the information set forth below.)
Debt Service Coverage Ratios as of the Cut-off Date
---------------------------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Debt Service Number of Percent Principal Principal
Coverage Mortgage by Balance as of Balance as of
Ratio Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Weighted Average
Debt Service Coverage
Ratio:
Note: Percentage totals may not add due to rounding.
(A) The debt service coverage ratios for these loans were not calculated due
to a lack of operating statements with respect to years after 19__.
(B) This calculation does not include the ____ Mortgage Loans where debt
service coverage ratios were not calculated.
The Mortgage Loans are secured by Mortgaged Properties in
---------
different states. The table below sets forth the states in which the
Mortgaged Properties are located:
Geographic Distribution
-----------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
(regional breakdown to be provided as appropriate)
(____% of the Mortgage Loans prohibit the prepayment thereof until a
date specified in the related Mortgage Note (such period, the "Lock-out
Period" and the date of expiration thereof, the "Lock-out Date"). The
following table sets forth the Lock-out Dates for such Mortgage Loans.)
(Mortgage Loan Lock-out Dates)
------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Lock-out Mortgage by Balance as of Balance as of
Date Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
(___% of the Mortgage Loans provide that upon any principal prepayment
of a Mortgage Loan, whether made voluntarily or involuntarily, the related
Mortgagor will be required to pay a prepayment premium or yield maintenance
Penalty (a "Prepayment Premium") in the amount set forth in the following
table.)
(Mortgage Loan Prepayment Premiums)
-----------------------------------
<TABLE>
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Prepayment Mortgage by Balance as of Balance as of
Premium Loans Number the Cut-off Date the Cut-off Date
- ------------- ------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
</TABLE>
Note: Percentage totals may not add due to rounding.
Set forth in Annex A to this Prospectus Supplement are certain
individual characteristics of the Mortgage Loans.
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by _______,
generally in accordance with the underwriting criteria described herein.
(Description of underwriting standards.)
The Mortgage Loans selected for inclusion in the Mortgage Pool from
loans in the Depositor's portfolio were not so selected on any basis which
would have a material adverse effect on the Certificateholders .
ADDITIONAL INFORMATION
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 close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the
issuance of the Class ( ) Certificates, a Mortgage Loan may be removed from
the Mortgage Pool as a result of incomplete documentation or otherwise, if
the Depositor deems such removal necessary or appropriate and may be prepaid
at any time. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Class ( ) 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 Class ( )
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 Class ( ) Certificates 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 Class ( ) 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.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of ____ classes to be designated as the Class ( )
Certificates, the Class ( ) Certificates, the Class ( ) Certificates and the
Class ( ) Certificates. The Class ( ), Class ( ) and Class ( ) Certificates
(the "Subordinate Certificates") will be subordinate to the Class ( )
Certificates, as described herein. The Certificates 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 Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or deed in
lieu of foreclosure (upon acquisition, an "REO Property"); (iii) such funds
or assets as from time to time are deposited in the Distribution Account and
any account established in connection with REO Properties (the "REO
Account"); and (iv) the rights of the mortgagee under all insurance policies
with respect to the Mortgage Loans. Only the Class ( ) Certificates are
offered hereby.
The Class ( ) Certificates will have an initial (Certificate Balance)
(Notional Balance) of $__________. The Class ( ) Certificates represent ___%
of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date. The Class ( ) Certificates will have an initial Certificate Balance of
$__________, representing ___% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. The Class ( ) Certificates will have
an initial Certificate Balance of $__________, representing ___% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
The initial Certificate Balance of the Class ( ) Certificates will be (zero).
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. The respective
Certificate Balances of the Class ( ), Class ( ) and Class ( ) Certificates
(respectively, the "Class ( ) Balance", "Class ( ) Balance" and "Class ( )
Balance") will in each case be (i) reduced by amounts actually distributed on
such class of Certificates that are allocable to principal and ((ii)
increased by amounts allocated to such class of Certificates in respect of
negative amortization on the Mortgage Loans (Describe Notional Balance.))
(The Certificate Balance of the Class ( ) Certificates (the "Class ( )
Balance") will at any time equal the aggregate Stated Principal Balance of
the Mortgage Loans minus the sum of the Class ( ) Balance, Class ( ) Balance
and Class ( ) Balance.) The Stated Principal Balance of any Mortgage Loan at
any date of determination will equal (a) the Cut-off Date Balance of such
Mortgage Loan, plus ((b) any negative amortization added to the principal
balance of such Mortgage Loan on any Due Date after the Cut-off Date to and
including the Due Date in the Due Period for the most recently preceding
Distribution Date), minus (c) the sum of (i) the principal portion of each
Monthly Payment due on such Mortgage Loan after the Cut-off Date, to the
extent received from the Mortgagor or advanced by the Master Servicer and
distributed to holders of the Certificates before such date of determination,
(ii) all principal prepayments and other unscheduled collections of principal
received with respect to such Mortgage Loan, to the extent distributed to
holders of the Certificates before such date of determination, and (iii) any
reduction in the outstanding principal balance of such Mortgage Loan
resulting out of a bankruptcy proceeding for the related Mortgagor.
(None of the Class ( ) Certificates are offered hereby.)
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the (25th) day of each month or, if such (25th) day is not a business
day, then on the next succeeding business day, commencing in
____________________ 199_ (each, a " Distribution Date" ) . All
distributions (other than the final distribution on any Certificate) will be
made by the Master Servicer 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. Such distributions 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 Master Servicer
with wiring instructions no less than five business days prior to the related
Record Date and is the registered owner of Certificates the aggregate initial
principal amount of which is at least $_________, or otherwise by check
mailed to such Certificateholder. The final distribution on any Certificate
will be made in like manner, but only upon presentment or surrender of such
Certificate at the location specified in the notice to the holder thereof of
such final distribution. All distributions made with respect to a class of
Certificates on each Distribution Date will be allocated pro rata among the
outstanding Certificates of such class based on their respective Percentage
Interests. The Percentage Interest evidenced by any Class ( ) Certificate is
equal to the initial denomination thereof as of the Delivery Date, divided by
the initial Certificate Balance for such class. The aggregate distribution
to be made on the Certificates on any Distribution Date shall equal the
Available Distribution Amount.
The "Available Distribution Amount" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Distribution
Account as of the close of business on the related Determination Date and
(ii) the aggregate amount of any Advances made by the Master Servicer in
respect of such Distribution Date net of (b) the portion of the amount
described in clause (a)(i) hereof that represents (i) Monthly Payments due on
a Due Date subsequent to the end of the related Due Period, (ii) any
voluntary principal prepayments and other unscheduled recoveries on the
Mortgage Loans received after the end of the related Due Period, (iii) any
amounts payable or reimbursable therefrom to any person or (iv) any servicing
compensation.
Priority. On each Distribution Date, the Master Servicer shall apply
amounts on deposit in the Distribution Account, to the extent of the
Available Distribution Amount, first, to distributions of interest to holders
of the Class ( ) Certificates, in the amount equal to all Distributable
Certificate Interest in respect of the Class ( ) Certificates for such
Distribution Date and, to the extent not previously distributed, for all
preceding Distribution Dates and second, to distributions of principal to
holders of the Class ( ) Certificates, in an amount, not to exceed the sum of
the Class ( ) Balance outstanding immediately prior to such Distribution Date
(and any Class Negative Amortization in respect of the Class ( ) Certificates
for such Distribution Date), equal to the sum of (A) the then Class ( )
Scheduled Principal Distribution Percentage of the Scheduled Principal
Distribution Amount for such Distribution Date and (B) the Unscheduled
Principal Distribution Amount for such Distribution Date.
On or after the reduction of the Class ( ) Balance to zero, the
Available Distribution Amount will be paid solely to the holders of the
Subordinate Certificates.
Calculations of Interest. The "Distributable Certificate Interest" in
respect of the Class ( ) Certificates for any 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 of (i) the aggregate portion of any Prepayment Interest Shortfalls
resulting from voluntary principal prepayments on the Mortgage Loans during
the related Due Period (that are not covered by the application of servicing
compensation of the Master Servicer for the related Due Period (such
uncovered aggregate portion, as to such Distribution Date,) the "Net
Aggregate Prepayment Interest Shortfall")(; and (ii) the aggregate of any
negative amortization in respect of the Mortgage Loans for their respective
Due Dates during the related Due Period (the aggregate of such negative
amortization, as to such Distribution Date, the "Aggregate Mortgage Loan
Negative Amortization").)
The "Accrued Certificate Interest" in respect of the Class ( )
Certificates for any Distribution Date is equal to thirty days' interest
accrued during the related Interest Accrual Period at the Pass-Through Rate
applicable to such class of Certificates for such Distribution Date accrued
on the related (Certificate Balance) (Classes ( ) Notional Amount)
outstanding immediately prior to such Distribution Date. The Pass-Through
Rate applicable to the Class ( ) Certificates for any Distribution Date (is
fixed and is set forth on the cover hereof) (will equal the weighted average
of the Class ( ) Remittance Rates in effect for the Mortgage Assets as of the
commencement of the related Due Period (as to such Distribution Date, the
"Weighted Average Class ( ) Remittance Rate"). The "Class ( ) Remittance
Rate" in effect for any Mortgage Loan as of any date of determination (a)
prior to its first Interest Rate Adjustment Date, is equal to the related
Mortgage Rate then in effect minus ___ basis points and (b) from and after
its first Interest Rate Adjustment Date, is equal to the related Mortgage
Rate then in effect minus the excess of the related Gross Margin over ____
basis points. The "Interest Accrual Period" for the Certificates is the
calendar month preceding the month in which the Distribution Date occurs.)
(is equal to the excess of the Mortgage Rate thereon over ____% per annum.)
(The Class ( ) Notional Amount will equal the (sum of the Class ( ) Balance.
The Class ( ) Notional Amount does not entitle the Class ( ) Certificate (or
a component thereof) to any distribution of principal.)
The portion of Net Aggregate Prepayment Interest Shortfall (and the
Aggregate Mortgage Loan Negative Amortization) for any Distribution Date that
will be allocated to the Class ( ) Certificates on such Distribution Date
will be equal to the then applicable Class ( ) Interest Allocation
Percentage. The "Class ( ) Interest Allocation Percentage" for any
Distribution Date will equal a fraction, expressed as a percentage, the
numerator of which is equal to the product of (a) the Class ( ) Balance ((net
of any Uncovered Portion thereof)) outstanding immediately prior to such
Distribution Date, multiplied by (b) the Pass-Through Rate for the Class ( )
Certificates for such Distribution Date, and the denominator of which is the
product of (x) the aggregate Stated Principal Balance of the Mortgage Loans
outstanding immediately prior to such Distribution Date, multiplied by (y)
the Weighted Average Net Mortgage Rate for such Distribution Date. The "Net
Mortgage Rate" in effect for any Mortgage Loan as of any date of
determination is equal to the related Mortgage Rate then in effect minus ____
basis points. (The "Uncovered Portion" of the Class ( ) Balance, as of any
date of determination, is the portion thereof representing the excess, if
any, of (a) the Class ( ) Balance then outstanding, over (b) the aggregate
Stated Principal Balance of the Mortgage Loans then outstanding.)
(The Class ( ) Certificates (or a component thereof) will not be
entitled to distributions of interest and will not have a Pass-Through Rate.)
Calculations of Principal. Holders of the Class ( ) Certificates will
be entitled to receive on each Distribution Date, to the extent of the
balance of the Available Distribution Amount remaining after the payment of
the Class ( ) Interest Distribution Amount for such Distribution Date an
amount equal to the Class ( ) Principal Distribution Amount. The "Class ( )
Principal Distribution Amount" for any Distribution Date will equal the sum
of (i) the product of the Scheduled Principal Distribution Amount and the
Class ( ) Scheduled Principal Distribution Percentage, (ii) the product of
the Senior Accelerated Percentage and all principal prepayments received
during the related Due Period and, (iii) to the extent not previously
advanced, (the lesser of the Class ( ) Scheduled Principal Distribution
Percentage of the Stated Principal Balance of the Mortgage Loans and the
Senior Accelerated Percentage of the Unscheduled Principal Distribution
Amount net of any prepayment amounts described in clause (ii) above. The
"Scheduled Principal Distribution Amount" for any Distribution Date is equal
to the aggregate of the principal portions of all Monthly Payments, including
Balloon Payments, 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 Mortgagor or advanced by the Master Servicer and included in the
Available Distribution Amount for such Distribution Date. The principal
portion of any Advances in respect of a Mortgage Loan delinquent as to its
Balloon Payment will constitute advances in respect of the principal portion
of such Balloon Payment.
(The portion of the Class ( ) Principal Distribution Amount payable on
any Distribution Date shall be allocated to the Class ( ) Certificates as
follows: (Describe distributions which may be concurrent or sequential and
among different classes and may be based on a schedule of payments sometimes
referred to as a Schedule of PAC, TAC or Scheduled Balances for some and not
other classes.))
(The Class ( ) Scheduled Principal Distribution Percentage for any
Distribution Date represents the portion of the Scheduled Principal
Distribution Amount for such Distribution Date payable (subject to the
payment priorities described herein) on the Class ( ) Certificates. The
"Class ( ) Scheduled Principal Distribution Percentage" for any Distribution
Date will equal the lesser of (a) 100% and (b) a fraction, expressed as a
percentage, the numerator of which is the Class ( ) Balance outstanding
immediately prior to such Distribution Date, and the denominator of which is
the lesser of (i) the sum of the Class ( ) Balance, the Class ( ) Balance and
the Class ( ) Balance and (ii) the aggregate Stated Principal Balance of the
Mortgage Loans, in either case outstanding immediately prior to such
Distribution Date.)
The "Unscheduled Principal Distribution Amount" for any Distribution
Date is equal to the sum of: (a) all voluntary principal prepayments
received on the Mortgage Loans during the related Due Period; and (b) the
excess, if any, of (i) all unscheduled recoveries received on the Mortgage
Loans during the related Due Period, whether in the form of liquidation
proceeds, condemnation proceeds, insurance proceeds or amounts paid in
connection with the purchase of a Mortgage Loan out of the Trust Fund,
exclusive in each case of any portion thereof payable or reimbursable to the
Master Servicer in connection with the related Mortgage Loan, over (ii) the
respective portions of the net amounts described in the immediately preceding
clause (i) needed to cover interest (at the applicable Net Mortgage Rate in
effect from time to time) on the related Mortgage Loan from the date to which
interest was previously paid or advanced through the Due Date for such
Mortgage Loan in the related Due Period ((exclusive of any portion of such
interest added to the principal balance of such Mortgage Loan as negative
amortization).)
(The "Class Negative Amortization" in respect of any class of
Certificates for any Distribution Date is equal to such class' allocable
share of the Aggregate Mortgage Loan Negative Amortization for such
Distribution Date.)
SUBORDINATION
In order to maximize the likelihood of distribution in full of the
Class ( ) Interest Distribution Amount and the Class ( ) Scheduled Principal
Distribution Amount, on each Distribution Date, holders of the Class ( )
Certificates have a right to distributions of the Available Distribution
Amount that is prior to the rights of the holders of the Subordinate
Certificates, to the extent necessary to satisfy the Class Interest
Distribution Amount and the Class ( ) Scheduled Principal Distribution
Amount.
(The entitlement to the Class ( ) Certificates of the (entire) (a larger
percentage under certain circumstances of) Unscheduled Principal Distribution
Amount will accelerate the amortization of the Class ( ) Certificates
relative to the actual amortization of the Mortgage Loans.)
(To the extent that the Class ( ) Certificates are amortized faster
than the Mortgage Loans, without taking into account losses on the Mortgage
Loans, the percentage interest evidenced by the Class ( ) Certificates in the
Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, relative to their respective Certificate Balances, the _________
_______ afforded the Class ( ) Certificates by the Subordinate Certificates.)
(Any losses realized on a Mortgage Loan that is finally liquidated equal
to the excess of the Stated Principal Balance of such Mortgage Loan
remaining, if any, plus interest thereon through the last day of the month in
which such Mortgage Loan was finally liquidated, after application of all
amounts received (net of amounts reimbursable to the Master Servicer, any
Primary Servicer or any Special Servicer for Advances and expenses, including
attorneys' fees) towards interest and principal owing on the Mortgage Loan,
is referred to herein as a "Realized Loss.") The principal portion of any
Realized Losses will be allocated first in reduction of the Subordinate
Certificates (in the order specified here) and then to the Class ( )
Certificates (in the order specified here).
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances (each, an "Advance") out
of its own funds, or funds held in the Distribution 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 all Monthly
Payments (net of the Servicing Fee). The Master Servicer's obligations to
make Advances in respect of any Mortgage Loan will continue through
liquidation of such Mortgage Loan and 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 proceeds, liquidation
proceeds, condemnation proceeds or amounts paid in connection with the
purchase of such Mortgage Loan. Notwithstanding the foregoing, the Master
Servicer will be obligated to make any Advance only to the extent that it
determines in its reasonable good faith judgment that such Advance, if made,
would be recoverable out of general funds on deposit in the Distribution
Account. Any failure by the Master Servicer to make an Advance as required
under the Pooling and Servicing Agreement will constitute an event of default
thereunder, in which case the trustee will be obligated to make any such
Advance, in accordance with the terms of the Pooling and Servicing Agreement.
CERTAIN YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity on the Class ( ) Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, insurance or foreclosure. The yield to maturity on
the Class ( ) Certificates will also be affected by the level of the Index.
The rate of principal payments on the Class ( ) Certificates will correspond
to the rate of principal payments (including prepayments) on the related
Mortgage Loans.
(Description of factors affecting yield, prepayment and maturity of the
Mortgage Loans and Class ( ) Certificates depending upon characteristics of
the Mortgage Loans.)
WEIGHTED AVERAGE LIFE OF THE CLASS ( ) CERTIFICATES
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Class ( )
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made
pursuant to any applicable policies of insurance) on the Mortgage Loans are
made. Principal payments on the Mortgage Loans may be in the form of
scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, partial prepayments and liquidations due
to a default or other dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class ( ) Certificates at the respective percentages of (CPR) set forth below
indicates the weighted average life of such Certificates and sets forth the
percentage of the initial principal amount of such Certificates that would be
outstanding after each of the dates shown at the indicated percentages of
(CPR). The table has been prepared on the basis of the following assumptions
regarding the characteristics of the Mortgage Loans: (i) an outstanding
principal balance of $_________, a remaining amortization term of ___ months
and a term to balloon of ___ months: (ii) an interest rate equal to ____% per
annum until the ___ Due Date and thereafter an interest rate equal to ____%
per annum (at an assumed Index of ____%) and Monthly Payments that would
fully amortize the remaining balance of the Mortgage Loan over its remaining
amortization term; (iii) the Mortgage Loans prepay at the indicated
percentage of (CPR); (iv) the maturity date of each of the Balloon Mortgage
Loans is not extended; (v) distributions on the Class ( ) Certificates are
received in cash, on the 25th day of each month, commencing in_____________;
(vi) no defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Mortgagors of principal and interest on the
Mortgage Loans occur; (vii) the initial Certificate Balance of the Class ( )
Certificates is $________; (viii) prepayments represent payment in full of
individual Mortgage Loans and are received on the respective Due Dates and
include 30 days' interest thereon; (ix) there are no repurchases of Mortgage
Loans due to breaches of any representation and warranty or otherwise; (x)
the Class ( ) Certificates are purchased on ________; (xi) the Servicing Fee
is ____% per annum; and (xii) the Index on each Interest Rate Adjustment Date
is ________% per annum.
Based on the foregoing assumptions, the table indicates the weighted
average life of the Class ( ) Certificates and sets forth the percentages of
the initial Certificate Balance of the Class ( ) Certificates that would be
outstanding after the Distribution Date in ___________ of each of the years
indicated, at various percentages of (CPR). Neither (CPR) 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 pool of mortgage loans, including the Mortgage Loans included in the
Mortgage Pool. Variations in the actual prepayment experience and the
balance of the Mortgage Loans that prepay may increase or decrease the
percentage of initial Certificate Balance (and weighted average life) shown
in the following table. Such variations may occur even if the average
prepayment experience of all such Mortgage Loans is the same as any of the
specified assumptions.
Percent of Initial Class ( ) Certificate Balance Outstanding
at the Following Percentages of (CPR)
Distribution Date
- -----------------
<TABLE>
<CAPTION>
Initial Percent . . . . . . . . . ___% __% __% __% __% __%
<S> <C> <C> <C> <C> <C> <C>
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 199_ . . . . . .
____________ 25, 200_ . . . . . .
____________ 25, 200_ . . . . . .
____________ 25, 200_ . . . . . .
____________ 25, 200_ . . . . . .
</TABLE>
Weighted Average Life
(Years) (+) . . . . . . . . . . . .
+ The weighted average life of the Class ( ) Certificates is determined by
(i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the total
principal distributions on such class of Certificates.
(Class ( ) Yield Consideration)
(Will describe assumption for various scenarios showing sensitivity of
certain classes to prepayment and default risks and set forth resulting
yield.)
DESCRIPTION OF AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ____________ 1, 199_ (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer and the Trustee.
Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class ( ) Certificates. The
Depositor will provide to a prospective or actual Class ( ) Certificateholder
without charge, upon written request, a copy (without exhibits) of the
Pooling and Servicing Agreement. Requests should be addressed to J.P. Morgan
Commercial Mortgage Finance Corp., c/o J.P. Morgan & Co. Incorporated, 60
Wall Street, New York, New York 10260-0060.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, the Depositor will assign or cause to
be assigned the Mortgage Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. Prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee (or the custodian
hereinafter referred to), among other things, the following documents
(collectively, as to such Mortgage Loan, the "Mortgage Loan File"): (i) the
original Mortgage or a certified copy thereof, and any intervening
assignments thereof, or certified copies of such intervening assignments, in
each case with evidence of recording thereon; (ii) the original or, if
accompanied by a "lost note" affidavit, a copy of the Mortgage Note, endorsed
by ____________________ which transferred such Mortgage Loan, without
recourse, in blank or to the order of Trustee; (iii) an assignment of the
Mortgage, executed by the ____________________ which transferred such
Mortgage Loan, in blank or to the order of the Trustee, in recordable form;
(iv) originals or certified copies of any related assignment of leases, rents
and profits and any related security agreement (if, in either case, such item
is a document separate from the Mortgage) and any intervening assignments of
each such document or instrument; (v) assignments of any related assignment
of leases, rents and profits and any related security agreement (if, in
either case, such item is a document separate from the Mortgage), executed by
____________________ which transferred such Mortgage Loan, in blank or to the
order of the Trustee; (vi) originals or certified copies of all assumption,
modification and substitution agreements in those instances where the terms
or provisions of the Mortgage or Mortgage Note have been modified or the
Mortgage or Mortgage Note has been assumed; and (vii) the originals or
certificates of a lender's title insurance policy issued on the date of the
origination of such Mortgage Loan or, with respect to each Mortgage Loan not
covered by a lender's title insurance policy, an attorney's opinion of title
given by an attorney licensed to practice law in the jurisdiction where the
Mortgaged Property is located; (viii) originals or copies of any UCC
financing statements; (ix) originals or copies of any guaranties related to
such Mortgage Loan; (x) original or copies of insurance policies related to
the Mortgaged Property; (xi) originals or certified copies of any
environmental liabilities agreement; (xii) originals or copies of any escrow
agreements for improvements; (xiii) original or certified copies of any prior
assignments of mortgage if the Originator is not the originator of record;
(xiv) any collateral assignments of property management agreements and other
servicing agreements; (xv) the documents specified in the Program Guidelines
for the due diligence investigation to be performed by or on behalf of seller
pursuant to the Mortgage Loan Purchase Agreement; (xvi) any appraisals of the
Mortgaged Property; (xvii) a physical assessment report of the Mortgaged
Property; (xviii) an environmental site assessment of the Mortgaged Property;
(xix) originals or certified copies of any lease subordination agreements and
tenant estoppels; and (xx) any opinions of borrower's counsel. (The Pooling
and Servicing Agreement will require the Depositor promptly (and in any event
within _____ days of the Delivery Date) to cause each assignment of the
Mortgage described in clause (iv) above to be submitted for recording in the
real property records of the jurisdiction in which the related Mortgaged
Property is located. Any such assignment delivered in blank will be
completed to the order of the Trustee prior to recording.) The Pooling and
Servicing Agreement will also require the Depositor to cause the endorsements
on the Mortgage Notes delivered in blank to be completed to the order of the
Trustee.
THE MASTER SERVICER
General. ______________________________________________, a _________
corporation, will act as Master Servicer (in such capacity, the "Master
Servicer") for the Certificates pursuant to the Pooling and Servicing
Agreement. The Master Servicer(, a wholly-owned subsidiary of __________,)
(is engaged in the mortgage banking business and, as such, originates,
purchases, sells and services mortgage loans. _________________ primarily
originates mortgage loans through a branch system consisting of
_______________________ offices in __________ states, and through mortgage
loan brokers.)
The executive offices of the Master Servicer are located at
_____________________________________, telephone number __________.
(Delinquency and Foreclosure Experience. The following tables set forth
certain information concerning the delinquency experience (including pending
foreclosures) on (retail)(multifamily)(industrial)(hotel)(retail/office)
(office)(commercial) mortgage loans included in the Master Servicer's
servicing portfolio (which includes mortgage loans that are subserviced by
others). The indicated periods of delinquency are based on the number of
days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
<TABLE>
<CAPTION>
As of December 31, 19__ As of December 31, 19__ As of ____,19__
----------------------- ----------------------- ---------------
By Dollar Amount By Dollar Amount By Dollar
By No. of Loans of Loans By No. of Loans of Loans By No. of Loans Amount of Loans
--------------- -------- --------------- -------- --------------- ---------------
(Dollar Amount in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ________ $______ ________ $______ ________ $________
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more ________ ________ ________ ________ ________ ________
Total Delinquent Loans ________ $______ _________ $______ _________ $______
Percent of Portfolio % % % % % %
Foreclosures pending
(1)
Percent of Portfolio % % % % % %
Foreclosures
Percent of Portfolio % % % % % %
</TABLE>
___________________
(1) Includes bankruptcies which preclude foreclosure.
(There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans comprising the Mortgage Pool will correspond
to the delinquency and foreclosure experience of the Master Servicer's
mortgage portfolio set forth in the foregoing tables. The aggregate
delinquency and foreclosure experience on the Mortgage Loans comprising the
Mortgage Pool will depend on the results obtained over the life of the
Mortgage Pool.)
(SPECIAL SERVICERS
__________________________________ (in such capacity, the "Special
Servicer") will be responsible for servicing the Specially Serviced Mortgage
Loans (as defined herein) and, among other things, overseeing the resolution
of Specially Serviced Mortgage Loans, acting as disposition manager of REO
Properties acquired on behalf of the Trust through foreclosure or deed in
lieu of foreclosure, maintaining insurance with respect to REO Properties and
providing monthly reports to the Master Servicer and the Trustee. The
management of Specially Serviced Mortgage Loans will be handled by and draw
u p o n t h e w o r k o u t a n d R E O e x p e r i e n c e o f
______________________________________________, whose managed assets at
_______, 199__ included non-accrual commercial real estate loans and
foreclosed assets of approximately $_________. Subject to certain
limitations, the Special Servicer will be obligated to make advances with
respect to the Specially Serviced Mortgage Loans. See "-Advances" herein.
The Special Servicer will be entitled to receive, with respect to any
Collection Period, a fee (the "Special Servicing Fee"): equal to _______,
such Special Servicing Fee to be an obligation of the Trust Fund and payable
from the Collection Account or applicable REO Account. The Special Servicer
will have all the rights and remedies of the Master Servicer with respect to
the REO Property. All expenses incurred by the Special Servicer relating to
property protection and property improvement are immediately reimbursable to
the Special Servicer from any funds in the REO Account while other Servicing
Advances will be reimbursed from funds on deposit in the Collection Account.)
(SPECIALLY SERVICED MORTGAGE LOANS
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events, including the following: ( (i) the Mortgage Loan becomes a
"Defaulted Mortgage" because it is more than 60 days delinquent in whole or
in part in respect of any monthly payment or is delinquent in whole or in
part in respect of the related Balloon Payment; (ii) the related borrower has
entered into or consented to bankruptcy, appointment of a receiver or
conservator or a similar insolvency or similar proceeding, or the borrower
has become the subject of a decree or order for such a proceeding with shall
have remained in force undischarged or unstayed for a period of 60 days;
(iii) the Master Servicer or a Primary Servicer shall have received notice of
the foreclosure or proposed foreclosure of any other lien on the Mortgaged
Property; (iv) in the judgment of the Master Servicer or a Primary Servicer,
a payment default has occurred or is imminent and is not likely to be cured
by the related borrower within 60 days; (v) the related borrower admits in
writing its inability to pay its debts generally as they become due, files a
petition to take advantage of any applicable insolvency or reorganization
statute, makes an assignment for the benefit of its creditors, or voluntarily
suspends payment of its obligations; (vi) with respect to a Balloon Mortgage
Loan, the related borrower, in response to a letter from the Master Servicer
or a Primary Servicer inquiring three and/or six months prior to the maturity
date of such loan about borrower's ability to pay, requests either an
extension of the maturity date or any other modification or otherwise
indicates the inability to make the payment on the maturity date, or fails to
respond within 30 days to the three-months' notice letter; (vii) any other
material default has in the Master Servicer's or a Primary Servicer's
judgment occurred which is not reasonably susceptible to cure within the time
periods and on the conditions specified in the related mortgage; (viii) the
related Mortgaged Property becomes an REO Property; or (ix) if for any
reason, a Primary Servicer cannot enter into an assumption agreement upon the
transfer by the related borrower of the mortgage. Such a Mortgage Loan is a
"Specially Serviced Mortgage Loan". The Special Servicer will collect and
receive certain payments on such Specially Serviced Mortgage Loans and make
certain remittances and prepare certain reports to the Trustee with respect
to such Mortgage Loans. The Master Servicer shall have no responsibility for
the performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement provided that the Master Servicer continue to perform
certain servicing functions on such Specially Serviced Mortgage Loans and,
based on the information provided to it by the Special Servicer, prepare
certain reports to the Trustee with respect to such Specially Serviced
Mortgage Loans. To the extent that any 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 a least three consecutive
months, the Special Servicer will return servicing of such Mortgage Loan to
the Master Servicer.)
COLLECTION ACCOUNT
The Master Servicer is required to deposit within ____ business days of
receipt all amounts received with respect to the Mortgage Loans of the
Mortgage Pool, net of its servicing compensation, into a separate Collection
Account maintained with ____________. Interest or other income earned on
funds in the Collection Account will be paid to the Master Servicer as
additional servicing compensation. See "Description of the Trust Funds --
Mortgage Assets" and "Description of the Agreements -- Distribution Account
and Other Collection Accounts" in the Prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
(Under the Agreement, the Master Servicer and the Primary Servicer are
required to service and administer the Mortgage Loans solely on behalf of and
in the best interests of and for the benefit of the Certificateholders (as
determined by such servicer in its reasonable judgment without taking into
account any deferring payment priorities among the Classes of Certificates
and any conflicts of interest involving it), in accordance with the terms of
the Agreement and the Mortgage Loans and to the extent consistent with such
terms, in the same manner with which, the Master Servicer and the Primary
Servicer service and administer mortgage loans that are held for other
portfolios and are similar to the Mortgage Loans, giving due consideration to
customary and usual standards of practice of prudent institutional
multifamily and commercial mortgage lenders, loan servicers and asset
managers.)
(Under the Agreement, unless acting at the direction of the Directing
Party (as defined below), the Special Servicer is required to service,
administer and dispose of Specially Serviced Mortgage Loans solely in the
best interests of and for the benefit of the Certificateholders (as
determined by the Special Servicer in its reasonable judgment without taking
into account any differing payment priorities among the Classes of
Certificates and any conflicts of interest involving it), in accordance with
the Agreement and the Mortgage Loans and, to the extent consistent with such
terms, in the same manner in which, and with the same care, skill, prudence
and diligence with which the Special Servicer services, administers and
disposes of, distressed mortgage loans and related real property that are
held for other portfolios and are similar to the Mortgage Loans, Mortgaged
Property and REO property, giving due consideration to customary and usual
standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers. (When acting at the
direction of the Directing Party, the Special Servicer is required to service
and administer the Mortgage Loans as directed by the Directing Party, the
Special Servicer is required to service and administer the Mortgage Loans as
directed by the Directing Party, but shall in any event, to the extent
consistent with the terms of the Agreement and the Mortgage Loans, act with
the same care, skill, prudence and diligence with which the Special Servicer
services, administers and disposes of distressed mortgage loans and related
real property that are held for other portfolios and are similar to the
Mortgage Loans, Mortgaged Property and REO property, giving due consideration
to customary and usual standards of practice of prudent institutional
multifamily and commercial mortgage lenders, loan servicers and asset
managers (but not necessarily in the same manner as the Special Servicer
would customarily act in managing similar assets for other portfolios).)
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Servicing Fee. The Servicing
Fee will be payable monthly only from amounts received in respect of interest
on each Mortgage Loan, will accrue at the Servicing Fee Rate and will be
computed on the basis of the same principal amount and for the same period
respecting which any related interest payment on such Mortgage Loan is
computed. The Servicing Fee Rate with respect to each Mortgage Loan equals
% per annum.
- ---
(The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing
Fee. The Special Servicing Fee will be payable monthly only from amounts
received in respect of interest on each Specially Serviced Mortgage Loan,
will accrue at the Special Servicing Fee Rate and will be computed on the
basis of the same principal amount for the same period respecting which any
related interest payment on such Mortgage Loan is computed. The Special
Servicing Fee Rate with respect to each Specially Serviced Mortgage Loan
equals ___% per annum.) (As further compensation for its servicing
activities, the Special Servicer shall also be entitled to receive (i) the
Liquidation Fee for the procurement (directly or through an agent thereof) of
a purchaser in connection with the liquidation of a Mortgaged Property
securing any defaulted Mortgage Loan, out of related liquidation proceeds,
provided that the payment of such Liquidation Fee would not be a violation
of, and would not subject the Trustee or the Trust Fund to liability under,
any state or local statute, regulation or other requirement (including
without limitation, those governing the licensing of real estate brokers or
salesmen), and (ii) the Management Fee in connection with the operation and
management of any REO Property, out of related revenues. Any "Liquidation
Fee" payable to the Special Servicer will be equal to __% (if the relevant
sale occurs at a foreclosure sale, trustee's sale or other similar
proceeding) or __% (if the relevant sale occurs subsequent to such Mortgaged
Property's having become an REO Property), as applicable, of the gross
liquidation proceeds. The "Management Fee" in respect of any REO Property is
payable to the Special Servicer monthly and is equal to __% of the gross
revenues derived from such REO Property.) (The principal compensation to be
paid to the (Master) (Primary) Servicer with respect to each Mortgage Loan
equals __% per annum.)
As additional servicing compensation, the Primary and Special Servicer
are entitled to retain all assumption fees and late payment charges, to the
extent collected from Mortgagors, together with any interest or other income
earned on funds held in the Distribution Account and any escrow accounts.
The Servicing Standard requires each Servicer to, among other things,
diligently service and administer the Mortgage Loans on behalf of the Trustee
and in the best interests of the Certificateholders, but without regard to
the such Servicer's right to receive such additional servicing compensation.
The Master Servicer is obligated to pay certain ongoing expenses associated
with the Mortgage Pool and incurred by the Master Servicer in connection with
its responsibilities under the Agreement. See "Description of the Agreements
- -- Retained Interest; Servicing Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation payable to
the Master Servicer and for information regarding expenses payable by the
Master Servicer (and "Certain Federal Income Tax Consequences" herein
regarding certain taxes payable by the Master Servicer).
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the (Master Servicer) (Trustee) shall furnish
to each Certificateholder, to the Depositor, to the Trustee and to the Rating
Agency a statement setting forth certain information with respect to the
Mortgage Loans and the Certificates required pursuant to the Pooling and
Servicing Agreement. In addition, within a reasonable period of time after
each calendar year, the Master Servicer shall furnish to each person who at
any time during such calendar year was the holder of a Certificate a
statement containing certain information with respect to the Certificates
required pursuant to the Pooling and Servicing Agreement, aggregated for such
calendar year or portion thereof during which such person was a
Certificateholder. (Unless and until Definitive Class ( ) Certificates are
issued, such statements or reports will be furnished only to Cede & Co., as
nominee for DTC; provided, however, that the (Master Servicer) (Trustee)
shall furnish a copy of any such statement or report to any Beneficial Owner
which requests such copy and certifies to the (Master Servicer) (Trustee)
that it is the Beneficial Owner of a Certificate. Such statements may be
available to Certificate Owners upon request to DTC or their respective
Participant or Indirect Participants.) See "Description of the Certificates
- -- Reports to Certificateholders" in the Prospectus.
VOTING RIGHTS
At all times during the term of this Agreement, the Voting Rights shall
be allocated among the Classes of Certificateholders in proportion to the
respective Certificate Balances of their Certificates ((net, in the case of
the Class ( ), Class ( ) and Class ( ) Certificates, of any Uncovered Portion
of the related Certificate Balance)). 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.
(As described under "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Class ( ) Certificates are issued, Certificate Owners may only
exercise their rights as owners of Certificates indirectly through DTC or
their respective Participant or Indirect Participant.)
(DIRECTING PARTY
At any time at which the Certificate Balance of the Class ( )
Certificates is less than or equal to the greater of (i) __% of the aggregate
Certificate Balance of all outstanding Certificates and (ii) __% of the
initial Certificate Balance of the Class ( ) Certificates (a "Trigger
Event"), a designated person (the "Directing Party") shall have the right to
approve and direct certain actions of the Special Servicer with respect to
the Mortgage Loans. After a Trigger Event occurs and so long as the
Certificate Balance of the Class ( ) Certificates is greater than or equal to
the greater of (i) __% of the aggregate Certificate Balances of all
outstanding Certificates and (ii) __% of the initial Certificate Balance of
the Class ( ) Certificates, the Holders of the Class ( ) Certificates shall
have the right to elect a designated person (the "Class ( ) Representative")
to serve as the Directing Party. After the Trigger Event and at any time
that the Certificate Balance of the Class ( ) Certificates is less than __%
of the aggregate Certificate Balance of all outstanding Certificates, an
independent third party designated by the Trustee shall act as the Directing
Party. In acting as the Directing Party, such independent third party shall
take such actions as are in the best interests of the Certificateholders
without taking into account any differing payment priorities among the
Classes of Certificates. Upon the occurrence of a Trigger Event at such time
as the Certificate Balance of the Class ( ) Certificates is greater than or
equal to (i) __% of the aggregate Certificate Balance of all outstanding
Certificates and (ii) __% of the Initial Certificate Balance of the Class ( )
Certificates, or, after the receipt by the Trustee of written requests for an
election of a Class ( ) Representative from Certificateholders representing
more than __% by Certificate Balance of Class ( ) Certificates, an election
of a successor Class ( ) Representative shall be held, commencing immediately
(i) following the resignation or removal of the person acting as the Class (
) Representative or (ii) upon the transfer of any Certificate of the Class (
) and upon the written request of the transferee of such Certificate. The
Class ( ) Representative may be removed at any time by the written vote of
more than __% by Certificate Balance of the Holders of the Class ( )
Certificates.
After a Trigger Event, the Special Servicer shall advise the Directing
Party in writing of certain actions the Special Servicer proposes to take
with respect to Specially Serviced Mortgage Loans, and the Special Servicer
shall not take any action which the Directing Party directs in writing shall
not be taken. If the Directing Party has either approved or does not
disapprove a recommendation of the Special Servicer in writing within ten
business days of the date such recommendation was made, the Special Servicer
may take those actions it specifically recommended.
In addition, the Directing Party may direct the Special Servicer to
take, or to refrain from taking, such other actions as the Directing Party
may deem advisable; provided, that no such direction shall require or cause
the Special Servicer to violate any provision of the Agreement or the
Mortgage Loans, including, without limitation, the servicing standards
described herein under "-Servicing and Other Compensation and Payment of
Expenses").
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment 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. 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 specified in such notice of termination.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
greater of (1) the aggregate fair market value of all the Mortgage Loans and
REO Properties then included in the Trust Fund, as mutually determined by the
Master Servicer and the Trustee, and (2) the excess of (a) the sum of (i) the
aggregate Purchase Price of all the Mortgage Loans then included in the Trust
Fund and (ii) the fair market value of all REO Properties then included in
the Trust Fund, 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 Class ( ) Certificates, but the right of the Master Servicer to
effect such termination is subject to the requirement that the aggregate
Stated Principal Balance of the Mortgage Loans then in the Trust Fund is less
than __% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date. (In addition, the Master Servicer may at its option purchase
any class or classes of Class ( ) Certificates with a Certificate Balance
less than __% of the original balance thereof at a price equal to such
Certificate Balance plus accrued interest through _________.)
USE OF PROCEEDS
The net proceeds from the sale of Class ( ) Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class ( ) Certificates, Brown & Wood LLP,
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 (not be classified as an association taxable as a corporation and that
the Trust Fund will be classified as a grantor trust under subpart E, Part I
of subchapter J of the Code) (qualify as a REMIC under the Code).
(For federal income tax purposes, the Class ( ) Certificates will be the
sole class of "residual interests" in the REMIC and the Class ( ), Class ( )
and Class ( ) Certificates will be the "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC.
See "Certain Federal Income Tax Consequences -- (REMICS) (Grantor Trust
Fund)" in the Prospectus.
(The Class ( ) Certificates (may)(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 ___% (CPR). No representation is made that the Mortgage
Loans will prepay at that rate or at any other rate. See "Certain Federal
Income Tax Consequences -- REMICS -- Taxation of Owners of REMIC Regular
Certificates" and "--Original Issue Discount" in the Prospectus.)
The Class ( ) Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a
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 such class of
Certificates should consult their own 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" and "-- Premium" in the Prospectus.)
(The Class ( ) Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code(, assets described in
Section 7701(a)(19)(C) of the Code) and "real estate assets" within the
meaning of Section 856(c)(6)(B) of the Code generally in the same proportion
that the assets of the REMIC underlying such Certificates would be so
treated.) (In addition, interest (including original issue discount) on the
Class ( ) Certificates will be interests described in Section 856(c)(3)(B) of
the Code to the extent that such Class ( ) Certificates are treated as "real
estate assets" under Section 856(c)(6)(B) of the Code.) (Moreover, the Class
( ) Certificates will be "obligation(s) . . . which . . .(are)
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(C) of the Code.) (The Class ( ) Certificates will not be
considered to represent an interest in "loans . . . secured by an interest
in real property" within the meaning of Section 7701 (a)(19)(C)(v) of the
Code.) See "Certain Federal Income Tax Consequences -- REMICS --
Characterization of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class ( ) Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
(A fiduciary of any employee benefit plan or other retirement plans and
arrangements, 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 the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code should carefully review with its legal advisors whether the
purchase or holding of Class ( ) Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code.
(The U.S. Department of Labor issued an individual exemption, Prohibited
Transaction Exemption 90-23 (the "Exemption"), on May 17, 1990 to J.P. Morgan
Securities Inc., 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 and the
purchase, sale and holding of mortgage pass-through 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) J.P. Morgan
Securities Inc., (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with J.P.
Morgan Securities Inc. 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 ( ) Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class ( )
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class ( ) Certificates by certain employee benefit plans
subject to Section 4975 of the Code (each, 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 ( ) Certificates must not be subordinate to the rights
and interests evidenced by the other certificates of the same trust. Third,
the Class ( ) Certificates at the time of acquisition by the Plan must be
rated in one of the three highest rating categories by Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co.
or Fitch Investors Service, Inc. Fourth, the Trustee cannot be an affiliate
of any member of the "Restricted Group", which consists of any Underwriter,
the Depositor, the Master Servicer, each 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 ( ) 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 ( ) Certificates; the sum of all
payments made to and retained by the Underwriter must represent not more than
reasonable compensation for underwriting the Class ( ) 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 and any sub-servicer must
represent not more than reasonable compensation for such person's services
under the 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.
Because the Class ( ) Certificates are not subordinate 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 ( ) Certificates that they be rated (not lower than)
"___________" by ___________________. A fiduciary of a Plan contemplating
purchasing a Class ( ) Certificate in the secondary market must make its own
determination that at the time of such acquisition, the Class ( )
Certificates continue to satisfy the third general condition set forth above.
The Depositor expects that the fourth general condition set forth above will
be satisfied with respect to the Class ( ) Certificates. A fiduciary of a
Plan contemplating purchasing a Class ( ) Certificate must make its own
determination that the first, third, fifth and sixth general conditions set
forth above will be satisfied with respect to such Class ( ) Certificate.
Before purchasing a Class ( ) Certificate, a fiduciary of a Plan should
itself confirm (a) that such Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption 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.
Any Plan fiduciary considering whether to purchase a Class ( )
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.
LEGAL INVESTMENT
The Class ( ) Certificates (will) (will not) constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") so long as they are rated in at least the second
highest rating category by the Rating Agency, and, as such, are legal
investments for certain entities to the extent provided in SMMEA). SMMEA
provided that states could override its provisions on legal investment and
restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. Certain states have enacted
legislation which overrides the preemption provisions of SMMEA.
The Depositor makes no representations as to the proper characterization
of the Class ( ) Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase the Class ( ) Certificates
under applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of the Class ( ) Certificates. Accordingly,
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 Class ( ) Certificates constitute a legal
investment under SMMEA or is subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Class ( )
Certificates will be purchased from the Depositor by the Underwriter, an
affiliate of the Depositor, upon issuance. Distribution of the Class ( )
Certificates will be made 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 Certificates will be __% of the
initial aggregate principal balance thereof as of the Cut-off Date, plus
accrued interest from the Cut-off Date at a rate of __% per annum, before
deducting expenses payable by the Depositor. In connection with the purchase
and sale of the Class ( ) Certificates, the Underwriter may be deemed to have
received compensation from the Depositor in the form of underwriting
discounts.
The Depositor also has been advised by the Underwriter that it, through
one or more of its affiliates currently expects to make a market in the Class
( ) Certificates offered hereby; however, it has no obligation to do so, any
market making may be discontinued at any time, and there can be no assurance
that an active public market for the Class ( ) Certificates will develop.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for the
Underwriter by Brown & Wood LLP, New York, New York.
RATING
It is a condition to issuance that the Class ( ) Certificates be rated
(not lower than) "______" by ________________. However, no person is
obligated to maintain the rating on the Class ( ) Certificates, and
_______________ is not obligated to monitor its rating following the Delivery
Date.
________________'s ratings on mortgage pass-through certificates address
the likelihood of the receipt by holders thereof of payments to which they
are entitled. _____________'s ratings take 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 in the mortgage
pool is adequate to make payments required under the certificates.
_________________'s rating on the Class ( ) Certificates does not, however,
constitute a statement regarding frequency of prepayments on the Mortgage
Loans. (The rating of the Class ( ) Certificates does not address the
possibility that the holders of such Certificates may fail to fully recover
their initial investments.) See "Risk Factors" herein.
There can be no assurance as to whether any rating agency not requested
to rate the Class ( ) Certificates will nonetheless issue a rating and, if
so, what such rating would be. A rating assigned to the Class ( )
Certificates by a rating agency that has not been requested by the Depositor
to do so may be lower than the rating assigned by ________________'s pursuant
to the Depositor's request.
The rating of the Class ( ) Certificates should be evaluated
independently from similar ratings on other types of securities. 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.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus and if given or made,
such information or representations must not be relied upon as having been
authorized by the Issuer, the Depositor or the Underwriter. This Prospectus
Supplement and the accompanying Prospectus shall not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction in which, or to any person to whom, it is unlawful
to make such offer or solicitation in such jurisdiction. The delivery of
this Prospectus Supplement and the accompanying Prospectus at any time does
not imply that the information herein or therein is correct as of any time
subsequent to the date hereof.
---------------------------------------
INDEX OF PRINCIPAL DEFINITIONS
Accrued Certificate Interest . . . . . . . . . . . . . . . . . . . . .
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate Mortgage Loan Negative Amortization . . . . . . . . . . . .
Available Distribution Amount . . . . . . . . . . . . . . . . . . . .
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . .
Class () Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class () Beneficial Owner . . . . . . . . . . . . . . . . . . . . . .
Class () Interest Distribution Amount . . . . . . . . . . . . . . . .
Class () Interest Allocation Percentage . . . . . . . . . . . . . . .
Class () Remittance Rate . . . . . . . . . . . . . . . . . . . . . . .
Class () Representative . . . . . . . . . . . . . . . . . . . . . . .
Class () Scheduled Principal Distribution Percentage . . . . . . . . .
Class Negative Amortization . . . . . . . . . . . . . . . . . . . . .
Class () Principal Distribution Amount . . . . . . . . . . . . . . . .
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . .
Converted Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . .
Convertible Mortgage Loans . . . . . . . . . . . . . . . . . . . . . .
Converting Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . .
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cut-off Date LTV Ratio . . . . . . . . . . . . . . . . . . . . . . . .
Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . .
Defaulted Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitive Class () Certificate . . . . . . . . . . . . . . . . . . .
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directing Party . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributable Certificate Interest . . . . . . . . . . . . . . . . . .
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . .
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee Agreement . . . . . . . . . . . . . . . . . . . . . . . . .
Hybrid Rate Mortgage Loans . . . . . . . . . . . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Adjustment Date . . . . . . . . . . . . . . . . . . . .
Liquidation Fee . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Period . . . . . . . . . . . . . . . . . . . . . . . . . . .
LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loan File . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loan Purchase Agreement . . . . . . . . . . . . . . . . . . .
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Aggregate Prepayment Interest Shortfall . . . . . . . . . . . . .
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . .
Notional Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment Adjustment Date . . . . . . . . . . . . . . . . . . . . . . .
Payment Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . .
Prepayment Premiums . . . . . . . . . . . . . . . . . . . . . . . . .
Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REO Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scheduled Principal Distribution Amount . . . . . . . . . . . . . . .
Senior Accelerated Percentage . . . . . . . . . . . . . . . . . . . .
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specially Serviced Mortgage Loan . . . . . . . . . . . . . . . . . . .
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . .
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . .
Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncovered Portion . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unscheduled Principal Distribution Amount . . . . . . . . . . . . . .
Weighted Average Class () Remittance Rate . . . . . . . . . . . . . .
ANNEX A
(CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS)
(Attach Mortgage Loan Schedule that details relevant and available
information regarding the Mortgage Loans, such as the information included
under the following headings:
1. Loan ID number 20. Next rate change
2. Original balance 21. First payment change
3. Current balance 22. Next payment change
4. Current rate 23. Rate adjustment frequency
5. Current payment 24. Payment adjustment frequency
6. Note date 25. Period payment cap
7. Original term 26. Life rate cap
8. Remaining term 27. Life rate floor
9. Maturity date 28. Negative amortization
cap percent
10. Amortization 29. Negative amortization cap
amount
11. Origination appraisal 30. Annualized recent net
operating income
12. Borrowing entity 31. Most recent net operating
income year
13. Property name 32. Most recent debt service
coverage ratio
14. Street 33. LTV and current balances based
upon the Appraised Value)
15. City
16. State
17. Zip code
18. Rate index
19. First rate change
====================================== ================================
No dealer, salesman, or any other
person has been authorized to give
any information or to make any
representations other than those
contained in this Prospectus
Supplement and the accompanying $ (Approximate)
Prospectus and if given or made,
such information or
representations must not be relied
upon as having been authorized by
the Issuer, the Depositor or the
Underwriter. This Prospectus J.P. MORGAN COMMERCIAL
Supplement and the accompanying MORTGAGE FINANCE CORP.,
Prospectus shall not constitute an DEPOSITOR
offer to sell or a solicitation of
an offer to buy any of the MORTGAGE PASS-THROUGH
securities offered hereby in any CERTIFICATES,
jurisdiction in which, or to any SERIES 199
person to whom, it is unlawful to
make such offer or solicitation in
such jurisdiction. The delivery
of this Prospectus Supplement and
the accompanying Prospectus at any
time does not imply that the
information herein or therein is
correct as of any time subsequent
to the date hereof.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary of Prospectus
Supplement . . . . . .
Risk Factors . . . . .
Description of the
Mortgage Pool . . . . .
Description of the PROSPECTUS SUPPLEMENT
Certificates . . . . .
Certain Yield, Prepayment
and Maturity
Considerations . . . .
Description of
Agreement . . . . . . .
Use of Proceeds . . . .
Certain Federal Income J.P. Morgan Securities Inc.
Tax Consequences . . .
ERISA Considerations .
Legal Investment . . .
Plan of Distribution .
Legal Matters . . . . .
Rating . . . . . . . .
Index of Principal
Definitions . . . . . . _________ ___, 199_
Annex A . . . . . . . .
PROSPECTUS
Prospectus Supplement . . . . . .
Available Information . . . . . .
Incorporation of Certain
Information by Reference . . . .
Summary of Prospectus . . . . . .
Risk Factors . . . . . . . . . .
Description of the Trust Funds .
Use of Proceeds . . . . . . . . .
Yield Considerations . . . . . .
The Depositor . . . . . . . . . .
Description of the Certificates .
Description of the Agreements . .
Description of Credit Support . .
Certain Legal Aspects of Mortgage
Loans . . . . . . . . . . . . . .
Certain Federal Income Tax
Consequences . . . . . . . . . .
State Tax Considerations . . . .
ERISA Considerations . . . . . .
Legal Investment . . . . . . . .
Plan of Distribution . . . . . .
Legal Matters . . . . . . . . . .
Financial Information . . . . . .
Rating . . . . . . . . . . . . .
Index of Principal Definitions .
====================================== ================================
SUBJECT TO COMPLETION, DATED JULY 11, 1997
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 the registration or qualification under the securities laws
of any such State.
Prospectus
Mortgage Pass-Through Certificates
(Issuable in Series)
J.P. Morgan Commercial Mortgage Finance Corp.
Depositor
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more
series (each, a "Series"). 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") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"Mortgage Loans"), mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities evidencing interests in or
secured by multifamily or commercial mortgage loans (collectively, the
"CMBS") or a combination of Mortgage Loans and/or CMBS (with respect to any
Series, collectively, the "Mortgage Assets"). If so specified in the related
Prospectus Supplement, some or all of the Mortgage Loans will include
assignments of the leases of the related Mortgaged Properties (as defined
herein) and/or assignments of the rental payments due from the lessees under
such leases (each type of assignment, a "Lease Assignment"). A significant or
the sole source of payments on certain Commercial Loans (as defined herein)
and, therefore, of distributions on certain Series of Certificates, will be
such rent payments. 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 (with respect to any Series,
collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with
respect to any Series, collectively, "Cash Flow Agreements"). See
"Description of the Trust Funds," "Description of the Certificates" and
"Description of Credit Support."
Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based
on fixed, variable or floating rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions; (v) provide for distributions of accrued interest
thereon commencing 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 sequentially, based on specified
payment schedules or other methodologies; and/or (vii) provide for
distributions based on a combination of two or more components thereof with
one or more of the characteristics described in this paragraph, to the extent
of available funds, in each case as described in the related Prospectus
Supplement. Any such classes may include classes of Offered Certificates. See
"Description of the Certificates."
(Continued on next page)
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates of any
Series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. 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.
Offers of the Offered Certificates may be made through one or more different
methods, including offerings through underwriters as more fully described
under "Method of Distribution" herein and in the related Prospectus
Supplement.
__________, 199_
(continued from the preceding page)
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any Series will be made only from the assets of the related
Trust Fund.
The Certificates of each Series will not represent an obligation of or
interest in the Depositor, any Master Servicer, any Primary Servicer, any
Special Servicer or any of their respective affiliates, except to the limited
extent described herein and in the related Prospectus Supplement. Neither the
Certificates nor any assets in the related Trust Fund will be guaranteed or
insured by any governmental agency or instrumentality or by any other person,
unless otherwise provided in the related Prospectus Supplement. The Assets in
each Trust Fund will be held in trust for the benefit of the holders of the
related Series of Certificates pursuant to a Pooling and Servicing Agreement
and one or more Servicing Agreements, or a Trust Agreement, as more fully
described herein.
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,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
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" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
Table of Contents
PAGE
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . .
Incorporation of Certain Information by Reference . . . . . . . . . .
Summary of Prospectus . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of the Trust Funds . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield Considerations . . . . . . . . . . . . . . . . . . . . . . . .
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of the Certificates . . . . . . . . . . . . . . . . . . .
Description of the Agreements . . . . . . . . . . . . . . . . . . . .
Description of Credit Support . . . . . . . . . . . . . . . . . . . .
Certain Legal Aspects of the Mortgage Loans and the Leases . . . . .
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . .
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . .
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . .
Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information . . . . . . . . . . . . . . . . . . . . . . . .
Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index of Principal Definitions . . . . . . . . . . . . . . . . . . .
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other shall the
Offered Certificates or an offer of the Offered Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information
herein is correct as of any time subsequent to its date; however, if any
material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
Prospectus Supplement
As more particularly described herein, the Prospectus Supplement relating to
the Offered Certificates of each Series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
class or classes of Certificates, the payment provisions with respect to each
such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate
principal amount and distribution dates relating to such Series and, if
applicable, the initial and final scheduled distribution dates for each
class; (iii) information as to the assets comprising the Trust Fund,
including the general characteristics of the assets included therein,
including the Mortgage Assets and any Credit Support and Cash Flow Agreements
(with respect to the Certificates of any Series, the "Trust Assets");
(iv) the circumstances, if any, under which the Trust Fund may be subject to
early termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Certificates; (viii) information as to any
Master Servicer, any Primary Servicer, any Special Servicer (or provision for
the appointment thereof) and the Trustee, as applicable; (ix) information as
to the nature and extent of subordination with respect to any class of
Certificates that is subordinate in right of payment to any other class; and
(x) whether such 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 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, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and New York
Regional Office, Seven World Trade Center, New York, New York 10048. The
Commission maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants,
including J.P. Morgan Commercial Mortgage Finance Corp., that file
electronically with the Commission.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors'
(i.e., the related Mortgagors') rights in one or more leases (each, a
"Lease") on the related Mortgaged Property. Unless otherwise specified in the
related Prospectus Supplement, no Series of Certificates will represent
interests in or obligations of any lessee (each, a "Lessee") under a Lease.
If indicated, however, in the Prospectus Supplement for a given Series, a
significant or the sole source of payments on the Mortgage Loans in such
Series, and, therefore, of distributions on such Certificates, will be rental
payments due from the Lessees under the Leases. Under such circumstances,
prospective investors in the related Series of Certificates may wish to
consider publicly available information, if any, concerning the Lessees.
Reference should be made to the related Prospectus Supplement for information
concerning the Lessees and whether any such Lessees are subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended.
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or unless otherwise provided in the related
Prospectus Supplement, such reports will be sent on behalf of the related
Trust Fund to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Offered Certificates, pursuant to the
applicable Agreement. Such reports may be available to Beneficial Owners (as
defined herein) in the Certificates upon request to their respective DTC
Participants or Indirect Participants (as defined herein). See "Description
of the Certificates-Reports to Certificateholders" and "Description of the
Agreements-Evidence as to Compliance."
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, 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, 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).
Requests to the Depositor should be directed in writing to J.P. Morgan
Commercial Mortgage Finance Corp., c/o J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York 10260-0060, Attention: Secretary. The Depositor
has determined that its financial statements are not material to the offering
of any Offered Certificates.
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 such "Series." An Index of
Principal Definitions is included at the end of this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Title of Certificates . . Mortgage Pass-Through Certificates, issuable in Series (the
"Certificates").
Depositor . . . . . . . . J.P. Morgan Commercial Mortgage Finance Corp., an indirect wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. See "The Depositor."
Master Servicer . . . . . The master servicer (the "Master Servicer"), if any, for each Series of
Certificates, which may be an affiliate of the Depositor, will be named in
the related Prospectus Supplement. See "Description of the Agreements-
Collection and Other Servicing Procedures."
Special Servicer . . . . . The special servicer (the "Special Servicer"), if any, for each Series of
Certificates, which may be an affiliate of the Depositor, will be named,
or the circumstances in accordance with which a Special Servicer will be
appointed will be described, in the related Prospectus Supplement. See
"Description of the Agreements-Special Servicers."
Primary Servicer . . . . The primary servicer (the "Primary Servicer"), if any, for each Series of
Certificates, which may be an affiliate of the Depositor, will be named in
the related Prospectus Supplement. See "Description of the Agreements-
Collection and Other Servicing Procedures."
Trustee . . . . . . . . . The trustee (the "Trustee") for each Series of Certificates will be named
in the related Prospectus Supplement. See "Description of the Agreements-
The Trustee."
The Trust Assets . . . . . .Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a Trust Fund consisting primarily of:
(a) Mortgage Assets . . . The Mortgage Assets with respect to each Series of Certificates will
consist of a pool of multifamily and/or commercial mortgage loans
(collectively, the "Mortgage Loans") and mortgage participations, mortgage
pass-through certificates or other mortgage-backed securities evidencing
interests in or secured by Mortgage Loans (collectively, the "CMBS") or a
combination of Mortgage Loans and CMBS. The Mortgage Loans will not be
guaranteed or insured by the Depositor or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental
agency or instrumentality or other person. The CMBS may be guaranteed or
insured by an affiliate of the Depositor, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government
National Mortgage Association, or any other person specified in the
related Prospectus Supplement. As more specifically described herein, the
Mortgage Loans will be secured by first or junior liens on, or security
interests in, properties consisting of (i) residential properties
consisting of five or more rental or cooperatively owned dwelling units
(the "Multifamily Properties") or (ii) office buildings, retail centers,
hotels or motels, nursing homes, congregate care facilities, industrial
properties, mini-warehouse facilities or self-storage facilities, mobile
home parks, mixed use or other types of commercial properties (the
"Commercial Properties"). The term "Mortgaged Properties" shall refer to
Multifamily Properties or Commercial Properties, or both.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may also be secured by an assignment of one or more
leases (each, a "Lease") of one or more lessees (each, a "Lessee") of all
or a portion of the related Mortgaged Properties. Unless otherwise
specified in the related Prospectus Supplement, a significant or the sole
source of payments on certain Commercial Loans (as defined herein) will be
the rental payments due under the related Leases. In certain
circumstances, with respect to Commercial Properties, the material terms
and conditions of the related Leases may be set forth in the related
Prospectus Supplement. See "Description of the Trust Funds-Mortgage Loans-
Leases" and "Risk Factors-Limited Assets" herein.
The Mortgaged Properties may be located in or outside the United States.
All Mortgage Loans will have original terms to maturity of not more than
40 years. All Mortgage Loans will have been originated by persons other
than the Depositor, and all Mortgage Assets will have been purchased,
either directly or indirectly, by the Depositor on or before the date of
initial issuance of the related Series of Certificates. The related
Prospectus Supplement will indicate if any such persons are affiliates of
the Depositor.
Each Mortgage Loan may provide for no accrual of interest or for accrual
of interest thereon at an interest rate (a "Mortgage Interest Rate") that
is fixed over its term or that adjusts from time to time, or is partially
fixed and partially floating or that may be converted from a floating to a
fixed Mortgage Interest Rate, or from a fixed to a floating Mortgage
Interest Rate, from time to time at the Mortgagor's election, in each case
as described in the related Prospectus Supplement. The floating Mortgage
Interest Rates on the Mortgage Loans in a Trust Fund may be based on one
or more indices. Each Mortgage Loan may provide for scheduled payments to
maturity, payments that adjust from time to time to accommodate changes in
the Mortgage Interest Rate or to reflect the occurrence of certain events,
and may provide for negative amortization or accelerated amortization, in
each case as described in the related Prospectus Supplement. Each Mortgage
Loan may be fully amortizing or require a balloon payment due on its
stated maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment or
require payment of a premium or a yield maintenance penalty in connection
with a prepayment, in each case as described in the related Prospectus
Supplement. The Mortgage Loans 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. See "Description of the Trust Funds-Assets."
(b) Collection Accounts. . Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or
persons designated in the related Prospectus Supplement will, to the
extent described herein and in such Prospectus Supplement, deposit all
payments and collections received or advanced with respect to the Mortgage
Assets and other assets in the Trust Fund. Such an account may be
maintained as an interest bearing or a non-interest bearing account, and
funds held therein may be held as cash or invested in certain short-term,
investment grade obligations, in each case as described in the related
Prospectus Supplement. See "Description of the Agreements-Distribution
Account and Other Collection Accounts."
(c) Credit Support . . . . 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"). The amount and types of coverage, the
identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any,
will be described in the Prospectus Supplement for a Series of
Certificates. The Prospectus Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that includes CMBS will describe
any similar forms of credit support that are provided by or with respect
to, or are included as part of the trust fund evidenced by or providing
security for, such CMBS. See "Risk Factors-Credit Support Limitations" and
"Description of Credit Support."
(d) Cash Flow . . . . . . Agreements If so provided in the related Prospectus Supplement, the Trust
Fund may include 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. The Trust Fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate
cap or floor agreements, currency exchange agreements or similar
agreements provided to reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage Assets of one or more classes
of Certificates. The principal terms of any such guaranteed investment
contract or other agreement (any such agreement, a "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 Prospectus Supplement for
the related Series. In addition, the related Prospectus Supplement will
provide certain information with respect to the obligor under any such
Cash Flow Agreement. The Prospectus Supplement for any Series of
Certificates evidencing an interest in a Trust Fund that includes CMBS
will describe any cash flow agreements that are included as part of the
trust fund evidenced by or providing security for such CMBS. See
"Description of the Trust Funds-Cash Flow Agreements."
Description of
Certificates . . . . . Each Series of Certificates evidencing an interest in a Trust Fund that
includes Mortgage Loans as part of its assets will be issued pursuant to a
pooling and servicing agreement, and each Series of Certificates
evidencing an interest in a Trust Fund that does not include Mortgage
Loans will be issued pursuant to a trust agreement. The Mortgage Loans
shall be serviced pursuant to a pooling and servicing agreement and a
servicing agreement. Pooling and servicing agreements, servicing
agreements and trust agreements are referred to herein as the
"Agreements." Each Series of Certificates will include one or more
classes. Each Series of Certificates (including any class or classes of
Certificates of such Series not offered hereby) will represent in the
aggregate the entire beneficial ownership interest in the Trust Fund. Each
class of Certificates (other than certain Stripped Interest Certificates,
as defined below) will have a stated principal amount (a "Certificate
Balance") and (other than certain Stripped Principal Certificates, as
defined below), will accrue interest thereon based on a fixed, variable or
floating interest rate (a "Pass-Through Rate"). The related Prospectus
Supplement will specify the Certificate Balance, if any, and the
Pass-Through Rate, if any, for each class of Certificates or, in the case
of a variable or floating Pass-Through Rate, the method for determining
the Pass-Through Rate.
Distributions on
Certificates . . . . Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon
based on fixed, variable or floating rates; (ii) be senior (collectively,
"Senior Certificates") or subordinate (collectively, "Subordinate
Certificates") to one or more other classes of Certificates in respect of
certain distributions on the Certificates; (iii) be entitled to principal
distributions, with disproportionately low, nominal or no interest
distributions (collectively, "Stripped Principal Certificates"); (iv) be
entitled to interest distributions, with disproportionately low, nominal
or no principal distributions (collectively, "Stripped Interest
Certificates"); (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series
(collectively, "Accrual Certificates"); (vi) provide for distributions of
principal sequentially, based on specified payment schedules or other
methodologies; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph, including a Stripped
Principal Certificate component and a Stripped Interest Certificate
component, to the extent of available funds, in each case as described in
the related Prospectus Supplement. Any such classes may include classes of
Offered Certificates. With respect to Certificates with two or more
components, references herein to Certificate Balance, notional amount and
Pass-Through Rate refer to the principal balance, if any, notional amount,
if any, and the Pass-Through Rate, if any, for any such component.
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, unless otherwise provided in the related Prospectus
Supplement. See "Risk Factors-Limited Assets" and "Description of the
Certificates."
(a) Interest . . . . . . . Interest on each class of Offered Certificates (other than Stripped
Principal Certificates and certain classes of Stripped Interest
Certificates) of each Series will accrue at the applicable Pass-Through
Rate on the outstanding Certificate Balance thereof 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 with respect to interest on
Stripped Interest Certificates may be made on each Distribution Date on
the basis of a notional amount 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, prepayment interest shortfalls, and other contingencies described
herein and in the related Prospectus Supplement. Stripped Principal
Certificates with no stated Pass-Through Rate will not accrue interest.
See "Risk Factors-Average Life of Certificates; Prepayments; Yields,"
"Yield Considerations" and "Description of the Certificates-Distributions
of Interest on the Certificates."
(b) Principal . . . . . The Certificates of each Series initially will have an aggregate
Certificate Balance no greater than the outstanding principal balance of
the Mortgage Assets as of, unless the related Prospectus Supplement
provides otherwise, the close of business on the first day of the month of
formation of the related Trust Fund (the "Cut-off Date"), after
application of scheduled payments due on or before such date, whether or
not received. The Certificate Balance of a Certificate outstanding from
time to time represents the maximum amount that the holder thereof is then
entitled to receive in respect of principal from future cash flow on the
assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto
until the Certificate Balances of such Certificates have been reduced to
zero. Unless otherwise specified in the related Prospectus Supplement,
distributions of principal of any class of Certificates will be made on a
pro rata basis among all of the Certificates of such class or by random
selection, as described in the related Prospectus Supplement or otherwise
established by the related Trustee. Stripped Interest Certificates with no
Certificate Balance will not receive distributions in respect of
principal. See "Description of the Certificates-Distributions of Principal
of the Certificates."
Advances . . . . . . . . . Unless otherwise provided in the related Prospectus Supplement, the
Primary Servicer, the Special Servicer or the Master Servicer (each, a
"Servicer") will be obligated as part of its servicing responsibilities to
make certain advances with respect to delinquent scheduled payments on the
Whole Loans in such Trust Fund which it deems recoverable. Any such
advances will be made under and subject to any determinations or
conditions set forth in the related Prospectus Supplement. Neither the
Depositor nor any of its affiliates will have any responsibility to make
such advances. Advances made by a Master Servicer are reimbursable
generally from subsequent recoveries in respect of such Whole Loans and
otherwise to the extent described herein and in the related Prospectus
Supplement. If and to the extent provided in the Prospectus Supplement for
any "Series," each Servicer will be entitled to receive interest on its
outstanding advances, payable from amounts in the related Trust Fund. The
Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any
corresponding advancing obligation of any person in connection with such
CMBS. See "Description of the Certificates-Advances in Respect of
Delinquencies."
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
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 on and after a date
specified in such Prospectus Supplement, the party specified therein will
solicit bids for the purchase of all of the Mortgage Assets of the Trust
Fund, or of a sufficient portion of such Mortgage Assets to retire such
class or classes, or purchase such Mortgage Assets at a price set forth in
the related Prospectus Supplement. In addition, if so provided in the
related Prospectus Supplement, certain classes of Certificates may be
purchased subject to similar conditions. See "Description of the
Certificates-Termination."
Registration of
Certificates . . . . . If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates will initially be represented by one or more
Certificates registered in the name of Cede & Co., as the nominee of DTC.
No person acquiring an interest in Offered Certificates so registered will
be entitled to receive a definitive certificate representing such person's
interest except in the event that definitive certificates are issued under
the limited circumstances described herein. See "Risk Factors-Book-Entry
Registration" and "Description of the Certificates-Book-Entry Registration
and Definitive Certificates."
Tax Status of the
Certificates . . . . The Certificates of each Series will constitute either (i) "regular
interests" ("REMIC Regular Certificates") or "residual interests" ("REMIC
Residual Certificates") in a Trust Fund treated as a real estate mortgage
investment conduit ("REMIC") under Sections 860A through 860G of the Code,
or (ii) interests ("Grantor Trust Certificates") in a Trust Fund treated
as a grantor trust under applicable provisions of the Code.
(a) REMIC . . . . . . . REMIC Regular Certificates generally will be treated as debt obligations
of the applicable REMIC for federal income tax purposes. Certain REMIC
Regular Certificates may be issued with original issue discount for
federal income tax purposes. See "Certain Federal Income Tax Consequences"
in the Prospectus Supplement.
The Offered Certificates will be treated as (i) "loans" within the meaning
of the assets described in section 7701(a)(19)(C) of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) "real estate assets" within
the meaning of section 856(c)(5)(A) of the Code, in each case to the
extent described herein and in the related Prospectus Supplement. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
(b) Grantor Trust . . . If no election is made to treat the Trust Fund relating to a Series of
Certificates as a REMIC, the Trust Fund will be classified as a grantor
trust and not as an association taxable as a corporation for federal
income tax purposes, and therefore holders of Certificates will be treated
as the owners of undivided pro rata interest in the Mortgage Pool or pool
of securities and any other assets held by the Trust Fund.
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. . . . A fiduciary of an employee benefit plan 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
is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code should carefully review
with its 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.
Certain classes of Certificates may not be transferred unless the Trustee
and the Depositor are furnished with a letter of representations or an
opinion of counsel to the effect that such transfer will not result in a
violation of the prohibited transaction provisions of ERISA and the Code
and will not subject the Trustee, the Depositor or the Master Servicer to
additional obligations. See "Description of the Certificates-General" and
"ERISA Considerations."
Legal Investment. . . . . The related Prospectus Supplement will specify whether the Offered
Certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984. Investors whose
investment authority is subject to legal restrictions should consult their
own 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 the date of issuance, as to each Series, 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.
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.
</TABLE>
Risk Factors
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
Limited Liquidity
There can be no assurance that a secondary market for the Certificates of any
Series will develop or, if it does develop, that it will provide holders with
liquidity of investment or will continue while Certificates of such
Series remain outstanding. Any such secondary market may provide less
liquidity to investors than any comparable market for securities evidencing
interests in single family mortgage loans. The market value of Certificates
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of Certificates by a holder in any secondary market that may develop may
be at a discount from 100% of their original principal balance or from their
purchase price. Furthermore, secondary market purchasers may look only
hereto, to the related Prospectus Supplement and to the reports to
Certificateholders delivered pursuant to the related Agreement as described
herein under the heading "Description of the Certificates-Reports to
Certificateholders," "-Book-Entry Registration and Definitive Certificates"
and "Description of the Agreements-Evidence as to Compliance" for information
concerning the Certificates. Except to the extent described herein and in the
related Prospectus Supplement, Certificateholders will have no redemption
rights and the Certificates are subject to early retirement only under
certain specified circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates-Termination."
Limited Assets
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Mortgage Assets will be the
obligations (if any) of the Depositor (or, if otherwise provided in the
related Prospectus Supplement, the person identified therein as the person
making certain representations and warranties with respect to the Mortgage
Loans, as applicable, the "Warrantying Party") pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans. Since
certain representations and warranties with respect to the Mortgage Assets
may have been made and/or assigned in connection with transfers of such
Mortgage Assets prior to the Closing Date, the rights of the Trustee and the
Certificateholders with respect to such representations or warranties will be
limited to their rights as an assignee thereof. Unless otherwise specified in
the related Prospectus Supplement, none of the Depositor, any Servicer or any
affiliate thereof will have any obligation with respect to representations or
warranties made by any other entity. Unless otherwise specified in the
related Prospectus Supplement, neither the Certificates nor the underlying
Mortgage Assets will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, any Servicer or any of their
affiliates. Proceeds of the assets included in the related Trust Fund for
each Series of Certificates (including the Mortgage Assets and any form of
credit enhancement) will be the sole source of payments on the Certificates,
and there will be no recourse to the Depositor or any other entity in the
event that such proceeds are insufficient or otherwise unavailable to make
all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
Series of Certificates will not have any claim against or security interest
in the Trust Funds for any other Series. If the related Trust Fund is
insufficient to make payments on such Certificates, no other assets will be
available for payment of the deficiency. Additionally, certain amounts
remaining in certain funds or accounts, including the Distribution Account,
the Trust Master Collection Account, Trust Primary Collection Account and
Trust REO Account and any accounts maintained as Credit Support, may be
withdrawn under certain conditions, as described in the related Prospectus
Supplement. In the event of such withdrawal, such amounts will not be
available for future payment of principal of or interest on the Certificates.
If 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 Trust Assets have been incurred, 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.
Prepayments and Effect on Average Life of Certificates and Yields
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on
the Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans
varies between pools and from time to time is influenced by a variety of
economic, demographic, geographic, social, tax, legal and other factors.
There can be no assurance as to the rate of prepayment on the Mortgage Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage interest rates,
principal prepayments are likely to be higher than if prevailing rates remain
at or above the rates borne by the Mortgage Loans underlying or comprising
the Mortgage Assets in any Trust Fund. As a result, the actual maturity of
any class of Certificates could occur significantly earlier than expected. A
Series of Certificates may include one or more classes of Certificates with
priorities of payment and, as a result, yields on other classes of
Certificates, including classes of Offered Certificates, of such Series may
be more sensitive to prepayments on Mortgage Assets. A Series of Certificates
may include one or more classes offered at a significant premium or discount.
Yields on such classes of Certificates will be sensitive, and in some cases
extremely sensitive, to prepayments on Mortgage Assets and, where the amount
of interest payable with respect to a class is disproportionately high, as
compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A Series of Certificates may include one or
more classes of Certificates, including classes of Offered Certificates, that
provide for distribution of principal thereof from amounts attributable to
interest accrued but not currently distributable on one or more classes of
Accrual Certificates and, as a result, yields on such Certificates will be
sensitive to (a) the provisions of such Accrual Certificates relating to the
timing of distributions of interest thereon and (b) if such Accrual
Certificates accrue interest at a variable or floating Pass-Through Rate,
changes in such rate. See "Yield Considerations" herein and, if applicable,
in the related Prospectus Supplement.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets 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
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an
investor purchasing a Certificate at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios. Each
Prospectus Supplement will identify any payment to which holders of Offered
Certificates of the related Series are entitled that is not covered by the
applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such "Series."
Such criteria are sometimes based upon an actuarial analysis of the behavior
of mortgage loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit support required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of mortgage loans accurately predicts the delinquency, foreclosure
or loss experience of any particular pool of Mortgage Assets. No assurance
can be given that values of any Mortgaged Properties have remained or will
remain at their levels on the respective dates of origination of the related
Mortgage Loans. Moreover, there is no assurance that appreciation of real
estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by Mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect
to any Trust Fund. To the extent that such losses are not covered by the
Credit Support, if any, described in the related Prospectus Supplement, such
losses will be borne, at least in part, by the holders of one or more classes
of the Certificates of the related Series. See "Description of Credit
Support" and "Rating."
Risks Associated with Mortgage Loans and Mortgaged Properties
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds-Assets." The ability of a
Mortgagor to repay a loan secured by an income-producing property typically
is dependent primarily upon the successful operation of such property rather
than any independent income or assets of the Mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a Mortgagor to repay
a single family loan typically is dependent primarily upon the Mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the Mortgagor's income tends not to
reflect directly the value of such property. A decline in the net operating
income of an income-producing property will likely affect both the
performance of the related loan as well as the liquidation value of such
property, whereas a decline in the income of a Mortgagor on a single family
property will likely affect the performance of the related loan but may not
affect the liquidation value of such property. Moreover, a decline in the
value of a Mortgaged Property will increase the risk of loss particularly
with respect to any related junior Mortgage Loan. See "-Junior Mortgage
Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the Mortgagor to tenants as well as the liquidation value
of such property may be dependent upon the business operated by such tenants
in connection with such property, the creditworthiness of such tenants or
both; the risks associated with such loans may be offset by the number of
tenants or, if applicable, a diversity of types of business operated by such
tenants.
It is anticipated that a substantial portion 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 which, in the event of
Mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related
Mortgage Loan. With respect to those Mortgage Loans that provide for recourse
against the Mortgagor and its assets generally, there can be no assurance
that such recourse will ensure a recovery in respect of a defaulted Mortgage
Loan greater than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single family
pool of comparable aggregate unpaid principal balance and because of the
higher principal balance of individual Mortgage Loans. Mortgage Assets in a
Trust Fund may consist of only a single or limited number of Mortgage Loans
and/or relate to Leases to only a single Lessee or a limited number of
Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a
Series of Certificates may be described in the related Prospectus Supplement.
See also "Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
Risks Associated with Commercial Loans and Leases
If so described in the related Prospectus Supplement, each Mortgagor under a
Commercial Loan may be an entity created by the owner or purchaser of the
related Commercial Property solely to own or purchase such property, in part
to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will
represent a nonrecourse obligation of the related Mortgagor secured by the
lien of the related Mortgage and the related Lease Assignments. Whether or
not such loans are recourse or nonrecourse obligations, it is not expected
that the Mortgagors will have any significant assets other than the
Commercial Properties and the related Leases, which will be pledged to the
Trustee under the related Agreement. Therefore, the payment of amounts due on
any such Commercial Loans, and, consequently, the payment of principal of and
interest on the related Certificates, will depend primarily or solely on
rental payments by the Lessees. Such rental payments will, in turn, depend on
continued occupancy by, and/or the creditworthiness of, such Lessees, which
in either case may be adversely affected by a general economic downturn or an
adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hotel or motel), the value of such property in the
event of a default by the Lessee or the early termination of such Lease may
be adversely affected because of difficulty in re-leasing the property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another more
marketable use. As a result, without the benefit of the Lessee's continued
support of the Commercial Property, and absent significant amortization of
the Commercial Loan, if such loan is foreclosed on and the Commercial
Property liquidated following a lease default, the net proceeds might be
insufficient to cover the outstanding principal and interest owing on such
loan, thereby increasing the risk that holders of the Certificates will
suffer some loss.
Balloon Payments
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Mortgage Loans with balloon payments involve a greater
degree of risk because the ability of a Mortgagor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or
to timely sell the related Mortgaged Property. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale
or refinancing, the Mortgagor's equity in the related Mortgaged Property, the
financial condition and operating history of the Mortgagor and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
Multifamily Properties and mobile home parks), reimbursement rates (with
respect to certain nursing homes), renewability of operating licenses,
prevailing general economic conditions and the availability of credit for
commercial or multifamily real properties, as the case may be, generally.
Junior Mortgage Loans
To the extent specified in the related Prospectus Supplement, certain of the
Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans
will be greater with respect to junior Mortgage Loans. See "-Risks Associated
with Mortgage Loans and Mortgaged Properties."
Obligor Default
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer or a Special Servicer
will be permitted (within prescribed parameters) to extend and modify Whole
Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a
Master Servicer or a Special Servicer may receive a workout fee based on
receipts from or proceeds of such Whole Loans. While any such entity
generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery on a present
value basis than liquidation, there can be no assurance that such flexibility
with respect to extensions or modifications or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that
are in default or as to which a payment default is imminent. Additionally, if
so specified in the related Prospectus Supplement, certain of the Mortgage
Loans included in the Mortgage Pool for a Series may have been subject to
workouts or similar arrangements following periods of delinquency and
default.
Mortgagor Type
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication
and form of organization may increase the likelihood of protracted litigation
or bankruptcy in default situations.
Credit Support Limitations
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. 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 or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
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 risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or
more classes of Certificates of a Series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related Credit Support may be exhausted before the principal of the lower
priority classes of Certificates of such Series has been repaid. As a result,
the impact of significant losses and shortfalls on the Trust Assets may fall
primarily upon those classes of Certificates having a lower priority of
payment. Moreover, if a form of Credit Support covers more than one Series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
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, other losses or other
factors. There can, however, be no assurance that the loss experience on the
related Mortgage Assets will not exceed such assumed levels. See "-Limited
Nature of Ratings," "Description of the Certificates" and "Description of
Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all
or a portion of the credit enhancement for any Series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any Series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance
thereof as a result of the downgrading of the obligations of any applicable
credit support provider, or as a result of losses on the related Mortgage
Assets substantially in excess of the levels contemplated by such Rating
Agency at the time of its initial rating analysis. None of the Depositor, the
Master Servicer or any of their affiliates will have any obligation to
replace or supplement any credit enhancement, or to take any other action to
maintain any rating of any Series of Certificates.
Enforceability
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the Mortgagor sells,
transfers or conveys the related Mortgaged Property or its interest in the
Mortgaged Property. Mortgages may also include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary or
non-monetary 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.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the Mortgagor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments are typically not perfected as
security interests prior to actual possession of the cash flows. 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 Mortgagor, the lender's ability to collect
the rents may be adversely affected. See "Certain Legal Aspects of the
Mortgage Loans and the Leases-Leases and Rents."
Environmental Risks
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a 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 the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") a lender may be liable, as
an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the Mortgagor, regardless of whether or not the environmental
damage or threat was caused by a prior owner. A lender also risks such
liability on foreclosure of the mortgage. Each Pooling and Servicing
Agreement will provide that no Servicer, acting on behalf of the Trust Fund,
may acquire title to a Mortgaged Property securing a Mortgage Loan or take
over its operation unless such Servicer has previously determined, based upon
a report prepared by a person who regularly conducts environmental audits,
that: (i) the Mortgaged Property is in compliance with applicable
environmental laws or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a percent value basis, after taking into account any
risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the Mortgaged Property relating to the use,
management or disposal of any Hazardous Materials (as defined herein) for
which investigation, testing, monitoring, containment, cleanup or remediation
could be required under any federal, state or local law or regulation, or
that, if any Hazardous Materials are present for which such action would be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a percent value basis,
after taking into account any risks associated therewith, than not taking
such actions. Any additional restrictions on acquiring title to a Mortgaged
Property may be set forth in the related Prospectus Supplement. See "Certain
Legal Aspects of the Mortgage Loans and the Leases-Environmental
Legislation."
Delinquent and Non-Performing Mortgage Loans
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 non-performing. Unless otherwise described in the related
Prospectus Supplement, the servicing of such Mortgage Loans as to which a
specified number of payments are delinquent 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 on the Mortgage Assets in such Trust Fund
and the yield on the Certificates of such series.
Risks Associated With Mortgaged Properties Not Located in the United States
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans secured by
Mortgaged Properties not located in the United States. The related Prospectus
Supplement will set forth certain material risks associated with such
Mortgage Loans which are different and additional to those associated with
similar properties in the United States including restrictions on enforcement
of the rights of the holder of the related Mortgage Notes, currency exchange
rate fluctuations, currency exchange controls and general trends or
conditions in the related real estate market.
ERISA Considerations
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject
to ERISA are urged to consult their own counsel regarding consequences under
ERISA of acquisition, ownership and disposition of the Offered Certificates
of any Series.
Certain Federal Tax Considerations Regarding REMIC Residual Certificates
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of
the taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Certain Federal Income Tax
Consequences-REMICs." Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. Individual
holders of REMIC Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, REMIC
Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the
taxable income arising in a given year on a REMIC Residual Certificate will
not be equal to the taxable income associated with investment in a corporate
bond or stripped instrument having similar cash flow characteristics and
pre-tax yield. Therefore, the after-tax yield on the REMIC Residual
Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics. Additionally,
prospective purchasers of a REMIC Residual Certificate should be aware that
recently finalized regulations provide that REMIC residual interests cannot
be marked to market. See "Certain Federal Income Tax Consequences-REMICs."
Control
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making
under the related Agreement ("Voting Rights") will be required to direct, and
will be sufficient to bind all Certificateholders of such Series to, certain
actions, including directing the Special Servicer or the Master Servicer with
respect to actions to be taken with respect to certain Mortgage Loans and REO
Properties and amending the related Agreement in certain circumstances. See
"Description of the Agreements-Events of Default," "-Rights Upon Event of
Default," "-Amendment" and "-List of Certificateholders."
Book-Entry Registration
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Beneficial Owners or their nominees. Because
of this, unless and until Definitive Certificates are issued, Beneficial
Owners will not be recognized by the Trustee as "Certificateholders" (as that
term is to be used in the related Agreement). Hence, until such time,
Beneficial Owners will be able to exercise the rights of Certificateholders
only indirectly through DTC and its participating organizations. See
"Description of the Certificates-Book-Entry Registration and Definitive
Certificates."
Description of the Trust Funds
Assets
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans (the "Mortgage Loans"),
(ii) mortgage participations, pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by one or more
Mortgage Loans or other similar participations, certificates or securities
(collectively, the "CMBS"), or (iii) a combination of Mortgage Loans and
CMBS. As used herein, "Mortgage Loans" refers to both whole Mortgage Loans
and Mortgage Loans underlying CMBS. Mortgage Loans that secure, or interests
in which are evidenced by, CMBS are herein sometimes referred to as
"Underlying Mortgage Loans." Mortgage Loans that are not Underlying Mortgage
Loans are sometimes referred to as "Whole Loans." Any mortgage
participations, pass-through certificates or other asset-backed certificates
in which an CMBS evidences an interest or which secure an CMBS are sometimes
referred to herein also as CMBS or as "Underlying CMBS." Mortgage Loans and
CMBS are sometimes referred to herein as "Mortgage Assets." No CMBS
originally issued in a private placement will be included as an asset of a
Trust Fund until the holding period provided for under Rule 144(k)
promulgated under the Securities Act of 1933, as amended, has expired or such
CMBS has been registered under the Securities Act of 1933, as amended. The
Mortgage Assets will not be guaranteed or insured by J.P. Morgan Commercial
Mortgage Finance Corp. (the "Depositor") or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental agency
or instrumentality or by any other person. 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 (an
"Asset Seller"), which may be an affiliate of the Depositor and, with respect
to Mortgage Assets, which prior holder may or may not be the originator of
such Mortgage Loan or the issuer of such CMBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of
any other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
certificates representing beneficial ownership interests in another trust
fund that contains the Mortgage Assets.
Mortgage Loans
General
The Mortgage Loans will be secured by liens on, or security interests in,
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 ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail centers,
hotels or motels, nursing homes, congregate care facilities, industrial
properties, mini-warehouse facilities or self-storage facilities, mobile home
parks, mixed use or other types of commercial properties ("Commercial
Properties" and the related loans, "Commercial Loans") located, unless
otherwise specified in the related Prospectus Supplement, in any one of the
fifty states, the District of Columbia or the Commonwealth of Puerto Rico. To
the extent specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by first mortgages or deeds of trust or other similar
security instruments creating a first lien on Mortgaged Property. Multifamily
Property may include mixed commercial and residential structures and may
include apartment buildings owned by private cooperative housing corporations
("Cooperatives"). The Mortgaged Properties may include leasehold interests in
properties, the title to which is held by third party lessors. The Prospectus
Supplement will specify whether the term of any such leasehold exceeds the
term of the mortgage note by at least ten years. Each Mortgage Loan will have
been originated by a person (the "Originator") other than the Depositor. The
related Prospectus Supplement will indicate if any Originator is an affiliate
of the Depositor. The Mortgage Loans will be evidenced by promissory notes
(the "Mortgage Notes") secured by mortgages or deeds of trust (the
"Mortgages") creating a lien on the Mortgaged Properties. Mortgage Loans will
generally also be secured by an assignment of leases and rents and/or
operating or other cash flow guarantees relating to the Mortgage Loan.
Leases
To the extent specified in the related Prospectus Supplement, the Commercial
Properties may be leased to Lessees that respectively occupy all or a portion
of such properties. Pursuant to a Lease Assignment, the related Mortgagor may
assign its rights, title and interest as lessor under each Lease and the
income derived therefrom to the related mortgagee, while retaining a license
to collect the rents for so long as there is no default. If the Mortgagor
defaults, the license terminates and the mortgagee or its agent is entitled
to collect the rents from the related Lessee or Lessees for application to
the monetary obligations of the Mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed.
See "Certain Legal Aspects of the Mortgage Loans and the Leases-Leases and
Rents." Alternatively, to the extent specified in the related Prospectus
Supplement, the Mortgagor and the mortgagee may agree that payments under
Leases are to be made directly to a Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to
cover all scheduled payments of principal and interest on the related
Mortgage Loans and, in certain cases, their pro rata share of the operating
expenses, insurance premiums and real estate taxes associated with the
Mortgaged Properties. Certain of the Leases may require the Mortgagor to bear
costs associated with structural repairs and/or the maintenance of the
exterior or other portions of the Mortgaged Property or provide for certain
limits on the aggregate amount of operating expenses, insurance premiums,
taxes and other expenses that the Lessees are required to pay. If so
specified in the related Prospectus Supplement, under certain circumstances
the Lessees may be permitted to set off their rental obligations against the
obligations of the Mortgagors under the Leases. In those cases where payments
under the Leases (net of any operating expenses payable by the Mortgagors)
are insufficient to pay all of the scheduled principal and interest on the
related Mortgage Loans, the Mortgagors must rely on other income or sources
(including security deposits) generated by the related Mortgaged Property to
make payments on the related Mortgage Loan. To the extent specified in the
related Prospectus Supplement, some Commercial Properties may be leased
entirely to one Lessee. In such cases, absent the availability of other
funds, the Mortgagor must rely entirely on rent paid by such Lessee in order
for the Mortgagor to pay all of the scheduled principal and interest on the
related Commercial Loan. To the extent specified in the related Prospectus
Supplement, certain of the Leases may expire prior to the stated maturity of
the related Mortgage Loan. In such cases, upon expiration of the Leases the
Mortgagors will have to look to alternative sources of income, including rent
payment by any new Lessees or proceeds from the sale or refinancing of the
Mortgaged Property, to cover the payments of principal and interest due on
such Mortgage Loans unless the Lease is renewed. As specified in the related
Prospectus Supplement, certain of the Leases may provide that upon the
occurrence of a casualty affecting a Mortgaged Property, the Lessee will have
the right to terminate its Lease, unless the Mortgagor, as lessor, is able to
cause the Mortgaged Property to be restored within a specified period of
time. Certain Leases may provide that it is the lessor's responsibility,
while other Leases provide that it is the Lessee's responsibility, to restore
the Mortgaged Property after a casualty to its original condition. Certain
Leases may provide a right of termination to the related Lessee if a taking
of a material or specified percentage of the leased space in the Mortgaged
Property occurs, or if the ingress or egress to the leased space has been
materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are markedly
different from owner-occupied single family mortgage loans. The repayment of
loans secured by commercial or multifamily properties is typically dependent
upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and
not to any other of the Mortgagor's assets, in the event of the Mortgagor's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan
at any given time is the ratio of the Net Operating Income for a twelve-month
period to the annualized scheduled payments on the Mortgage Loan. "Net
Operating Income" means, for any given period, unless otherwise specified in
the related Prospectus Supplement, 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) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans secured by the Mortgaged
Property. The Net Operating Income of a Mortgaged Property will fluctuate
over time and may be sufficient or insufficient to cover debt service on the
related Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject
to the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
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 leased, occupied or used for
longer periods, such as (typically) retail centers, office buildings and
industrial properties. Commercial Loans may be secured by owner-occupied
Mortgaged Properties or Mortgaged Properties leased to a single tenant.
Accordingly, a decline in the financial condition of the Mortgagor or single
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.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
property tax rates and other operating expenses, including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of
default on the related 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 Mortgagor, is responsible for
payment of some or all of these expenses; however, because leases are subject
to default risks as well when a tenant's income is insufficient to cover its
rent and operating expenses, the existence of such "net of expense"
provisions will only temper, not eliminate, the impact of expense increases
on the performance of the related Mortgage Loan. See "-Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities, the income
from which and the operating expenses of which are subject to state and/or
federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of
the property. Low- and moderate-income housing in particular may be subject
to legal limitations and regulations but, because of such regulations, may
also be less sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon
Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage
Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the
Loan-to-Value Ratio of a mortgage loan as a measure of risk of loss if a
property must be liquidated upon a default by the Mortgagor.
Appraised values of income-producing properties may be 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 presents analytical challenges. 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. Where more than one of these appraisal methods are used and create
significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio (or vice versa), the analysis
of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the
Multifamily and Commercial Loans, or that, for any of such Mortgage Loans,
they are complete or relevant. See "Risk Factors-Risks Associated with
Mortgage Loans and Mortgaged Properties," "-Balloon Payments," "-Junior
Mortgage Loans," "-Obligor Default" and "-Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of
a Mortgaged Property, other than with respect to Refinance Loans, is
generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales
price for such property. "Refinance Loans" are loans made to refinance
existing loans. Unless otherwise set forth in the related Prospectus
Supplement, the Value of the Mortgaged Property securing a Refinance Loan is
the appraised value thereof determined in an appraisal obtained at the time
of origination of the Refinance Loan. 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 at origination and will fluctuate from time to time based
upon changes in economic conditions and the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios
at origination of the Mortgage Loans, (vi) the Mortgage Interest Rates or
range of Mortgage Interest Rates and the weighted average Mortgage Interest
Rate borne by the Mortgage Loans, (vii) the state or states in which most of
the Mortgaged Properties are located, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted
average Retained Interest, if any, (x) with respect to Mortgage Loans with
floating Mortgage Interest Rates ("ARM Loans"), the index, the frequency of
the adjustment dates, the highest, lowest and weighted average note margin
and pass-through margin, and the maximum Mortgage Interest Rate or monthly
payment variation at the time of any adjustment thereof and over the life of
the ARM Loan and the frequency of such monthly payment adjustments, (xi) the
Debt Service Coverage Ratio either at origination or as of a more recent date
(or both) and (xii) information regarding the payment characteristics of the
Mortgage Loans, including without limitation balloon payment and other
amortization provisions. The related Prospectus Supplement will also contain
certain information available to the Depositor with respect to the provisions
of leases and the nature of tenants of the Mortgaged Properties and other
information referred to in a general manner under "-Mortgage Loans-Default
and Loss Considerations with Respect to the Mortgage Loans" above. If
specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report which will
be available to purchasers of the related Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days
after such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have original terms to maturity of not more than 40
years and (ii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan may provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Interest Rate") that is fixed over
its term or that adjusts from time to time, or that is partially fixed and
partially floating, or that may be converted from a floating to a fixed
Mortgage Interest Rate, or from a fixed to a floating Mortgage Interest Rate,
from time to time pursuant to an election or as otherwise specified on the
related Mortgage Note, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may provide for scheduled payments to maturity
or payments that adjust from time to time to accommodate changes in the
Mortgage Interest Rate or to reflect the occurrence of certain events, and
may provide for negative amortization or accelerated amortization, in each
case as described in the related Prospectus Supplement. Each Mortgage Loan
may be fully amortizing or require a balloon payment due on its stated
maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment (a
"Lock-out Period" and the date of expiration thereof, a "Lock-out Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("Equity Participations"), as described
in the related Prospectus Supplement. In the event that holders of any class
or classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the
terms and provisions of the Equity Participation and the method or methods by
which distributions in respect thereof will be allocated among such
Certificates.
CMBS
Any CMBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "CMBS Agreement"). A seller (the "CMBS Issuer")
and/or servicer (the "CMBS Servicer") of the underlying Mortgage Loans (or
Underlying CMBS) will have entered into the CMBS Agreement with a trustee or
a custodian under the CMBS Agreement (the "CMBS Trustee"), if any, or with
the original purchaser of the interest in the underlying Mortgage Loans or
CMBS evidenced by the CMBS.
Distributions of any principal or interest, as applicable, will be made
on CMBS on the dates specified in the related Prospectus Supplement. The CMBS
may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. Any principal or
interest distributions will be made on the CMBS by the CMBS Trustee or the
CMBS Servicer. The CMBS Issuer or the CMBS Servicer or another person
specified in the related Prospectus Supplement may have the right or
obligation to repurchase or substitute assets underlying the CMBS after a
certain date or under other circumstances specified in the related Prospectus
Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the CMBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying CMBS
evidenced by or securing such CMBS and other factors and generally will have
been established for the CMBS on the basis of requirements of either any
Rating Agency that may have assigned a rating to the CMBS or the initial
purchasers of the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included
in the Trust Fund, (ii) the original and remaining term to stated maturity of
the CMBS, if applicable, (iii) whether such CMBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or
bond rate of the CMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the CMBS, including, but not limited to,
any priorities, payment schedules and subordination features, (vi) the CMBS
Issuer, CMBS Servicer and CMBS Trustee, as applicable, (vii) certain
characteristics of the credit support, if any, such as subordination, reserve
funds, insurance policies, letters of credit or guarantees relating to the
related Underlying Mortgage Loans, the Underlying CMBS or directly to such
CMBS, (viii) the terms on which the related Underlying Mortgage Loans or
Underlying CMBS for such CMBS or the CMBS may, or are required to, be
purchased prior to their maturity, (ix) the terms on which Mortgage Loans or
Underlying CMBS may be substituted for those originally underlying the CMBS,
(x) the servicing fees payable under the CMBS Agreement, (xi) to the extent
available to the Depositor, the type of information in respect of the
Underlying Mortgage Loans described under "-Mortgage Loans-Mortgage Loan
Information in Prospectus Supplements" above, and the type of information in
respect of the Underlying CMBS described in this paragraph, (xii) the
characteristics of any cash flow agreements that are included as part of the
trust fund evidenced or secured by the CMBS and (xiii) whether the CMBS is in
certificated form, book-entry form or held through a depository such as The
Depository Trust Company or the Participants Trust Company.
Accounts
Each Trust Fund will include one or more accounts established and maintained
on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Mortgage Assets and other assets in
the Trust Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreement-Distribution Account and Other Collection Accounts."
Credit Support
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related Series in the form of subordination of one or more other classes
of Certificates in such Series 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").
The amount and types of coverage, the identification of the entity providing
the coverage (if applicable) and related information with respect to each
type of Credit Support, if any, will be described 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 related Prospectus Supplement, the Trust Fund may
include 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. The Trust Fund may also include certain other agreements,
such as interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency exchange rate fluctuations on
the Mortgage Assets or on one or more classes of Certificates. The principal
terms of any such guaranteed investment contract or other agreement (any such
agreement, a "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
Prospectus Supplement for the related Series. In addition, the related
Prospectus Supplement will provide certain information with respect to the
obligor under any such Cash Flow Agreement.
Use of Proceeds
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets and to pay for
certain expenses incurred in connection with such purchase of Trust Assets
and sale of Certificates. 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.
Yield Considerations
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund (which may be
affected by prepayments, defaults, liquidations or repurchases). See "Risk
Factors."
Pass-Through Rate
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets 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 such Certificates or, in the case of a
variable or floating Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Asset on the Pass-Through Rate of one or more classes of Certificates; and
whether the distributions of interest on the Certificates of any class will
be dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Certificate because,
while interest may accrue on each Mortgage Asset during a certain period, the
distribution of such interest will be made on a day which may be several
days, weeks or months following the period of accrual.
Timing of Payment of Interest
Each payment of interest on the Certificates (or addition to the Certificate
Balance of a class of Accrual Certificates) on a Distribution Date will
include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "-The Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related Series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended
on such Distribution Date. In addition, if so specified in the related
Prospectus Supplement, interest accrued for an Interest Accrual Period for
one or more classes of Certificates may be calculated on the assumption that
distributions of principal (and additions to the Certificate Balance of
Accrual Certificates) and allocations of losses on the Mortgage Assets may be
made on the first day of the Interest Accrual Period for a Distribution Date
and not on such Distribution Date. Such method would produce a lower
effective yield than if interest were calculated on the basis of the actual
principal amount outstanding during an Interest Accrual Period. The Interest
Accrual Period for any class of Offered Certificates will be described in the
related Prospectus Supplement.
Payments of Principal; Prepayments
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from voluntary prepayments by the Mortgagors,
insurance proceeds, condemnations and involuntary liquidations). Such
payments may be directly dependent upon the payments on Leases underlying
such Mortgage Loans. The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest Rates on the
Mortgage Loans comprising or underlying the Mortgage Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. In this regard, it should be noted that certain
Mortgage Assets may consist of Mortgage Loans with different Mortgage
Interest Rates and the stated pass-through or pay-through interest rate of
certain CMBS may be a number of percentage points higher or lower than
certain of the underlying Mortgage Loans. The rate of principal payments on
some or all of the classes of Certificates of a Series will correspond to the
rate of principal payments on the Mortgage Assets in the related Trust Fund
and is likely to be affected by the existence of Lock-out Periods and
Prepayment Premium provisions of the Mortgage Loans underlying or comprising
such Mortgage Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Mortgage Loans without such provisions,
with shorter Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
Conversely, if the purchaser of a Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of distributions
of principal that is slower than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
In either case, if so provided in the Prospectus Supplement for a Series of
Certificates, the effect on yield on one or more classes of the Certificates
of such Series of prepayments of the Mortgage Assets in the related Trust
Fund may be mitigated or exacerbated by any provisions for sequential or
selective distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest
paid in the following month to holders of Certificates entitled to payments
of interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the
month in which such partial prepayment is received. As a result, unless
otherwise specified in the related Prospectus Supplement, the effect of a
partial prepayment on a Mortgage Loan will be to reduce the amount of
interest passed through to holders of Certificates in the month following the
receipt of such partial prepayment by an amount equal to one month's interest
at the applicable Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
Prepayments-Maturity and Weighted Average Life
The rates at which principal payments are received on the Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for the related Series of
Certificates may affect the ultimate maturity and the weighted average life
of each class of such "Series." Prepayments on the Mortgage Loans comprising
or underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes
of the Certificates of the related "Series."
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis
of the assumptions applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets
is paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund have actual terms to maturity of
less than those assumed in calculating final scheduled Distribution Dates for
the classes of Certificates of the related Series, one or more classes of
such Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Interest Rates and maturities of the Mortgage
Loans comprising or underlying such Mortgage Assets. See "Description of the
Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans.
Neither CPR 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 pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was
developed based upon historical prepayment experience for single family
loans. Thus, it is likely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any Series will not conform to any
particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
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 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 Mortgage Loans comprising or underlying the related Mortgage Assets
are made at rates corresponding to various percentages of CPR or at such
other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average
life of the Certificates to various prepayment rates and will not be intended
to predict or to provide information that will enable investors to predict
the actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any Series will conform to any particular level of CPR or any other rate
specified in the related Prospectus Supplement.
Other Factors Affecting Weighted Average Life
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a Mortgagor 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 risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the Mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement be permitted 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
will tend to extend the weighted average life of the Certificates, thereby
lengthening the period of time elapsed from the date of issuance of a
Certificate until it is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets 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 life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related Series of Certificates. 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, may also have an effect upon the payment patterns of particular
Mortgage Loans and thus the weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or the
creation of encumbrances upon underlying Mortgaged Property is another factor
affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of
the Mortgage Loans comprising or underlying the Mortgage Assets may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder
of the Mortgage Loans to demand payment in full of the remaining principal
balance of the Mortgage Loans upon sale or certain other transfers of or the
creation of encumbrances upon the related Mortgaged Property. With respect to
any Whole Loans, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will be
required to exercise (or waive its right to exercise) any such right that the
Trustee may have as mortgagee to accelerate payment of the Whole Loan in a
manner consistent with the Servicing Standard. See "Certain Legal Aspects of
the Mortgage Loans and the Leases-Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements-Due-on-Sale and Due-on-Encumbrance
Provisions."
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect
to the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in
determining prepayment experience on a single Mortgage Loan or with respect
to a single Mortgagor.
The Depositor
J.P Morgan Commercial Mortgage Finance Corp., the Depositor, is an indirect
wholly-owned subsidiary of J.P Morgan & Co. Incorporated and was incorporated
in the State of Delaware on September 19, 1994. The principal executive
offices of the Depositor are located at 60 Wall Street, New York, New York
10260-0060. Its telephone number is (212) 648-3636.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
Description of the Certificates
General
The Certificates of each Series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
floating rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest
distributions, with disproportionately low, nominal or no principal
distributions (collectively, "Stripped Interest Certificates"); (v) provide
for distributions of accrued interest thereon commencing only following the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such Series (collectively, "Accrual
Certificates"); (vi) provide for payments of principal sequentially, based on
specified payment schedules, from only a portion of the Trust Assets in such
Trust Fund or based on specified calculations, to the extent of available
funds, in each case as described in the related Prospectus Supplement; and/or
(vii) provide for distributions based on a combination of two or more
components thereof with one or more of the characteristics described in this
paragraph including a Stripped Principal Certificate component and a Stripped
Interest Certificate component. Any such classes may include classes of
Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of
Stripped Interest Certificates, notional amounts or percentage interests
specified in the related Prospectus Supplement. The transfer of any Offered
Certificates may be registered and such Certificates may be exchanged without
the payment of any service charge payable in connection with such
registration of transfer or exchange, but the Depositor or the Trustee or any
agent thereof may require payment of a sum sufficient to cover any tax or
other governmental charge. One or more classes of Certificates of a
Series may be issued in definitive form ("Definitive Certificates") or in
book-entry form ("Book-Entry Certificates"), as provided in the related
Prospectus Supplement. See "Risk Factors-Book-Entry Registration" and
"Description of the Certificates-Book-Entry Registration and Definitive
Certificates." Definitive Certificates will be exchangeable for other
Certificates of the same class and Series of a like aggregate Certificate
Balance, notional amount or percentage interest but of different authorized
denominations. See "Risk Factors Limited Liquidity" and "Limited Assets."
Distributions
Distributions on the Certificates of each Series will be made by or on behalf
of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such
Series and such Distribution Date. Except as otherwise specified in the
related Prospectus Supplement, distributions (other than the final
distribution) will be made to the persons in whose names the Certificates are
registered at the close of business on the last business day of the month
preceding the month in which the Distribution Date occurs (the "Record
Date"), and the amount of each distribution will be determined as of the
close of business on the date specified in the related Prospectus Supplement
(the "Determination Date"). 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 or by random selection, as described
in the related Prospectus Supplement or otherwise established by the related
Trustee. 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
so notified the Trustee or other person required to make such payments no
later than the date specified in the related Prospectus Supplement (and, if
so provided in the related Prospectus Supplement, holds Certificates in the
requisite amount specified therein), or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of the Certificates
(whether Definitive Certificates or Book-Entry Certificates) will be made
only upon presentation and surrender of the Certificates at the location
specified in the notice to Certificateholders of such final distribution.
Available Distribution Amount
All distributions on the Certificates of each Series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement.
Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of
the following amounts: (i)the total amount of all cash on deposit in the
related Distribution Account as of the corresponding Determination Date,
including Servicer advances, net of any scheduled payments due and payable
after such Distribution Date; (ii)interest or investment income on amounts on
deposit in the Distribution Account, including any net amounts paid under any
Cash Flow Agreements; and (iii)to the extent not on deposit in the related
Distribution Account as of the corresponding Determination Date, any amounts
collected under, from or in respect of any Credit Support with respect to
such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
Distributions of Interest on the Certificates
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which will be a fixed, variable or floating rate at which
interest will accrue on such class or a component thereof (the "Pass-Through
Rate"). The related Prospectus Supplement will specify the Pass-Through Rate
for each class or component or, in the case of a variable or floating
Pass-Through Rate, the method for determining the Pass-Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any 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 any class of Stripped
Principal Certificates that are not entitled to any distributions of
interest) based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of the portion 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. With respect to each class of Certificates and each Distribution Date
(other than certain classes of Stripped Interest Certificates), "Accrued
Certificate Interest" will be equal to interest accrued for a specified
period on the outstanding Certificate Balance thereof immediately prior to
the Distribution Date, at the applicable Pass-Through Rate, reduced as
described below. Unless otherwise provided in the Prospectus Supplement,
Accrued Certificate Interest on Stripped Interest Certificates will be equal
to interest accrued for a specified period on the outstanding notional amount
thereof immediately prior to each Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. The method of determining the
notional amount for any class of Stripped Interest Certificates will be
described in the related Prospectus Supplement. Reference to notional amount
is solely for convenience in certain calculations and does not represent the
right to receive any distributions of principal. Unless otherwise provided in
the related Prospectus Supplement, the Accrued Certificate Interest on a
Series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in such
accrual period on the Mortgage Loans comprising or underlying the Mortgage
Assets in the Trust Fund for such Series. The particular manner in which such
shortfalls are to 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 Loans comprising or
underlying 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 the Mortgage Loans comprising or underlying the Mortgage
Assets in the related Trust Fund will result in a corresponding increase in
the Certificate Balance of such class. See "Risk Factors-Average Life of
Certificates; Prepayments; Yields" and "Yield Considerations."
Distributions of Principal of the Certificates
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to
receive in respect of 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 Certificate will be reduced to the extent of
distributions of principal thereon from time to time and, if and to the
extent so provided in the related Prospectus Supplement, by the amount of
losses incurred in respect of the related Mortgage Assets, may be increased
in respect of deferred interest on the related Mortgage Loans to the extent
provided in the related Prospectus Supplement and, in the case of Accrual
Certificates prior to the Distribution Date on which distributions of
interest are required to commence, will be increased by any related Accrued
Certificate Interest. Unless otherwise provided in the related Prospectus
Supplement, the initial aggregate Certificate Balance of all classes of
Certificates of a Series will not be greater than the outstanding aggregate
principal balance of the related Mortgage Assets as of the applicable Cut-off
Date. The initial aggregate Certificate Balance of a Series and each class
thereof will be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has
been reduced to zero. Stripped Interest Certificates with no Certificate
Balance are not entitled to any distributions of principal.
Components
To the extent specified in the related Prospectus Supplement, distribution on
a class of Certificates may be based on a combination of two or more
different components as described under "-General" above. To such extent, the
descriptions set forth under "-Distributions of Interests on the
Certificates" and "-Distributions of Principal of the Certificates" above
also relate to components of such a class of Certificates. In such case,
reference in such sections to Certificate Balance and Pass-Through Rate refer
to the principal balance, if any, of any such component and the Pass-Through
Rate, if any, on any such component, respectively.
Distributions on the Certificates 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 that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
Allocation of Losses and Shortfalls
If 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, the amount of such losses or
shortfalls will be borne first by a class of Subordinate Certificates in the
priority and manner and subject to the limitations specified in such
Prospectus Supplement See "Description of Credit Support" for a description
of the types of protection that may be included in shortfalls on Mortgage
Assets comprising such Trust Fund.
Advances in Respect of Delinquencies
With respect to any Series of Certificates evidencing an interest in a Trust
Fund, unless otherwise provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund and were delinquent on
the related Determination Date, subject to such Servicer's (or another
entity's) good faith determination that such advances will be reimbursable
from Related Proceeds (as defined below). In the case of a Series of
Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, each Servicer's (or
another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or
more classes of Senior Certificates and/or may be subject to such Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on
other Trust Assets otherwise distributable on one or more classes of such
Subordinate Certificates. See "Description of Credit Support."
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. Unless
otherwise provided in the related Prospectus Supplement, advances of a
Servicer's (or another entity's) funds will be reimbursable only out of
related recoveries on the Mortgage Loans (including amounts received under
any form of Credit Support) respecting which such advances were made (as to
any Mortgage Loan, "Related Proceeds") and, if so provided in the Prospectus
Supplement, out of any amounts otherwise distributable on one or more classes
of Subordinate Certificates of such Series; provided, however, that any such
advance will be reimbursable from any amounts in the Distribution Account
prior to any distributions being made on the Certificates to the extent that
a Servicer (or such other entity) shall determine in good faith that such
advance (a "Nonrecoverable Advance") is not ultimately recoverable from
Related Proceeds or, if applicable, from collections on other Trust Assets
otherwise distributable on such Subordinate Certificates. If advances have
been made by a Servicer from excess funds in the Distribution Account, such
Servicer is required to replace such funds in the Distribution Account on any
future Distribution Date to the extent that funds in the Distribution Account
on such Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of a Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a
letter of credit or another form of limited guaranty. 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, a
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Trust
Assets prior to any payment to Certificateholders or as otherwise provided in
the related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
Reports to Certificateholders
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement,
will forward or cause to be forwarded to each such holder, to the Depositor
and to such other parties as may be specified in the related Agreement, a
statement setting forth, in each case to the extent applicable and available:
(i)the amount of such distribution to holders of Certificates of such class
applied to reduce the Certificate Balance thereof; (ii)the amount of such
distribution to holders of Certificates of such class allocable to Accrued
Certificate Interest; (iii)the amount of such distribution allocable to (a)
Prepayment Premiums and (b) payments on account of Equity Participations;
(iv)the amount of related servicing compensation received by each Servicer
and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns; (v)the
aggregate amount of advances included in such distribution, and the aggregate
amount of any unreimbursed advances at the close of business on such
Distribution Date; (vi)the aggregate principal balance of the Mortgage Assets
at the close of business on such Distribution Date; (vii)the number and
aggregate principal balance of Whole Loans in respect of which (a) one
scheduled payment is delinquent, (b) two scheduled payments are delinquent,
(c) three or more scheduled payments are delinquent and (d) foreclosure
proceedings have been commenced; (viii)with respect to each Whole Loan that
is delinquent two or more months, (a) the loan number thereof, (b) the unpaid
balance thereof, (c) whether the delinquency is in respect of any balloon
payment, (d) the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof, (e) if applicable, the aggregate
amount of any interest accrued and payable on related servicing expenses and
related advances assuming such Mortgage Loan is subsequently liquidated
through foreclosure, (f) whether a notice of acceleration has been sent to
the Mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h) if
such Mortgage Loan is more than three months delinquent and foreclosure has
not been commenced, the reason therefor; (ix)with respect to any Whole Loan
liquidated during the related Due Period (other than by payment in full),
(a) the loan number thereof, (b) the manner in which it was liquidated and
(c) the aggregate amount of liquidation proceeds received; (x)with respect to
any Whole Loan liquidated during the related Due Period, (a) the portion of
such liquidation proceeds payable or reimbursable to each Servicer (or any
other entity) in respect of such Mortgage Loan and (b) the amount of any loss
to Certificateholders; (xi)with respect to each REO Property relating to a
Whole Loan and included in the Trust Fund as of the end of the related Due
Period, (a) the loan number of the related Mortgage Loan and (b) the date of
acquisition; (xii)with respect to each REO Property relating to a Whole Loan
and included in the Trust Fund as of the end of the related Due Period,
(a) the book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such Mortgage
Loan were still outstanding taking into account certain limited modifications
to the terms thereof specified in the Agreement), (c) the aggregate amount of
unreimbursed servicing expenses and unreimbursed advances in respect thereof
and (d) if applicable, the aggregate amount of interest accrued and payable
on related servicing expenses and related advances; (xiii)with respect to any
such REO Property sold during the related Due Period (a) the loan number of
the related Mortgage Loan, (b) the aggregate amount of sale proceeds, (c) the
portion of such sales proceeds payable or reimbursable to each Servicer in
respect of such REO Property or the related Mortgage Loan and (d) the amount
of any loss to Certificateholders in respect of the related Mortgage Loan;
(xiv)the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class of
Accrual Certificates in the event that Accrued Certificate Interest has been
added to such balance; (xv)the aggregate amount of principal prepayments made
during the related Due Period; (xvi)the aggregate Accrued Certificate
Interest and unpaid Accrued Certificate Interest, if any, on each class of
Certificates at the close of business on such Distribution Date; (xvii)in the
case of Certificates with a variable Pass-Through Rate, the Pass-Through Rate
applicable to such Distribution Date, and, if available, the immediately
succeeding Distribution Date, as calculated in accordance with the method
specified in the related Prospectus Supplement; (xviii)in the case of
Certificates with a floating Pass-Through Rate, for statements to be
distributed in any month in which an adjustment date occurs, the floating
Pass-Through Rate applicable to such Distribution Date and the immediately
succeeding Distribution Date as calculated in accordance with the method
specified in the related Prospectus Supplement; (xix)as to any Series which
includes Credit Support, the amount of coverage of each instrument of Credit
Support included therein as of the close of business on such Distribution
Date; and (xx)the aggregate amount of payments by the Mortgagors of
(a) default interest, (b) late charges and (c) assumption and modification
fees collected during the related Due Period.
In the case of information furnished pursuant to subclauses
(i)-(iv) above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any CMBS. The Prospectus Supplement for each
Series of Offered Certificates will describe any additional information to be
included in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall
be provided by the Master Servicer or the Trustee pursuant to any
requirements of the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or unless otherwise
provided in the related Prospectus Supplement, such statements or reports
will be forwarded by the Master Servicer or the Trustee to Cede. Such
statements or reports may be available to Beneficial Owners upon request to
DTC or their respective Participant or Indirect Participant. In addition, the
Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies to the Trustee or the
Master Servicer, as applicable, that it is the Beneficial Owner of a
Certificate. See "Description of the Certificates-Book-Entry Registration and
Definitive Certificates."
Termination
The obligations created by the Agreements for each Series of Certificates
will terminate upon the payment to Certificateholders of that Series of all
amounts held in the Distribution Account or by any Servicer, if any, or the
Trustee and required to be paid to them pursuant to such Agreements following
the earlier of (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 Whole Loan subject thereto and (ii) the purchase of
all of the assets of the Trust Fund by the party entitled to effect such
termination, under the circumstances and in the manner set forth in the
related Prospectus Supplement. In no event, however, will the trust created
by the Agreements continue beyond the date specified in the related
Prospectus Supplement. Written notice of termination of the Agreements will
be given to each Certificateholder, and the final distribution will be made
only upon presentation and surrender of the Certificates 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 assets in the related Trust Fund by the party 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, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion
of such assets to retire such class or classes or purchase such class or
classes at a price set forth in the related Prospectus Supplement, in each
case, under the circumstances and in the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants
include J.P. Morgan Securities Inc., securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect 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 Participant, either directly or
indirectly ("Indirect Participants").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("Beneficial Owners") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Beneficial Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("Cede"), on each
such date DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Beneficial
Owners. Unless otherwise provided in the related Prospectus Supplement, the
only "Certificateholder" (as such term is used in the Agreement) will be
Cede, as nominee of DTC, and the Beneficial Owners will not be recognized by
the Trustee as Certificateholders under the Agreements. Beneficial Owners
will be permitted to exercise the rights of Certificateholders under the
related Agreements only indirectly through the Participants who in turn will
exercise their rights through DTC. Under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and
transmit distributions of principal of and interest on the Book-Entry
Certificates. Participants and Indirect Participants with which Beneficial
Owners have accounts with respect to the Book-Entry Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Beneficial Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Beneficial Owner to pledge its interest in the 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 the Book-Entry Certificates, may
be limited due to the lack of a physical certificate evidencing such
interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of
one or more Participants to whose account with DTC interests in the
Book-Entry Certificates are credited. Under DTC's procedures, DTC will take
actions permitted to be taken by Holders of any class of Book-Entry
Certificates under the Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account the Book-Entry Certificates are
credited and whose aggregate holdings represent no less than any minimum
amount of Voting Rights required therefor. Therefore, Beneficial Owners will
only be able to exercise their Voting Rights to the extent permitted, and
subject to the procedures established, by their Participant and/or Indirect
Participant, as applicable. DTC may take conflicting actions with respect to
any action of Certificateholders of any Class to the extent that Participants
authorize such actions. None of the Servicers, the Depositor, the Trustee or
any of their respective affiliates will have any liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Book-Entry Certificates, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("Definitive Certificates"), 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 properly discharge its responsibilities as depository with
respect to the 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.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Beneficial
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for reregistration,
the Trustee will issue (or cause to be issued) to the Beneficial Owners
identified in such instructions the Definitive Certificates to which they are
entitled, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Agreement.
Description of the Agreements
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates
of each Series evidencing interests in a Trust Fund not including Whole Loans
will be issued pursuant to a Trust Agreement between the Depositor and a
Trustee. The Master Servicer, any Special Servicer and the Trustee with
respect to any Series of Certificates will be named in the related Prospectus
Supplement. In lieu of appointing a Master Servicer, a servicer may be
appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
The Mortgage Loans shall be serviced pursuant to the terms of the Pooling and
Servicing Agreement and, unless otherwise specified in the Prospectus
Supplement, a Servicing Agreement among the Depositor (or an affiliate
thereof), a Master Servicer, a Special Servicer and a Primary Servicer. A
manager or administrator may be appointed pursuant to the Trust Agreement for
any Trust Fund to administer such Trust Fund. The provisions of each
Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust Fund. A form of a
Pooling and Servicing Agreement and a form of Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. Any Trust Agreement will generally conform to the form of Pooling and
Servicing Agreement filed herewith, but will not contain provisions with
respect to the servicing and maintenance of Whole Loans. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a Series of Certificates will describe any
provision of the Agreements relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries 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 Agreements for each
Trust Fund and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any Series, the term "Certificate"
refers to all of the Certificates of that Series, whether or not offered
hereby and by the related Prospectus Supplement, unless the context otherwise
requires. The Depositor will provide a copy of the Agreements (without
exhibits) relating to any Series of Certificates without charge upon written
request of a holder of a Certificate of such Series addressed to the Trustee
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans included in each Trust Fund were being serviced prior to the
issuance of the related Series of Certificates pursuant to the terms of a
Servicing Agreement by the Master Servicer, the Special Servicer and/or a
Primary Servicer. Unless otherwise specified in the related Prospectus
Supplement, following the issuance of the related Series of Certificates,
such Mortgage Loans will continue to be serviced pursuant to such Servicing
Agreement, together with the related Pooling and Servicing Agreement.
Pursuant to the terms of each Servicing Agreement, a Primary Servicer or a
Special Servicer will service the Mortgage Loans directly and a Master
Servicer may monitor the activities of each Primary Servicer and Special
Servicer. The Depositor shall assign its rights under each Servicing
Agreement to the Trustee for the benefit of the Certificateholders.
Assignment of Assets; 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 Trust Assets
to be included in the related Trust Fund, together with all principal and
interest to be received on or with respect to such Trust Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange
for the Trust Assets and the other assets comprising the Trust Fund for such
Series. Each Mortgage Asset will be identified in a schedule appearing as an
exhibit to the related Agreement. Unless otherwise provided in the related
Prospectus Supplement, such schedule will include detailed information (i) in
respect of each Whole Loan included in the related Trust Fund, including
without limitation, the address of the related Mortgaged Property and type of
such property, the Mortgage Interest Rate and, if applicable, the applicable
index, margin, adjustment date and any rate cap information, the original and
remaining term to maturity, the original and outstanding principal balance
and balloon payment, if any, the Value, Loan-to-Value Ratio and the Debt
Service Coverage Ratio as of the date indicated and payment and prepayment
provisions, if applicable, and (ii) in respect of each CMBS included in the
related Trust Fund, including without limitation, the CMBS Issuer, CMBS
Servicer and CMBS Trustee, the pass-through or bond rate or formula for
determining such rate, the issue date and original and remaining term to
maturity, if applicable, the original and outstanding principal amount and
payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed,
without recourse, in blank or to the order of the Trustee, the original
Mortgage (or a certified copy thereof) with evidence of recording indicated
thereon and an assignment of the Mortgage to the Trustee in recordable form.
Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans where
the original Mortgage Note is not delivered to the Trustee if the Company
delivers to the Trustee or the 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. With respect to such Mortgage Loans, the
Trustee (or its nominee) may not be able to enforce the Mortgage Note against
the related borrower. Unless otherwise provided in the related Prospectus
Supplement, the related Agreements will require that the Depositor or another
party specified therein promptly cause each such assignment of Mortgage to be
recorded in the appropriate public office for real property records, except
in states where, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interest in the related
Whole Loan against the claim of any subsequent transferee or any successor to
or creditor of the Depositor, the Master Servicer, the relevant Asset Seller
or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
a custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify
the Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Depositor will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for
omission of, or a material defect in, a constituent document. To the extent
specified in the related Prospectus Supplement, in lieu of curing any
omission or defect in the Mortgage Asset or repurchasing or substituting for
such Mortgage Asset, the Depositor may agree to cover any losses suffered by
the Trust Fund as a result of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to
the Trustee the related Lease Assignments. In certain cases, the Trustee, or
Primary Servicer, as applicable, may collect all moneys under the related
Leases and distribute amounts, if any, required under the Lease for the
payment of maintenance, insurance and taxes, to the extent specified in the
related Lease agreement. The Trustee, or if so specified in the Prospectus
Supplement, the Master Servicer, as agent for the Trustee, may hold the Lease
in trust for the benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the
original certificate or other definitive evidence of such CMBS together with
bond power or other instruments, certifications or documents required to
transfer fully such CMBS to the Trustee for the benefit of the
Certificateholders. With respect to each CMBS in uncertificated or book-entry
form or held through a "clearing corporation" within the meaning of the UCC
the Depositor and the Trustee will cause such CMBS to be registered directly
or on the books of such clearing corporation or of a financial intermediary
in the name of the Trustee for the benefit of the Certificateholders. Unless
otherwise provided in the related Prospectus Supplement, the related
Agreement will require that either the Depositor or the Trustee promptly
cause any CMBS in certificated form not registered in the name of the Trustee
to be re-registered, with the applicable persons, in the name of the Trustee.
Representations and Warranties; Repurchases
Unless otherwise provided in the related Prospectus Supplement the Depositor
will, with respect to each Whole Loan, make or assign representations and
warranties, as of a specified date (the person making such representations
and warranties, the "Warranting Party") covering, by way of example, the
following types of matters: (i) the accuracy of the information set forth for
such Whole Loan on the schedule of Mortgage Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the
lien priority of the Whole Loan; (iii) the authority of the Warranting Party
to sell the Whole Loan; (iv) the payment status of the Whole Loan and the
status of payments of taxes, assessments and other charges affecting the
related Mortgaged Property; (v) the existence of customary provisions in the
related Mortgage Note and Mortgage to permit realization against the
Mortgaged Property of the benefit of the security of the Mortgage; and
(vi) the existence of hazard and extended perils insurance coverage on the
Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the
Depositor and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related Series of Certificates evidencing an interest in such
Whole Loan.
Unless otherwise specified in the related Prospectus Supplement, in the
event of a breach of any such representation or warranty, the Warranting
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may
not address events that may occur following the date as of which they were
made, the Warranting Party will have a reimbursement, cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior
to such date. Such party would have no such obligations if the relevant event
that causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of
any representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the
interests therein of the Certificateholders. If such Warranting Party cannot
cure such breach within a specified period following the date on which such
party was notified of such breach, then such Warranting Party will be
obligated to repurchase such Whole Loan from the Trustee within a specified
period from the date on which the Warranting Party was notified of such
breach, at the Purchase Price therefor.
As to any Whole Loan, unless otherwise specified in the related
Prospectus Supplement, the "Purchase Price" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the
Mortgage Interest Rate from the date as to which interest was last paid to
the due date in the Due Period in which the relevant purchase is to occur,
plus certain servicing expenses that are reimbursable to each Servicer. If so
provided in the Prospectus Supplement for a Series, a Warranting Party,
rather than repurchase a Whole Loan as to which a breach has occurred, will
have the option, within a specified period after initial issuance of such
Series of Certificates, to cause the removal of such Whole Loan from the
Trust Fund and substitute in its place one or more other Whole Loans, in
accordance with the standards described in the related Prospectus Supplement.
If so provided in the Prospectus Supplement for a Series, a Warranting Party,
rather than repurchase or substitute a Whole Loan as to which a breach has
occurred, will have the option to reimburse the Trust Fund or the
Certificateholders for any losses caused by such breach. Unless otherwise
specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy
available to holders of Certificates or the Trustee for a breach of
representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such
obligations with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make
or assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the remedies
for a breach thereof.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations
under, the related Agreement. A breach of any such representation in a
Pooling and Servicing Agreement of a Master Servicer or Special Servicer
which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to such Servicer by the Trustee or
the Depositor, or to such Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. A
breach of any such representation in a Servicing Agreement of a Servicer
which continues unremedied for thirty days after giving notice of such breach
to such Servicer will constitute an Event of Default under such Servicing
Agreement. See "Events of Default" and "Rights Upon Event of Default."
Accounts
General
Each Servicer and/or the Trustee will, as to each Trust Fund, establish and
maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on the related Mortgage Assets
(collectively, the "Accounts"), which must be either (i) an account or
accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") (to the limits established by the FDIC) and the
uninsured deposits in which are otherwise secured such that the
Certificateholders have a claim with respect to the funds an Account or a
perfected first priority security interest against any collateral securing
such funds that is superior to the claims of any other depositors or general
creditors of the institution with which such Account is maintained or
(ii) otherwise maintained with a bank or trust company, and in a manner,
satisfactory to the Rating Agency or Agencies rating any class of
Certificates of such Series. The collateral eligible to secure amounts in an
Account is limited to United States government securities and other
investment grade obligations specified in the Agreement ("Permitted
Investments"). An Account may be maintained as an interest bearing or a
non-interest bearing account and the funds held therein may be invested
pending each succeeding Distribution Date in certain short-term Permitted
Investments. Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in an Account will be paid to a
Servicer or its designee as additional servicing compensation. An Account may
be maintained with an institution that is an affiliate of a Servicer provided
that such institution meets the standards imposed by the Rating Agency or
Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, an Account may contain funds relating to
more than one Series of mortgage pass-through certificates and may contain
other funds respecting payments on mortgage loans belonging to a Servicer or
serviced or master serviced by it on behalf of others.
Deposits
Unless otherwise provided in the related Prospectus Supplement, the Primary
Servicer will deposit or cause to be deposited in an Account on a daily
basis, unless otherwise provided in the related Agreement, the following
payments and collections received, or advances made, by the Primary Servicer:
(i)all payments on account of principal, including principal prepayments, on
the Mortgage Assets; (ii)all payments on account of interest on the Mortgage
Assets, including any default interest collected, in each case net of any
portion thereof retained by a Servicer as its servicing compensation;
(iii)all proceeds of the hazard, business interruption and general liability
insurance policies to be maintained in respect of each Mortgaged Property
securing a Whole Loan in the Trust Fund (to the extent such proceeds are not
applied to the restoration of the property or released to the Mortgagor in
accordance with the normal servicing procedures of a Servicer, subject to the
terms and conditions of the related Mortgage and Mortgage Note) and all
proceeds of rental interruption policies, if any, insuring against losses
arising from the failure of Lessees under a Lease to make timely rental
payments because of certain casualty events (collectively, "Insurance
Proceeds") and all other amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans in the Trust Fund, by foreclosure,
condemnation or otherwise ("Liquidation Proceeds"), together with the net
proceeds on a monthly basis with respect to any Mortgaged Properties acquired
for the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise; (iv)any advances made as described under
"Description of the Certificates-Advances in Respect of Delinquencies";
(v)any amounts representing Prepayment Premiums; (vi)any amounts received
from a Special Servicer;
but excluding any REO Proceeds and penalties or modification fees which
may be retained by the Primary Servicer. REO Proceeds shall be maintained in
an Account by the Special Servicer.
Once a month the Primary Servicer and the Special Servicer remit funds
on deposit in the Account each maintains together with any P&I Advances to
the Master Servicer for deposit in an Account maintained by the Master
Servicer.
Withdrawals
A Servicer may, from time to time, unless otherwise provided in the related
Agreement and described in the related Prospectus Supplement, make
withdrawals from an Account for each Trust Fund for any of the following
purposes: (i)to reimburse a Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates-Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of interest
on and principal of the particular Whole Loans with respect to which the
advances were made; (ii)to reimburse a Servicer for unpaid servicing fees
earned and certain unreimbursed servicing expenses incurred with respect to
Whole Loans and properties acquired in respect thereof, such reimbursement to
be made out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular Whole Loans and properties, and net
income collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred; (iii)to reimburse a Servicer
for any advances described in clause (i) above and any servicing expenses
described in clause (ii) above which, in the Master Servicer's good faith
judgment, will not be recoverable from the amounts described in clauses (i)
and (ii), respectively, such reimbursement to be made from amounts collected
on other Trust Assets or, if and to the extent so provided by the related
Agreement and described in the related Prospectus Supplement, just from that
portion of amounts collected on other Trust Assets that is otherwise
distributable on one or more classes of Subordinate Certificates, if any,
remain outstanding, and otherwise any outstanding class of Certificates, of
the related Series; (iv)if and to the extent described in the related
Prospectus Supplement, to pay a Servicer interest accrued on the advances
described in clause (i) above and the servicing expenses described in clause
(ii) above while such remain outstanding and unreimbursed; (v)unless
otherwise provided in the related Prospectus Supplement, to pay a Servicer,
as additional servicing compensation, interest and investment income earned
in respect of amounts held in the Account; and (vi)to make any other
withdrawals permitted by the related Agreement and described in the related
Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts may
be withdrawn from any Account to cover additional costs, expenses or
liabilities associated with: the preparation of environmental site
assessments with respect to, and for containment, clean-up or remediation of
hazardous wastes and materials, the proper operation, management and
maintenance of any Mortgaged Property acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise, such payments to be made out of income received on such property;
if one or more elections have been made to treat the Trust Fund or designated
portions thereof as a REMIC, 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"; retaining an independent appraiser or other expert in
real estate matters to determine a fair sale price for a defaulted Whole Loan
or a property acquired in respect thereof in connection with the liquidation
of such Whole Loan or property; and obtaining various opinions of counsel
pursuant to the related Agreement for the benefit of Certificateholders.
Distribution Account
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will, as to each Trust Fund, establish and maintain, or cause to be
established and maintained, one or more separate Accounts for the collection
of payments from the Master Servicer immediately preceding each Distribution
Date (the "Distribution Account"). The Trustee will also deposit or cause to
be deposited in a Distribution Account the following amounts: (i)any amounts
paid under any instrument or drawn from any fund that constitutes Credit
Support for the related Series of Certificates as described under
"Description of Credit Support"; (ii)any amounts paid under any Cash Flow
Agreement, as described under "Description of the Trust Funds-Cash Flow
Agreements"; (iii)all proceeds of any Trust Asset or, with respect to a Whole
Loan, property acquired in respect thereof purchased by the Depositor, any
Asset Seller or any other specified person, and all proceeds of any Mortgage
Asset purchased as described under "Description of the Certificates-
Termination" (also, "Liquidation Proceeds"); (iv)any other amounts required
to be deposited in the Distribution Account as provided in the related
Agreement and described in the related Prospectus Supplement.
The Trustee may, from time to time, unless otherwise provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any Series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Primary Servicer or Special Servicer will
deposit on a daily basis the amounts described under "-Deposits" above for
one or more Series of Certificates. Any amounts on deposit in any such
collection account will be withdrawn therefrom and deposited into the
appropriate Distribution Account by a time specified in the related
Prospectus Supplement. To the extent specified in the related Prospectus
Supplement, any amounts which could be withdrawn from the Distribution
Account as described under "-Withdrawals" above, may also be withdrawn from
any such collection account. The Prospectus Supplement will set forth any
restrictions with respect to any such collection account, including
investment restrictions and any restrictions with respect to financial
institutions with which any such collection account may be maintained.
Collection and Other Servicing Procedures
Primary Servicer
The Primary Servicer is required under each Servicing Agreement to make
reasonable efforts to collect all scheduled payments under the Mortgage Loans
and will follow or cause to be followed such collection procedures as it
would follow with respect to mortgage loans that are comparable to the
Mortgage Loans and held for its own account, provided such procedures are
consistent with (i) the terms of the related Servicing Agreement,
(ii) applicable law and (iii) the general servicing standard specified in the
related Prospectus Supplement or, if no such standard is so specified, its
normal servicing practices (in either case, the "Servicing Standard").
Each Primary Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or
causing the Mortgagor or Lessee on each Mortgage or Lease to maintain)
hazard, business interruption and general liability insurance policies (and,
if applicable, rental interruption policies) as described herein and in any
related Prospectus Supplement, and filing and settling claims thereunder;
maintaining escrow or impoundment accounts of Mortgagors for payment of
taxes, insurance and other items required to be paid by any Mortgagor
pursuant to the Mortgage Loan; processing assumptions or substitutions in
those cases where the Primary Servicer has determined not to enforce any
applicable due-on-sale clause; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Mortgaged Properties under certain
circumstances; and maintaining accounting records relating to the Mortgage
Loans.
Master Servicer
The Master Servicer shall monitor the actions of the Primary Servicer and the
Special Servicer to confirm compliance with the Agreements.
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer, as servicer of the Mortgage Loans, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from
the Distribution Account out of such proceeds, prior to distribution thereof
to Certificateholders, amounts representing its normal servicing compensation
on such 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. See "Hazard Insurance Policies" and
"Description of Credit Support."
Special Servicer
A Mortgagor's failure to make required payments may reflect inadequate income
or the diversion of that income from the service of payments due under the
Mortgage Loan, and may call into question such Mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, upon the occurrence of any of the following events (each a
"Servicing Transfer Event") with respect to a Mortgage Loan, servicing for
such Mortgage Loan (thereafter, a "Specially Serviced Mortgage Loan") will be
transferred from the Primary Servicer to the Special Servicer: (a)such
Mortgage Loan becomes a defaulted Mortgage Loan, (b)the occurrence of certain
events indicating the possible insolvency of the Mortgagor, (c)the receipt by
the Primary Servicer of a notice of foreclosure of any other lien on the
related Mortgaged Property, (d)the Master Servicer or the Primary Servicer
determines that a payment default is imminent, (e)with respect to a Balloon
Mortgage Loan, no assurances have been given as to the ability of the
Mortgagor to make the final payment thereon, or (f)the occurrence of certain
other events constituting defaults under the terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is
in default, contact the Mortgagor concerning the default, evaluate whether
the causes of the default can be cured over a reasonable period without
significant impairment of the value of the Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely,
inspect the Mortgaged Property and take such other actions as are consistent
with the Servicing Standard. A significant period of time may elapse before
the Special Servicer is able to assess the success of such corrective action
or the need for additional initiatives.
The time within which the Special Servicer makes the initial
determination of appropriate action evaluates the success of corrective
action, develops additional initiatives, institutes foreclosure proceedings
and actually forecloses (or takes a deed to a Mortgaged Property in lieu of
foreclosure) on behalf of the Certificateholders, 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.
Under federal bankruptcy law, the Special Servicer in certain cases may not
be permitted to accelerate a Mortgage Loan or to foreclose on a Mortgaged
Property for a considerable period of time. See "Certain Legal Aspects of the
Mortgage Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes
of Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right
granted to the holder of an Offered Certificate will be described in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe any such right granted to any person if the predetermined purchase
price is less than the Purchase Price described under "Representations and
Warranties; Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (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. The Special Servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security
for, a Mortgage Loan if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Mortgage Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than
would liquidation. The Special Servicer is required to notify the Trustee in
the event of any modification, waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in
any mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire
title to a Mortgaged Property securing a Mortgage Loan by operation of law or
otherwise, if such action is consistent with the Servicing Standard and a
default on such Mortgage Loan has occurred or, in the Special Servicer's
judgment, is imminent. Unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may not acquire title to any related
Mortgaged Property or take any other action that would cause the Trustee, for
the benefit 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 determined, based on a report prepared by a person who regularly
conducts environmental audits (which report will be an expense of the Trust
Fund), that: (i)the Mortgaged Property is in compliance with applicable
environmental laws; or if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is reasonably likely to
produce a greater recovery on a present value basis, after taking into
account any risks associated therewith, than not taking such actions; and
(ii)and there are no circumstances present at the Mortgaged Property relating
to the use, management or disposal of any hazardous substances, hazardous
materials, wastes, or petroleum-based materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation or that, if any such
materials are present, taking such action with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated
therewith, than not taking such actions.
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 within two years of
acquisition, unless (i) the Internal Revenue Service 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 subsequent to two years after its acquisition will not result in
the imposition of a tax on the Trust Fund or cause the Trust Fund to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Subject to the foregoing, the Special Servicer will be required
to (i) solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property and
(ii) accept the first (and, if multiple bids are contemporaneously received,
the highest) cash bid received from any person that constitutes a fair price.
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 any of its
obligations with respect to the management and operation of such Mortgaged
Property. Unless otherwise specified in the related Prospectus Supplement,
any such property acquired by the Trust Fund will be managed in a manner
consistent with the management and operation of similar property by a prudent
lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases-Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the property securing
the defaulted Mortgage Loan are less than the outstanding principal balance
of the defaulted Mortgage Loan plus interest accrued thereon at the Mortgage
Interest Rate plus the aggregate amount of expenses incurred by the Special
Servicer in connection with such proceedings and which are reimbursable under
the Agreement, the Trust Fund will realize a loss in the amount of such
difference. The Special Servicer will be entitled to withdraw or cause to be
withdrawn from a related Account out of the Liquidation Proceeds recovered on
any defaulted Mortgage Loan, prior to the distribution of such Liquidation
Proceeds to Certificateholders, amounts representing its normal servicing
compensation on 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.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient
to restore the damaged property to a condition sufficient to permit recovery
under the related instrument of Credit Support, if any, the Special Servicer
is not required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Primary
Servicer to cause the Mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage. Unless otherwise specified in the related Prospectus Supplement,
such coverage will be in general in an amount equal to the amount necessary
to fully compensate for any damage or loss to the improvements on the
Mortgaged Property on a replacement cost basis, but not less than the amount
necessary to avoid the application of any co-insurance clause contained in
the hazard insurance policy. The ability of the Primary 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 in this regard is furnished by Mortgagors. All
amounts collected by the Primary Servicer under any such policy (except for
amounts to be applied to the restoration or repair of the Mortgaged Property
or released to the Mortgagor in accordance with the Primary Servicer's normal
servicing procedures, subject to the terms and conditions of the related
Mortgage and Mortgage Note) will be deposited in a related Account.
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 relating to the Whole Loans 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, the basic terms thereof are dictated by
respective state laws, and 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 uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the 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 clause generally provides 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.
The Agreements for a Trust Fund that includes Whole Loans will require
the Primary Servicer to cause the Mortgagor on each Whole Loan, or, in
certain cases, the related Lessee, to maintain all such other insurance
coverage with respect to the related Mortgaged Property as is consistent with
the terms of the related Mortgage, which insurance may typically include
flood insurance (if the related Mortgaged Property was located at the time of
origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Primary
Servicer may require the Mortgagor or related Lessee to maintain other forms
of insurance including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public liability insurance.
Any cost incurred by the Master Servicer in maintaining any such insurance
policy will be added to the amount owing under the Mortgage Loan where the
terms of the Mortgage Loan so permit; provided, however, that the addition of
such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
a Servicer from a related Account, with interest thereon, as provided by the
Agreements.
Rental Interruption Insurance Policy
If so specified in the related Prospectus Supplement, the Primary Servicer or
the Mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the Leases. Although the
terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make
timely rental payments under the related Lease due to a casualty event, such
losses will be reimbursed to the insured. If so specified in the related
Prospectus Supplement, the Primary Servicer will be required to pay from its
servicing compensation the premiums on the rental interruption policy on a
timely basis. If so specified in the Prospectus Supplement, if such rental
interruption policy is canceled or terminated for any reason (other than the
exhaustion of total policy coverage), the Primary Servicer will exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to the rental interruption policy with a total coverage that is
equal to the then existing coverage of the terminated rental interruption
policy; provided that if the cost of any such replacement policy is greater
than the cost of the terminated rental interruption policy, the amount of
coverage under the replacement policy will, unless otherwise specified in the
related Prospectus Supplement, be reduced to a level such that the applicable
premium does not exceed, by a percentage that may be set forth in the related
Prospectus Supplement, the cost of the rental interruption policy that was
replaced. Any amounts collected by the Primary Servicer under the rental
interruption policy in the nature of insurance proceeds will be deposited in
a related Account.
Fidelity Bonds and Errors and Omissions Insurance
Unless otherwise specified in the related Prospectus Supplement, the
Agreements will require that the Servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide
blanket coverage) or any combination thereof insuring against loss occasioned
by fraud, theft or other intentional misconduct of the officers, employees
and agents of such Servicer. The related Agreements will allow a Servicer to
self-insure against loss occasioned by the errors and omissions of the
officers, employees and agents of the Master Servicer or the Special Servicer
so long as certain criteria set forth in the Agreements are met.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the Primary Servicer, on behalf of the Trust Fund,
will exercise any right the Trustee may have as mortgagee to accelerate
payment of any such Whole Loan or to withhold its consent to any transfer or
further encumbrance. Unless otherwise specified in the related Prospectus
Supplement, any fee collected by or on behalf of the Primary Servicer for
entering into an assumption agreement will be retained by or on behalf of the
Primary Servicer as additional servicing compensation. See "Certain Legal
Aspects of the Mortgage Loans and the Leases-Due-on-Sale and
Due-on-Encumbrance."
Retained Interest; Servicing Compensation and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify whether
there will be any Retained Interest in the Mortgage Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be
deducted from Mortgagor payments as received and will not be part of the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of
each Mortgage Asset, such amounts will decrease in accordance with the
amortization of the Mortgage Assets. The Prospectus Supplement with respect
to a Series of Certificates evidencing interests in a Trust Fund that
includes Whole Loans may provide that, as additional compensation, a Servicer
may retain all or a portion of assumption fees, modification fees, late
payment charges or Prepayment Premiums collected from Mortgagors and any
interest or other income which may be earned on funds held in a related
Account.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Mortgage
Assets, including, without limitation, payment of the fees and disbursements
of the Trustee and independent accountants, payment of expenses incurred in
connection with distributions and reports to Certificateholders, and payment
of any other expenses described in the related Prospectus Supplement. Certain
other expenses, including certain expenses relating to defaults and
liquidations on the Whole Loans and, to the extent so provided in the related
Prospectus Supplement, interest thereon at the rate specified therein, and
the fees of any Special Servicer, may be borne by the Trust Fund.
Evidence as to Compliance
Each Servicing Agreement will provide that on or before a specified date in
each year, beginning on a date specified therein, a firm of independent
public accountants will furnish a statement to the Trustee to the effect
that, on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers, the servicing by or on behalf of each Servicer was conducted in
compliance with the terms of such agreements except for any exceptions the
Uniform Single Attestation Program for Mortgage Bankers requires it to
report.
Each Servicing Agreement will also provide for delivery to the Trustee,
on or before a specified date in each year, of an annual statement signed by
an officer of each Servicer to the effect that such Servicer has fulfilled
its obligations under the Agreement throughout the preceding calendar year or
other specified twelvemonth period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the
related Prospectus Supplement; provided that such Beneficial Owner shall have
certified to the Master Servicer that it is the Beneficial Owner of a
Certificate.
Certain Matters Regarding each Servicer and the Depositor
The Master Servicer, the Primary Servicer and the Special Servicer, or a
servicer for substantially all the Whole Loans under each Agreement will be
named in the related Prospectus Supplement. Each entity serving as Servicer
(or as such servicer) may be an affiliate of the Depositor and may have other
normal business relationships with the Depositor or the Depositor's
affiliates. Reference herein to a Servicer shall be deemed to be to the
servicer of substantially all of the Whole Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that any Servicer may resign from its
obligations and duties thereunder only with the consent of the Trustee, which
may not be unreasonably withheld or upon a determination that its duties
under the Agreement are no longer permissible under applicable law. No such
resignation will become effective until a successor servicer has assumed such
Servicer's obligations and duties under the related Servicing Agreement. If a
Primary Servicer resigns, the Master Servicer shall assume the obligations
thereof.
Unless otherwise specified in the related Prospectus Supplement, each
Servicing Agreement will further provide that none of the Servicers, or any
officer, employee, or agent thereof will be under any liability to the
related Trust Fund or Certificateholders for any action taken, or for
refraining from the taking of any action in accordance with the Servicing
standards set forth in the Servicing Agreement, in good faith pursuant to the
related Servicing Agreement; provided, however, that no Servicer nor any such
person will be protected against any breach of a representation or warranty
made in such Agreement, or against any liability specifically imposed
thereby, or against any liability which would otherwise be imposed by reason
of willful misfeasance, bad faith or negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. Unless otherwise specified in the related Prospectus Supplement,
the Depositor shall be liable only to the extent of its obligations
specifically imposed upon and undertaken by the Depositor. Unless otherwise
specified in the related Prospectus Supplement, each Servicing Agreement will
further provide that each Servicer will be entitled to indemnification by the
related Trust Fund against any loss, liability or expense incurred in
connection with any legal action relating to the related Servicing Agreement
or the Mortgage Loans; provided, however, that such indemnification will not
extend to any loss, liability or expense incurred by reason of misfeasance,
bad faith or negligence in the performance of obligations or duties
thereunder, or by reason of reckless disregard of such obligations or duties.
In addition, each Servicing Agreement will provide that no Servicer will be
under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its responsibilities under the Servicing Agreement and
which in its opinion may involve it in any expense or liability. Any Servicer
may, however, with the consent of the Trustee undertake any such action which
it may deem necessary or desirable with respect to the Agreement and the
rights and duties of the parties thereto and the interests of the
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 Certificateholders, and the Servicer will be entitled to
be reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to
which a Servicer or the Depositor is a party, or any person succeeding to the
business of a Servicer or the Depositor will be the successor of such
Servicer or the Depositor, as applicable, under the related Agreements.
Events of Default
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default with respect to a Servicer
under the related Agreements will include (i) any failure by such Servicer to
distribute or cause to be distributed to the Trustee, another Servicer or the
Certificateholders, any required payment within one Business Day of the date
due; (ii) any failure by such Servicer to timely deliver a report that
continues unremedied for two days after receipt of notice of such failure has
been given to such Servicer by the Trustee or another Servicer; (iii) any
failure by such Servicer duly to observe or perform in any material respect
any of its other covenants or obligations under the Agreement which continues
unremedied for thirty days after written notice of such failure has been
given to such Servicer; (iv) any breach of a representation or warranty made
by such Servicer under the Agreement which materially and adversely affects
the interests of Certificateholders and which continues unremedied for thirty
days after written notice of such breach has been given to such Servicer;
(v) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by or on behalf of
such Servicer indicating its insolvency or inability to pay its obligations;
and (vi) any failure by such Servicer to maintain a required license to do
business or service the Mortgage Loans pursuant to the related Agreements.
Material variations to the foregoing Events of Default (other than to shorten
cure periods or eliminate notice requirements) will be specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Trustee shall, not later than the later of 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 five days after
certain officers of the Trustee become aware of the occurrence of such an
event, transmit by mail to the Depositor and all Certificateholders of the
applicable Series notice of such occurrence, unless such default shall have
been cured or waived.
Rights Upon Event of Default
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 25% of the Voting Rights, the Trustee shall,
terminate all of the rights and obligations of the related Servicer under the
Agreement and in and to the Mortgage Loans (other than as a Certificateholder
or as the owner of any Retained Interest), whereupon the Master Servicer (or
if such Servicer is the Master Servicer, the Trustee) will succeed to all of
the responsibilities, duties and liabilities of such Servicer under the
Agreements (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, or if the
related Prospectus Supplement so specifies, then 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, in the event that the Trustee is unwilling or unable so to act,
it may or, at the written request of the holders of Certificates entitled to
at least 25% of the Voting Rights, it shall appoint, or petition a court of
competent jurisdiction for the appointment of, a loan servicing institution
acceptable to the Rating Agency with a net worth at the time of such
appointment of at least $15,000,000 to act as successor to the Master
Servicer under the Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation payable to the Master Servicer under the
Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66/2//3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "Events of Default" may
be waived only by all of the Certificateholders. 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 under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights 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 has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of
the trusts or powers vested in it by any Agreement or to make any
investigation of matters arising thereunder 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 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.
As described under "Description of the Certificates-Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective
Participants and Indirect Participants.
Amendment
Each Agreement may be amended by the parties thereto, without the consent of
any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which
may be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply
with any requirements imposed by the Code; provided that such amendment
(other than an amendment for the purpose specified in clause (iv) above) will
not (as evidenced by an opinion of counsel to such effect) adversely affect
in any material respect the interests of any holder of Certificates covered
by the Agreement. Unless otherwise specified in the related Prospectus
Supplement, each Agreement may also be amended by the Depositor, the Master
Servicer, if any, and the Trustee, with the consent of the holders of
Certificates affected thereby evidencing not less than 51% of the Voting
Rights, for any purpose; provided, however, that unless otherwise specified
in the related Prospectus Supplement, no such amendment may (i) reduce in any
manner the amount of or delay the timing of, payments received or advanced on
Mortgage Loans which are required to be distributed on any Certificate
without the 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 (i), without the consent
of the holders of all Certificates of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent
of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any Series of Certificates as to which
a REMIC election is to be made, the Trustee will not consent to any amendment
of the Agreement unless it shall first have received an opinion of counsel to
the effect that such amendment will not result in the imposition of a tax on
the related Trust Fund or cause the related Trust Fund to fail to qualify as
a REMIC at any time that the related Certificates are outstanding.
The Trustee
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master
Servicer and its affiliates.
Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency of
any Agreement, the Certificates or any Trust Asset or related document and is
not accountable for the use or application by or on behalf of any Servicer of
any funds paid to such Servicer or its designee in respect of the
Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform
only those duties specifically required under the related Agreements.
However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee is required to
examine such documents and to determine whether they conform to the
requirements of the Agreements.
Certain Matters Regarding the Trustee
Unless otherwise specified in the related Prospectus Supplement, the Trustee
and any director, officer, employee or agent of the Trustee shall be entitled
to indemnification out of the Distribution Account for any loss, liability or
expense (including costs and expenses of litigation, and of investigation,
counsel fees, damages, judgments and amounts paid in settlement) incurred in
connection with the Trustee's (i) enforcing its rights and remedies and
protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default,
(ii) defending or prosecuting any legal action in respect of the related
Agreement or Series of Certificates, (iii) being the mortgagee of record with
respect to the Mortgage Loans in a Trust Fund and the owner of record with
respect to any Mortgaged Property acquired in respect thereof for the benefit
of Certificateholders, or (iv) acting or refraining from acting in good faith
at the direction of the holders of the related Series of Certificates
entitled to not less than 25% (or such higher percentage as is specified in
the related Agreement with respect to any particular matter) of the Voting
Rights for such Series; provided, however, that such indemnification will not
extend to any loss, liability or expense that constitutes a specific
liability of the Trustee pursuant to the related Agreement, or to any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
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, or as may arise from a breach of any representation,
warranty or covenant of the Trustee made therein.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. 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.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreements, 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, if any. Holders of the Certificates of any
Series entitled to at least 51% of the Voting Rights for such Series may at
any time remove the Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
Description of Credit Support
General
For any Series of Certificates, Credit Support may be provided with respect
to one or more classes thereof or the related Mortgage Assets. Credit Support
may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, 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 so provided in the related Prospectus Supplement, any form
of Credit Support may be structured so as to be drawn upon by more than one
Series to the extent described therein.
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 repayment of the entire
Certificate Balance of the Certificates and interest thereon. If losses or
shortfalls occur that exceed the amount covered by Credit Support or that are
not covered by Credit Support, Certificateholders will bear their allocable
share of deficiencies. Moreover, if a form of Credit Support covers more than
one Series of Certificates (each, a "Covered Trust"), holders of Certificates
evidencing interests in any of such Covered Trusts will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts prior to such Covered Trust receiving any of its intended
share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment
thereunder not otherwise described herein, (c) 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 (d) the
material provisions relating to such Credit Support. Additionally, the
related Prospectus Supplement will set forth certain information with respect
to the obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. 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 of principal and interest
from the Distribution Account on any Distribution Date will be subordinated
to such 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 (or may be limited to) certain types of losses or shortfalls.
The related Prospectus Supplement will set forth information concerning the
amount of subordination of a class or classes of Subordinate Certificates in
a Series, the circumstances in which such subordination will be applicable
and the manner, if any, in which the amount of subordination will be
effected.
Cross-Support Provisions
If the Mortgage Assets for a Series are divided into separate groups, each
supporting a separate class or classes of Certificates of a 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 the Whole Loans
If so provided in the Prospectus Supplement for a Series of Certificates, the
Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy of any such material
instrument for a Series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related Series.
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 financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C 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
the 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
in the event of only 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 L/C
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. A copy of any such letter of credit for a
Series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the Certificates of the
related Series.
Insurance Policies 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 and/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 and/or full 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. A
copy of any such instrument for a Series will be filed with the Commission as
an exhibit to a Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related Series.
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 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 so specified in such Prospectus
Supplement. The reserve funds for a Series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Trust Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. If so
specified in the related Prospectus Supplement, reserve funds may be
established to provide limited protection against only 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 and will not be available for
further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. 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. 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.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
Credit Support with Respect to CMBS
If so provided in the Prospectus Supplement for a Series of Certificates, the
CMBS in the related Trust Fund and/or the Mortgage Loans underlying such CMBS
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 the Mortgage Loans and the Leases
The following discussion contains general summaries of certain legal aspects
of loans secured by commercial and multifamily residential properties that
are general in nature. Because such legal aspects are governed by applicable
state law (which laws may differ substantially), the summaries do not purport
to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the Mortgage Loans
is situated. The summaries are qualified in their entirety by reference to
the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds-Assets."
General
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording
does not generally establish priority over governmental claims for real
estate taxes and assessments and other charges imposed under governmental
police powers.
Types of Mortgage Instruments
A mortgage either creates a lien against or constitutes a conveyance of real
property between two parties-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
Mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "Mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a
deed to secure debt. Under a deed of trust, the Mortgagor grants the
property, irrevocably until the debt is paid, in trust, generally with a
power of sale as security for the indebtedness evidenced by the related note.
A deed to secure debt typically has two parties. By executing a deed to
secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the
underlying debt is repaid, generally with a power of sale as security for the
indebtedness evidenced by the related mortgage note. In case the Mortgagor
under a mortgage 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 Mortgagor. At origination of a mortgage loan
involving a land trust, the Mortgagor executes a separate undertaking to make
payments on the mortgage note. 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
mortgage, the law of the state in which the real property is located, certain
federal laws (including, without limitation, the Soldiers' and Sailors' Civil
Relief Act of 1940) and, in some cases, in deed of trust transactions, the
directions of the beneficiary.
Interest in Real Property
The real property covered by a mortgage, deed of trust, security deed or deed
to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property
such as a tenant's interest in a lease of land or improvements, or both, and
the leasehold estate created by such lease. An instrument covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage, deed
of trust, security deed or deed to secure debt, to protect the mortgagee
against termination of such interest before the mortgage, deed of trust,
security deed or deed to secure debt is paid. The Seller will make certain
representations and warranties in the Agreement with respect to the Mortgage
Loans which are secured by an interest in a leasehold estate. Such
representation and warranties will be set forth in the Prospectus Supplement
if applicable.
Leases and Rents
Mortgages that encumber income-producing property often contain an assignment
of rents and leases, pursuant to which the Mortgagor assigns its right, title
and interest as landlord under each lease and the income derived therefrom to
the lender, while the Mortgagor retains a revocable license to collect the
rents for so long as there is no default. Under such assignments, the
Mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining
a license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's
interest in rents may depend on whether the Mortgagor's assignment was
absolute or one granted as security for the loan. Failure to properly perfect
the mortgagee's interest in rents may result in the loss of substantial pool
of funds, which could otherwise serve as a source of repayment for such loan.
If the Mortgagor 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 UCC; generally these rates are
either assigned by the Mortgagor, which remains entitled to collect such
rates absent a default, or pledged by the Mortgagor, as security for the
loan. In general, the lender must file financing statements in order to
perfect its security interest in the rates and must file continuation
statements, generally every five years, to maintain perfection of such
security interest. Even if the lender's security interest in room rates is
perfected under the UCC, the lender will generally be required to commence a
foreclosure or otherwise take possession of the property in order to collect
the room rates after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service
the mortgage debt if the leases on the property are at below-market rents, or
as the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
Personalty
Certain types of Mortgaged Properties, such as hotels, motels and industrial
plants, are likely to derive a significant part of their value from personal
property which does not constitute "fixtures" under applicable state real
property law and, hence, would not be subject to the lien of a mortgage. Such
property is generally pledged or assigned as security to the lender under the
UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such
security interest, file continuation statements generally every five years.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of Offered
Certificate, the Mortgage Loans may also consist of cooperative apartment
loans ("Cooperative Loans") secured by security interests in shares issued by
cooperative housing corporation (a "Cooperative") and in the related
proprietary leases or occupancy agreements granting exclusive rights to
occupy specific dwelling units in the cooperatives' buildings. The security
agreement will create a lien upon, or grant a title interest in, the property
which it covers, the priority of which will depend on the terms of the
particular security agreement as well as the order of recordation of the
agreement in the appropriate recording office. Such a lien or title interest
is not prior to the lien for real estate taxes and assessments and other
charges imposed under governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling
units therein. The cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other
governmental impositions and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building or
underlying land, as is generally the case, or an underlying lease of the
land, as is the case in some instances, the cooperative, as property
Mortgagor, or lessee, as the case may be, is also responsible for meeting
these mortgage or rental obligations. A blanket mortgage is ordinarily
incurred by the cooperative in connection with either the construction or
purchase of the cooperative's apartment building or obtaining of capital by
the cooperative. The interest of the occupant under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable
to meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or
(ii) arising under its land lease, the holder of the landlord's interest
under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. Also, a blanket mortgage on a cooperative
may provide financing in the form of a mortgage that does not fully amortize,
with a significant portion of principal being due in one final payment at
maturity. The inability of the cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to foreclosure by
the mortgagee. Similarly, a land lease has an expiration date and the
inability of the cooperative to extend its term or, in the alternative, to
purchase the land could lead to termination of the cooperative's interest in
the property and termination of all proprietary leases and occupancy
agreement. In either event, a foreclosure by the holder of a blanket mortgage
or the termination of the underlying lease could eliminate or significantly
diminish the value of any collateral held by whomever financed the purchase
by an individual tenant stockholder of cooperative shares or, in the case of
the Mortgage Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured
by an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue
for judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares. See "Foreclosure-Cooperative Loans" below.
Foreclosure
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the Mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
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 Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable principles
to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
Mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is 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 and expensive actions to
determine the cause of the Mortgagor's default and the likelihood that the
Mortgagor 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
Mortgagors who are suffering from a temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the
default under the mortgage is not monetary, e.g., the Mortgagor failed to
maintain the mortgaged property adequately or the Mortgagor executed a junior
mortgage on the mortgaged property. The exercise by the court of its equity
powers will depend on the individual circumstances of each case presented to
it. Finally, some courts have been faced with the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a Mortgagor 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 afford constitutional protections to the
Mortgagor.
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 require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair consideration and such sale
occurred while the Mortgagor was insolvent (or the Mortgagor was rendered
insolvent as a result of such sale) and within one year (or within the state
statute of limitations if the trustee in bankruptcy elects to proceed under
state fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from
the beneficiary/lender to the trustee to sell the property upon any default
by the Mortgagor under the terms of the mortgage note or the mortgage
instrument and after notice of sale is given in accordance with the terms of
the mortgage instrument, as well as applicable state law. In some states,
prior to such sale, the trustee under a deed of trust must record a notice of
default and notice of sale and send a copy to the Mortgagor 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 Mortgagor 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 acceleration) plus the
expenses incurred in enforcing the obligation. In other states, the Mortgagor
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, the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods are
governed by state law and vary among the states. Foreclosure of a deed to
secure debt is also generally accomplished by a non-judicial sale similar to
that required by a deed of trust, except that the lender or its agent, rather
than a trustee, is typically empowered to perform the sale in accordance with
the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at
the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during
the foreclosure proceedings. For these reasons, it is common for the lender
to purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs
and expenses which may be recovered by a lender. Thereafter, subject to the
Mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property.
For example, the lender will have the obligation to pay debt service on any
senior mortgages, to pay taxes, obtain casualty insurance and to make such
repairs at its own expense as are necessary to render the property suitable
for sale. Frequently, the lender employs a third party management company to
manage and operate the property. 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 costs of management
and operation of those mortgaged properties which are hotels, motels,
restaurants, nursing or convalescent homes or hospitals may be particularly
significant because of the expertise, knowledge and, with respect to nursing
or convalescent homes or hospitals, regulatory compliance, required to run
such operations and the effect which foreclosure and a change in ownership
may have on the public's and the industry's (including franchisors')
perception of the quality of such operations. The lender will commonly obtain
the services of a real estate broker and pay the broker's commission in
connection with the sale 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, a lender commonly incurs substantial
legal fees and court costs in acquiring a mortgaged property through
contested foreclosure and/or bankruptcy proceedings. Furthermore, a few
states require that any environmental contamination at certain types of
properties be cleaned up before a property may be resold. In addition, a
lender may be responsible under federal or state law for the cost of cleaning
up a mortgaged property that is environmentally contaminated. See
"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be
recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required
to pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans which are junior mortgage
loans, if the lender purchases the property the lender's title will be
subject to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage under which the sale
was conducted. Any proceeds remaining after satisfaction of senior mortgage
debt are generally payable to the holders of junior mortgages and other liens
and claims in order of their priority, whether or not the Mortgagor is in
default. Any additional proceeds are generally payable to the Mortgagor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgage or a subsequent ancillary
proceeding or may require the institution of separate legal proceedings by
such holders.
In connection with a Series of Certificates for which an election is
made to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the Mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being
foreclosed, from exercise of their "equity of redemption." The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may redeem the
property by paying the entire debt with interest. In addition, in some
states, when a foreclosure action has been commenced, the redeeming party
must pay certain costs of such action. 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 cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
Mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the Mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former Mortgagor
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. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust.
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.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless
otherwise provided in the related Prospectus Supplement, with respect to a
Series of Certificates for which an election is made to qualify the Trust
Fund or a part thereof as a REMIC, the Agreement will permit foreclosed
property to be held for more than two years if the Internal Revenue Service
grants an extension of time within which to sell such property or independent
counsel renders an opinion to the effect that holding such property for such
additional period is permissible under the REMIC Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
Mortgagor. Even if a mortgage loan by its terms provides for recourse to the
Mortgagor, some states impose prohibitions or limitations on such recourse.
For example, statutes in some states limit the right of the lender to obtain
a deficiency judgment against the Mortgagor following foreclosure or sale
under a deed of trust. A deficiency judgment would be a personal judgment
against the former Mortgagor equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender.
Some states require the lender to exhaust the security afforded under a
mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the Mortgagor. In certain other states,
the lender has the option of bringing a personal action against the Mortgagor
on the debt without first exhausting such security; however, in some of these
states, the lender, following judgment on such personal action, may be deemed
to have elected a remedy and may be precluded from exercising remedies with
respect to the security. In some cases, a lender will be precluded from
exercising any additional rights under the note or mortgage if it has taken
any prior enforcement action. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that
lenders will usually proceed against the security first rather than bringing
a personal action against the Mortgagor. Finally, other statutory provisions
limit any deficiency judgment against the former Mortgagor following a
judicial sale to the excess of the outstanding debt over the fair market
value of the property at the time of the public sale. The purpose of these
statutes is generally to prevent a lender from obtaining a large deficiency
judgment against the former Mortgagor as a result of low or no bids at the
judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the Mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground
leases that secure Mortgage Loans may not contain some of these protective
provisions, and mortgages may not contain the other protections discussed in
the next paragraph. Protective ground lease provisions include the right of
the leasehold mortgagee to receive notices from the ground lessor of any
defaults by the Mortgagor; the right to cure such defaults, with adequate
cure periods; if a default is not susceptible of cure by the leasehold
mortgagee, the right to acquire the leasehold estate through foreclosure or
otherwise; the ability of the ground lease to be assigned to and by the
leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground
lessee from treating the ground lease as terminated in the event of the
ground lessor's bankruptcy and rejection of the ground lease by the trustee
for the debtor-ground lessor. As further protection, a leasehold mortgage may
provide for the assignment of the debtor-ground lessee's right to reject a
lease pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as
amended (Title 11 of the United States Code) (the "Bankruptcy Code"),
although the enforceability of such clause has not been established. Without
the protections described above, a leasehold mortgagee may lose the
collateral securing its leasehold mortgage. In addition, terms and conditions
of a leasehold mortgage are subject to the terms and conditions of the ground
lease. Although certain rights given to a ground lessee can be limited by the
terms of a leasehold mortgage, the rights of a ground lessee or a leasehold
mortgagee with respect to, among other things, insurance, casualty and
condemnation will be governed by the provisions of the ground lease.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By-laws, as well
as the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject,
however, to the Cooperative's right to sums due under such proprietary lease
or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited in any rights it may have to dispossess the
tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner
will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the
method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
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. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperatives to receive sums due
under the proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for the surplus.
Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction
plan, some states require that a purchaser at a foreclosure sale take the
property subject to rent control and rent stabilization laws which apply to
certain tenants who elected to remain in the building was so converted.
Bankruptcy Laws
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) are
automatically stayed upon the filing of the bankruptcy petition, and,
usually, 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 for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In
many jurisdictions, the outstanding amount of the loan secured by the real
property 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, which reduction may result
from a reduction in the rate of interest and/or the alteration of the
repayment schedule (with or without affecting the unpaid principal balance of
the loan), and/or an extension (or reduction) of the final maturity date.
Some courts with federal bankruptcy jurisdiction have approved plans, based
on the particular facts of the reorganization case, that effected the curing
of a mortgage loan default by paying arrearages over a number of years. Also,
under federal bankruptcy law, a bankruptcy court may permit a debtor through
its rehabilitative plan to de-accelerate a secured loan and to reinstate the
loan even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
property had yet occurred) prior to the filing of the debtor's petition. This
may be done even if the full amount due under the original loan is never
repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or
modified at any time after the commencement of a case under the Bankruptcy
Code solely on the basis of a provision in the lease to such effect or
because of certain other similar events. This prohibition on so-called "ipso
facto clauses" could limit the ability of the Trustee for a Series of
Certificates to exercise certain contractual remedies with respect to the
Leases. In addition, Section 362 of the Bankruptcy Code operates as an
automatic stay of, among other things, any act to obtain possession of
property from a debtor's estate, which may delay a Trustee's exercise of such
remedies for a related Series of Certificates in the event that a related
Lessee or a related Mortgagor becomes the subject of a proceeding under the
Bankruptcy Code. For example, a mortgagee would be stayed from enforcing a
Lease Assignment by a Mortgagor related to a Mortgaged Property if the
related Mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the
filing of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged
Property would result in a stay 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. Rents and
other proceeds of a Mortgage Loan may also escape an assignment thereof if
the assignment is not fully perfected under state law prior to commencement
of the bankruptcy proceeding. See "-Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or
the lessee as debtor-in-possession, or the 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, however, as the lessor may be forced to
continue under the lease with a lessee that is a poor credit risk or an
unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, such
rejection generally constitutes a breach of the executory contract or
unexpired lease immediately before the date of filing the petition. As a
consequence, the other party or parties to such lease, such as the Mortgagor,
as lessor under a Lease, would have only an unsecured claim against the
debtor for damages resulting from such breach, which could adversely affect
the security for the related Mortgage Loan. In addition, pursuant to Section
502(b)(6) of the Bankruptcy Code, a lessor's damages for lease rejection in
respect of future rent installments are limited to the rent reserved by the
lease, without acceleration, for the greater of one year or 15%, not to
exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that
if a lessee elects to remain in possession after such a rejection of a lease,
the lessee may offset against rents reserved under the lease for the balance
of the term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such
date. To the extent provided in the related Prospectus Supplement, the Lessee
will agree under certain Leases to pay all amounts owing thereunder the
Master Servicer without offset. To the extent that such a contractual
obligation remains enforceable against the Lessee, the Lessee would not be
able to avail itself of the rights of offset generally afforded to lessees of
real property under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds,
of any payments made by the Mortgagor, or made directly by the related
Lessee, under the related Mortgage Loan to the Trust Fund. Payments on
long-term debt may be protected from recovery as preferences if they are
payments in the ordinary course of business made on debts incurred in the
ordinary course of business. Whether any particular payment would be
protected depends upon the facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a Mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise
accept. Moreover, the laws of certain states also give priority to certain
tax liens over the lien of a mortgage or deed of trust. Under the Bankruptcy
Code, if the court finds that actions of the mortgagee have been
unreasonable, the lien of the related mortgage may be subordinated to the
claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the
Bankruptcy Code with respect to a general partner will cause a person to
cease to be a general partner of the limited partnership, unless otherwise
provided in writing in the limited partnership agreement. This provision may
be construed as an "ipso facto" clause and, in the event of the general
partner's bankruptcy, may not be enforceable. To the extent described in the
related Prospectus Supplement, certain limited partnership agreements of the
Mortgagors may provide that the commencement of a case under the Bankruptcy
Code with respect to the related general partner constitutes an event of
withdrawal (assuming the enforceability of the clause is not challenged in
bankruptcy proceedings or, if challenged, is upheld) that might trigger the
dissolution of the limited partnership, the winding up of its affairs and the
distribution of its assets, unless (i) at the time there was at least one
other general partner and the written provisions of the limited partnership
permit the business of the limited partnership to be carried on by the
remaining general partner and that general partner does so or (ii) the
written provisions of the limited partnership agreement permit the limited
partner to agree within a specified time frame (often 60 days) after such
withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so.
In addition, the laws governing general partnerships in certain states
provide that the commencement of a case under the Bankruptcy Code or state
bankruptcy laws with respect to a general partner of such partnerships
triggers the dissolution of such partnership, the winding up of its affairs
and the distribution of its assets. Such state laws, however, may not be
enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
Mortgage Loan, which may reduce the yield on the related Series of
Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court
consolidating the assets and liabilities of the general partner with those of
the Mortgagor pursuant to the doctrines of substantive consolidation or
piercing the corporate veil. In such a case, the respective Mortgaged
Property, for example, would become property of the estate of such bankrupt
general partner. Not only would the Mortgaged Property be available to
satisfy the claims of creditors of such general partner, but an automatic
stay would apply to any attempt by the Trustee to exercise remedies with
respect to such Mortgaged Property. However, such an occurrence should not
affect the Trustee's status as a secured creditor with respect to the
Mortgagor or its security interest in the Mortgaged Property.
Environmental Legislation
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Mortgaged
Properties which are, or have been, the site of manufacturing, industrial or
disposal activity. Such environmental liabilities may give rise to (i) a
diminution in value of property securing any Mortgage Loan, (ii) limitation
on the ability to foreclose against such property or (iii) in certain
circumstances as more fully described below, liability for clean up costs or
other remedial actions, which liability could exceed the value of the
principal balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien
has priority over all existing liens (a "superlien") including those of
existing mortgages; in these states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either
to the government or to private parties for cleanup costs on a property
securing a loan, even if the lender does not cause or contribute to the
contamination. CERCLA imposes strict, as well as joint and several, liability
on several classes of potentially responsible parties, including current
owners and operators of the property, regardless of whether they caused or
contributed to the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. 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 exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces
potential liability as an "owner or operator" under CERCLA. Similarly, when a
lender forecloses and takes title to a contaminated facility or property
(whether it holds the facility or property as an investment or leases it to a
third party), the lender may incur potential CERCLA liability.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed CERCLA's secured-creditor exemption. The court held that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under
CERCLA; rather, liability could attach to a lender if its involvement with
the management of the facility is broad enough to support the inference that
the lender had the capacity to influence the borrower's treatment of
hazardous waste. The court added that a lender's capacity to influence such
decision could be inferred from the extent of its involvement in the
facility's financial management.
On April 29, 1992, in response to the decision in Fleet Factors Corp.,
the United States Environmental Protection Agency (the "EPA") adopted a
rule interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range
of permissible actions that may be undertaken by a foreclosing lender/holder
of a contaminated facility without exceeding the bounds of the
secured-creditor exemption. The rule also attempted to specify the
circumstances under which governmental or government-appointed entities that
acquire possession or control of contaminated facilities as conservators or
receivers will be considered "involuntary" owners for purposes of CERCLA's
"innocent landowner" defense to liability. Issuance of this rule by the EPA
under CERCLA does not necessarily affect the potential for liability in
actions by either a state or a private party under CERCLA or in actions under
other federal or state laws which may impose liability on "owners or
operators" but do not incorporate the secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in Kelley v. EPA. In an opinion issued on
February 4, 1994, the D.C. Circuit Court invalidated EPA's lender liability
rule, holding that EPA exceeded its authority in enacting the rule. The U.S.
Supreme Court denied certiorari on January 17, 1995. Legislation has been
proposed that would clarify, by statute, the range of activities a secured
creditor may undertake without being deemed to have participated in the
management of the facility, and thus losing the benefit of the
secured-creditor exemption.
Under the Kelley case, the secured-creditor exemption under CERCLA will
be subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through
its agents) cause or contribute to contamination. As a result of Kelley, the
cases applying the EPA rule have little, if any, precedential value and,
thus, lenders should expect a return to the narrower interpretations of the
exemption.
In September 1995, EPA issued a guidance document stating that, in its
enforcement of CERCLA, EPA would apply the protections afforded to secured
creditors under the lender liability rule that was invalidated in the Kelley
decision. However, this EPA policy is not binding on the courts nor on states
or private parties.
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup
costs under federal laws other than CERCLA, in particular Subtitle I of the
federal Resource Conservation and Recovery Act ("RCRA"), which regulates
underground petroleum (other than heating oil) storage tanks. However, the
EPA has adopted a lender liability rule for underground storage tanks under
Subtitle I of RCRA. Under such rule, a holder of a security interest in an
underground storage tank or real property containing an underground storage
tank is not considered an operator of the underground storage tank as long as
petroleum is not added to, stored in or dispensed from the tank. 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 protections for
secured creditors.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, but that person or entity may be bankrupt or otherwise judgment
proof. It is possible that cleanup costs could become a liability of the
Trust Fund and occasion a loss to Certificateholders in certain circumstances
described above if such remedial costs were incurred.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined,
based on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with
applicable environmental laws, or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely
to produce a greater recovery on a present value basis, after taking into
account any risks associated therewith, than not taking such actions and
(ii) there are no circumstances present at the Mortgaged Property relating to
the use, management or disposal of any Hazardous Materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation. This
requirement effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental inquiry is undertaken, or
that, if any Hazardous Materials are present for which such action could be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking
such actions, reducing the likelihood that a given Trust Fund will become
liable for any condition or circumstance that may give rise to any
environmental claim (an "Environmental Hazard Condition") affecting a
Mortgaged Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that any
environmental assessment obtained by the Special Servicer will detect all
possible Environmental Hazard Conditions, that any estimate of the costs of
effecting compliance at any Mortgaged Property and the recovery thereon will
be correct, or that the other requirements of the Agreement, even if fully
observed by the Master Servicer or Special Servicer, as the case may be, will
in fact insulate a given Trust Fund from liability for Environmental Hazard
Conditions. Any additional restrictions on acquiring titles to a Mortgaged
Property may be set forth in the related Prospectus Supplement. See
"Description of the Agreements Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental
assessments have been conducted with respect to the Mortgaged Properties
relating to the Mortgage Loans included in the Mortgage Pool for a Series,
and it is likely that any environmental assessments which would have been
conducted with respect to any of the Mortgaged Properties would have been
conducted at the time of the origination of the related Mortgage Loans and
not thereafter. If specified in the related Prospectus Supplement, a
Warranting Party will represent and warrant that based on an environmental
audit commissioned by Warranting Party, as of the date of the origination of
a Mortgage Loan, the related Mortgaged Property is not affected by a
Disqualifying Condition (as defined below). No such person will however, be
responsible for any Disqualifying Condition which may arise on a Mortgaged
Property after the date of origination of the related Mortgage Loan, whether
due to actions of the Mortgagor, the Master Servicer, the Primary Servicer,
the Special Servicer or any other person. It may not always be possible to
determine whether a Disqualifying Condition arose prior or subsequent to the
date of the origination of the related Mortgage Loan.
A "Disqualifying Condition" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in
relation to the principal balance of the related Mortgage Loan to achieve or
maintain compliance in all material respects with any applicable
environmental laws, or (3) require substantial cleanup, remedial action or
other extraordinary response under any applicable environmental laws in
excess of a specified escrowed amount.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants,
chemicals, wastes or substances, including, without limitation, those so
identified pursuant to CERCLA, and specifically including, asbestos and
asbestos containing materials, polychlorinated biphenyls, radon gas,
petroleum and petroleum products and urea formaldehyde.
Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain due-on-sale and due-on-encumbrance
clauses. These clauses generally provide that the lender may accelerate the
maturity of the loan if the Mortgagor sells or otherwise transfers or
encumbers the mortgaged property. Certain of these clauses may provide that,
upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the Mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect
to certain loans the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms subject to certain limited exceptions.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer, on behalf of the Trust Fund, will determine whether to exercise any
right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in a manner consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain
circumstances, be eliminated in any modified mortgage resulting from such
bankruptcy proceeding.
Subordinate Financing
Where the Mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the
Mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the Mortgagor (as junior
loans often do) and the senior loan does not, a Mortgagor may be more likely
to repay sums due on the junior loan than those on the senior 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 Mortgagor 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 Mortgagor is additionally burdened.
Third, if the Mortgagor 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, Prepayment Charges and Prepayments
Forms of notes and mortgages used by lenders may contain provisions
obligating the Mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid
prior to maturity or prohibit such prepayment for a specified period. In
certain states, there are or may be specific limitations upon the late
charges which a lender may collect from a Mortgagor for delinquent payments.
Certain states also limit the amounts that a lender may collect from a
Mortgagor as an additional charge if the loan is prepaid. The enforceability,
under the laws of a number of states of provisions providing for prepayment
fees or penalties upon, or prohibition of, an involuntary prepayment is
unclear, and no assurance can be given that, at the time a Prepayment Premium
is required to be made on a Mortgage Loan in connection with an involuntary
prepayment, the obligation to make such payment, or the provisions of any
such prohibition, will be enforceable under applicable state law. The absence
of a restraint on prepayment, particularly with respect to Mortgage Loans
having higher Mortgage Interest Rates, may increase the likelihood of
refinancing or other early retirements of the Mortgage Loans.
Acceleration on Default
Unless otherwise specified in the related Prospectus Supplement, some of the
Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose 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.
Furthermore, in some states, the Mortgagor may avoid foreclosure and
reinstate an accelerated loan by paying only the defaulted amounts and the
costs and attorneys' fees incurred by the lender in collecting such defaulted
payments.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980.
The statute 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.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated
on or after January 1, 1980 are subject to federal preemption. Therefore, in
a state that has not taken the requisite action to reject application of
Title V or to adopt a provision limiting discount points or other charges
prior to origination of such mortgage loans, any such limitation under such
state's usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will 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 shall 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 Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this
statutory scheme, the borrower may cancel the recorded mortgage or deed of
trust upon paying its debt with lawful interest, and the lender may
foreclose, but only for the debt plus lawful interest. A second group of
statutes is more severe. A violation of this type of usury law results in the
invalidation of the transaction, thereby permitting the borrower to cancel
the recorded mortgage or deed of trust without any payment or prohibiting the
lender from foreclosing.
Certain Laws and Regulations; Types of Mortgaged Properties
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 Mortgage Property which could, together with the possibility
of limited alternative uses for a particular Mortgaged Property (e.g., a
nursing or convalescent home or hospital), result in a failure to realize the
full principal amount of the related Mortgage Loan. Mortgages on Mortgaged
Properties which are owned by the Mortgagor under a condominium form of
ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the
hotel's operating, liquor and other licenses to the entity acquiring the
hotel either through purchases or foreclosure is subject to the vagaries of
local law requirements. In addition, Mortgaged Properties which are
multifamily residential properties may be subject to rent control laws, which
could impact the future cash flows of such properties.
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 Mortgagor 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 Mortgagor as owner of 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 Mortgagor of complying with the
requirements of the ADA may be subject to more stringent requirements than
those to which the Mortgagor 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 Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor 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 Mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. The
Relief Act applies to Mortgagors 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 Mortgagors 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 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 any
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 servicer to foreclose on an affected Mortgage Loan
during the Mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in
the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned thereby.
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
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered
Certificates is based on the advice of Brown & Wood LLP, counsel to the
Depositor. This summary is based on laws, regulations, including the REMIC
regulations promulgated by the Treasury Department (the "REMIC Regulations"),
rulings and decisions now in effect or (with respect to regulations)
proposed, all of which are subject to change either prospectively or
retroactively. Brown & Wood LLP will deliver an opinion to the Depositor that
the information set forth under this caption, "Certain Federal Income Tax
Consequences," to the extent that it constitutes matters of law or legal
conclusions, is correct in all material respects. This summary does not
address the federal income tax consequences of an investment in Certificates
applicable to all categories of investors, some of which (for example, banks
and insurance companies) may be subject to special rules. Prospective
investors should consult their tax advisors regarding the federal, state,
local and any other tax consequences to them of the purchase, ownership and
disposition of Certificates.
General
The federal income tax consequences to Certificateholders will vary depending
on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made.
Grantor Trust Funds
If a REMIC election is not made, Brown & Wood LLP will deliver its opinion
that the Trust Fund will not be classified as an association taxable as a
corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
owners of Certificates will be treated for federal income tax purposes as
owners of a portion of the Trust Fund's assets as described below.
Single Class of Grantor Trust Certificates Characterization. The Trust Fund
may be created with one class of Grantor Trust Certificates. In this case,
each Grantor Trust Certificateholder will be treated as the owner of a pro
rata undivided interest in the interest and principal portions of the Trust
Fund represented by the Grantor Trust Certificates and will be considered the
equitable owner of a pro rata undivided interest in each of the Mortgage
Assets in the Pool. Any amounts received by a Grantor Trust Certificateholder
in lieu of amounts due with respect to any Mortgage Asset because of a
default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its
pro rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses as itemized deductions only to the extent such expenses plus all
other Code Section 212 expenses exceed two percent of its adjusted gross
income. In addition, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds
the applicable amount (which amount will be adjusted for inflation) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over
the applicable amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share
of income and deductions as and when collected by or paid to the Master
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions
as they become due or are paid to the Master Servicer, whichever is earlier.
If the servicing fees paid to the Master Servicer are deemed to exceed
reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of
the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates Brown & Wood LLP will have advised the Depositor
that: (i)a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . secured by an interest in real property which is . .
residential property" within the meaning of Code Section 7701(a)(19)(C)(v),
to the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section; (ii)a Grantor Trust
Certificate owned by a real estate investment trust representing an interest
in Mortgage Assets will be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and interest income on the
Mortgage Assets will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B),
to the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section; and (iii)a Grantor
Trust Certificate owned by a REMIC will represent "obligation[s] . . which
[are] principally secured by an interest in real property" within the meaning
of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities which constitute "stripped bonds" or "stripped coupons" as those
terms are defined in Section 1286 of the Code, and, as a result, such assets
would be subject to the stripped bond provisions of the Code.
Under these rules, such Government Securities are treated as having
original issue discount based on the purchase price and the stated redemption
price at maturity of each Security. As such, Grantor Trust Certificateholders
would be required to include in income their pro rata share of the original
issue discount on each Government Security recognized in any given year on an
economic accrual basis even if the Grantor Trust Certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the Grantor
Trust Certificateholder in any taxable year may exceed amounts actually
received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Asset based on
each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A
Grantor Trust Certificateholder that acquires an interest in Mortgage Assets
at a premium may elect to amortize such premium under a constant interest
method, provided that the underlying mortgage loans with respect to such
Mortgage Assets were originated after September 27, 1985. Premium allocable
to mortgage loans originated on or before September 27, 1985 should be
allocated among the principal payments on such mortgage loans and allowed as
an ordinary deduction as principal payments are made. Amortizable bond
premium will be treated as an offset to interest income on such Grantor Trust
Certificate. The basis for such Grantor Trust Certificate will be reduced to
the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Code Section 171. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that
such Certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at
a premium should recognize a loss if a Mortgage Loan (or an underlying
mortgage loan with respect to a Mortgage Asset) prepays in full, equal to the
difference between the portion of the prepaid principal amount of such
Mortgage Loan (or underlying mortgage loan) that is allocable to the
Certificate and the portion of the adjusted basis of the Certificate that is
allocable to such Mortgage Loan (or underlying mortgage loan). If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is
not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Securities. Absent further guidance
from the IRS, the Trustee intends to account for amortizable bond premium in
the manner described above. Prospective purchasers of the Securities should
consult their tax advisors regarding the possible application of the
Amortizable Bond Premium Regulations.
Original Issue Discount. The Internal Revenue Service (the "IRS") has stated
in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to original issue discount
("OID") (currently Code Sections 1271 through 1273 and 1275) and Treasury
regulations issued on January 27, 1994, under such Sections (the "OID
Regulations"), will be applicable to a Grantor Trust Certificateholder's
interest in those Mortgage Assets meeting the conditions necessary for these
sections to apply. Rules regarding periodic inclusion of OID income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate Mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Such OID could arise by the financing of points or other charges by the
originator of the mortgages in an amount greater than a statutory de minimis
exception to the extent that the points are not currently deductible under
applicable Code provisions or are not for services provided by the lender.
OID generally must be reported as ordinary gross income as it accrues under a
constant interest method. See "-Multiple Classes of Grantor Trust
Certificates-Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest
in a Mortgage Asset is considered to have been purchased at a "market
discount." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of such Mortgage Asset allocable to such
holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be
considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and
the advisability of making any of the elections allowed under Code Sections
1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at
the time of such payment. The amount of accrued market discount for purposes
of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following
methods. If a Grantor Trust Certificate is issued with OID, the amount of
market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period.
For Grantor Trust Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (i) the
total remaining market discount and (ii) a fraction, the numerator of which
is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be
paid at the beginning of the accrual period. For purposes of calculating
market discount under any of the above methods in the case of instruments
(such as the Grantor Trust Certificates) that provide for payments that may
be accelerated by reason of prepayments of other obligations securing such
instruments, the same prepayment assumption applicable to calculating the
accrual of OID will apply. Because the regulations described above have not
been issued, it is impossible to predict what effect those regulations might
have on the tax treatment of a Grantor Trust Certificate purchased at a
discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also 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 such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred 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.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after
April 4, 1994. If such an election were to be made with respect to a Grantor
Trust Certificate with market discount, the Certificateholder would be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate
that is acquired at a premium will 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 "-Regular
Certificates-Premium" herein. The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is
irrevocable.
b. Multiple Classes of Grantor Trust Certificates
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections
1271 through 1288, Code Section 1286 treats a stripped bond or a stripped
coupon as an obligation issued on the date that such stripped interest is
created. If a Trust Fund is created with two classes of Grantor Trust
Certificates, one class of Grantor Trust Certificates may represent the right
to principal and interest, or principal only, on all or a portion of the
Mortgage Assets (the "Stripped Bond Certificates"), while the second class of
Grantor Trust Certificates may represent the right to some or all of the
interest on such portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the
Mortgage Asset principal balance) or the Certificates are initially sold with
a de minimis discount (assuming no prepayment assumption is required), any
non de minimis discount arising from a subsequent transfer of the
Certificates should be treated as market discount. The IRS appears to require
that reasonable servicing fees be calculated on a Mortgage Asset by Mortgage
Asset basis, which could result in some Mortgage Assets being treated as
having more than 100 basis points of interest stripped off. See "-Non-REMIC
Certificates" and "Multiple Classes of Grantor Trust Certificates-Stripped
Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if
the discount on a Mortgage Asset is larger than a de minimis amount (as
calculated for purposes of the OID rules) a purchaser of such a Certificate
will be required to accrue the discount under the OID rules of the Code. See
"-Non-REMIC Certificates" and "-Single Class of Grantor Trust Certificates-
Original Issue Discount" herein. However, a purchaser of a Stripped Bond
Certificate will be required to account for any discount on the Mortgage
Assets as market discount rather than OID if either (i) the amount of OID
with respect to the Mortgage Assets is treated as zero under the OID de
minimis rule when the Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Assets. Pursuant
to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of Stripped
Bond Certificates using an inconsistent method of accounting must change
their method of accounting and request the consent of the IRS to the change
in their accounting method on a statement attached to their first timely tax
return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. However,
based on the recent IRS guidance, it appears that all payments from a
Mortgage Asset underlying a Stripped Coupon Certificate should be treated as
a single installment obligation subject to the OID rules of the Code, in
which case, all payments from such Mortgage Asset would be included in the
Mortgage Asset's stated redemption price at maturity for purposes of
calculating income on such certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
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 Certificate, it appears
that no loss will be available as a result of any particular prepayment
unless prepayments occur at a rate faster than the assumed prepayment rate.
However, if such Certificate is treated as an interest in discrete Mortgage
Assets, or if no prepayment assumption is used, then when a Mortgage Asset is
prepaid, the holder of such Certificate should be able to recognize a loss
equal to the portion of the adjusted issue price of such Certificate that is
allocable to such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper
treatment of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type
that make up the Trust Fund. With respect to these Code sections, no specific
legal authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of
the underlying Mortgage Assets. While Code Section 1286 treats a stripped
obligation as a separate obligation for purposes of the Code provisions
addressing OID, it is not clear whether such characterization would apply
with regard to these other Code sections. Although the issue is not free from
doubt, based on policy considerations, each class of Grantor Trust
Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(6)(B) and "loans . . . secured by, an interest
in real property which is . . . residential real property" within the meaning
of Code Section 7701(a)(19)(C)(v), and interest income attributable to
Grantor Trust Certificates should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), provided that in each case the underlying Mortgage
Assets and interest on such Mortgage Assets qualify for such treatment.
Prospective purchasers to which such characterization of an investment in
Certificates is material should consult their own tax advisors regarding the
characterization of the Grantor Trust Certificates and the income therefrom.
Grantor Trust Certificates will be "obligation[s] . . which [are]
principally secured, directly or indirectly, by an interest in real property"
within the meaning of Code Section 860G(a)(3).
2. Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans
The original issue discount rules of Code Sections 1271 through 1275 will be
applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate Mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgage in an amount greater
than the statutory de minimis exception, including a payment of points that
is currently deductible by the borrower under applicable Code provisions, or
under certain circumstances, by the presence of "teaser" rates on the
Mortgage Assets. OID on each Grantor Trust Certificate must be included in
the owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to
such income. The amount of OID required to be included in an owner's income
in any taxable year with respect to a Grantor Trust Certificate representing
an interest in Mortgage Assets other than Mortgage Assets with interest rates
that adjust periodically ("ARM Loans") likely will be computed as described
below under "-Accrual of Original Issue Discount." The following discussion
is based in part on the OID Regulations and in part on the provisions of the
Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994, but may be
relied upon as authority with respect to debt instruments, such as the
Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to
April 4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may
be treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issue date of the Mortgage Assets should be used,
or, in the case of Stripped Bond Certificates or Stripped Coupon
Certificates, the date such Certificates are acquired. The holder of a
Certificate should be aware, however, that neither the proposed OID
Regulations nor the OID Regulations adequately address certain issues
relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of
a Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments
to be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described
below under "-Accrual of Original Issue Discount," will, unless otherwise
specified in the related Prospectus Supplement, utilize the original yield to
maturity of the Grantor Trust Certificate calculated based on a reasonable
assumed prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "Prepayment Assumption"), and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "Legislative History")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the
offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate.
The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority
provides guidance with regard to the proper method for accruing OID on
obligations that are subject to prepayment, and, until further guidance is
issued, the Master Servicer intends to calculate and report OID under the
method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding
the date of disposition. In the case of an original owner, the daily portions
of OID with respect to each component generally will be determined as set
forth under the OID Regulations. A calculation will be made by the Master
Servicer or such other entity specified in the related Prospectus Supplement
of the portion of OID that accrues during each successive monthly accrual
period (or shorter period from the date of original issue) that ends on the
day in the calendar year corresponding to each of the Distribution Dates on
the Grantor Trust Certificates (or the day prior to each such date). This
will be done, in the case of each full month accrual period, by (i) adding
(a) the present value at the end of the accrual period (determined by using
as a discount factor the original yield to maturity of the respective
component under the Prepayment Assumption) of all remaining payments to be
received under the Prepayment Assumption on the respective component and
(b) any payments included in the state redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the
"adjusted issue price" of the respective component at the beginning of such
accrual period. The adjusted issue price of a Grantor Trust Certificate at
the beginning of the first accrual period is its issue price; the adjusted
issue price of a Grantor Trust Certificate at the beginning of a subsequent
accrual period is the adjusted issue price at the beginning of the
immediately preceding accrual period plus the amount of OID allocable to that
accrual period reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period.
The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each
day in the period. With respect to an initial accrual period shorter than a
full monthly accrual period, the daily portions of OID must be determined
according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired after its initial
issuance at a price greater than the sum of the original issue price and the
previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such
Mortgage Asset, no original issue discount attributable to the difference
between the issue price and the original principal amount of such Mortgage
Asset (i.e., points) will be includible by such holder. Other original issue
discount on the Mortgage Assets (e.g., that arising from a "teaser" rate)
would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as the
Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon
stripping rules with respect to such instruments. In the absence of any
authority, the Master Servicer will report OID on Grantor Trust Certificates
attributable to ARM Loans ("Stripped ARM Obligations") to holders in a manner
it believes is consistent with the rules described above under the heading "-
Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans" and with the OID Regulations. In general, application of these
rules may require inclusion of income on a Stripped ARM Obligation in advance
of the receipt of cash attributable to such income. Further, the addition of
interest deferred by reason of negative amortization ("Deferred Interest") to
the principal balance of an ARM Loan may require the inclusion of such amount
in the income of the Grantor Trust Certificateholder when such amount
accrues. Furthermore, the addition of Deferred Interest to the Grantor Trust
Certificate's principal balance will result in additional income (including
possibly OID income) to the Grantor Trust Certificateholder over the
remaining life of such Grantor Trust Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will
be includible with respect to such Certificates.
c. Sale or Exchange of a Grantor Trust Certificate
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate.
Such adjusted basis generally will equal the seller's purchase price for the
Grantor Trust Certificate, increased by the OID included in the seller's
gross income with respect to the Grantor Trust Certificate, and reduced by
principal payments on the Grantor Trust Certificate previously received by
the seller. Such gain or loss will be capital gain or loss to an owner for
which a Grantor Trust Certificate is a "capital asset" within the meaning of
Code Section 1221, and will be long-term or short-term depending on whether
the Grantor Trust Certificate has been owned for the long-term capital gain
holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from
the sale of a Grantor Trust Certificate by a bank or a thrift institution to
which such section applies will be treated as ordinary income or loss.
d. Non-U.S. Persons
Generally, to the extent that a Grantor Trust Certificate evidences ownership
in underlying Mortgage Assets that were issued on or before July 18, 1984,
interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an
owner that is not a U.S. Person will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Mortgage Assets issued after
July 18, 1984, by natural persons if such Grantor Trust Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the Grantor Trust Certificateholder under penalties of
perjury, certifying that such Grantor Trust Certificateholder is not a U.S.
Person and providing the name and address of such Grantor Trust
Certificateholder). Additional restrictions apply to Mortgage Assets of where
the Mortgagor is not a natural person in order to qualify for the exemption
from withholding.
The term "U.S. Person" means 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 is subject to U.S. federal income tax regardless of its
source of income, or a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
e. Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a reasonable time
after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
REMICs
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however "-Taxation of Owners of REMIC Residual Certificates" and "-
Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including
the implementation of restrictions on the purchase and transfer of the
residual interests in a REMIC as described below under "Taxation of Owners of
REMIC Residual Certificates," the Code provides that a Trust Fund will not be
treated as a REMIC for such year and thereafter. In that event, such entity
may be taxable as a separate corporation, and the related Certificates (the
"REMIC Certificates") may not be accorded the status or given the tax
treatment described below. While the Code authorizes the Treasury Department
to issue regulations providing relief in the event of an inadvertent
termination of the status of a trust fund as a REMIC, 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 REMIC's
income for the period in which the requirements for such status are not
satisfied. With respect to each Trust Fund that elects REMIC status, Brown &
Wood LLP will deliver its opinion generally to the effect that, under then
existing law and assuming compliance with all provisions of the related
Pooling and Servicing Agreement, such Trust Fund will qualify as a REMIC, and
the related Certificates will be considered to be regular interests ("REMIC
Regular Certificates") or a sale class of residual interests ("REMIC Residual
Certificates") in the REMIC. The related Prospectus Supplement for each
Series of Certificates will indicate whether the Trust Fund will make a REMIC
election and whether a class of Certificates will be treated as a regular or
residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the REMIC
within a prescribed time period in exchange for regular or residual interests
in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed
as a "domestic building and loan association" will constitute assets
described in Code Section 7701(a)(19)(C); (ii) Certificates held by a real
estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(6)(B); and (iii) interest on Certificates held
by a real estate investment trust will be considered "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B). If less than 95% of the REMIC's assets are assets qualifying
under any of the foregoing Code sections, the Certificates will be qualifying
assets only to the extent that the REMIC's assets are qualifying assets. In
addition, payments on Mortgage Assets held pending distribution on the REMIC
Certificates will be considered to be real estate assets for purposes of Code
Section 856(c).
Tiered REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat designated portions of the related Trust Fund
as REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Brown & Wood LLP, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions
of the related Agreement, the Master REMIC as well as any Subsidiary REMIC
will each qualify as a REMIC, and the REMIC Certificates issued by the Master
REMIC and the Subsidiary REMIC, respectively, 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.
Only REMIC Certificates, other than the residual interest in the
Subsidiary REMIC, issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be (i) "real
estate assets" within the meaning of Section 856(c)(6)(B) of the Code; (ii)
"loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates
is interest described in Section 856(c)(3)(B) of the Code.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
a. 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 and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates
issued with OID will be required to include such OID in gross income for
federal income tax purposes as it accrues, in accordance with a constant
interest method based on the compounding of interest as it accrues rather
than in accordance with receipt of the interest payments. The following
discussion is based in part on the OID Regulations and in part on the
provisions of the 1986 Act. Holders of REMIC Regular Certificates (the "REMIC
Regular Certificateholders") should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated
reinvestment rate, if any, relating to the REMIC Regular Certificates and
prescribe a method for adjusting the amount and rate of accrual of such
discount where the actual prepayment rate differs from the Prepayment
Assumption. Under the Code, the Prepayment Assumption must be determined in
the manner prescribed by regulations, which regulations have not yet been
issued. The Legislative History provides, however, that Congress intended the
regulations to require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such
REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used
for the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of
its "stated redemption price at maturity" over its "issue price." The issue
price of a REMIC Regular Certificate is the first price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses, brokers, underwriters or wholesalers).
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 treated
as the fair market value of such class on the Closing Date. The issue price
of a REMIC Regular Certificate also includes the amount paid by an initial
Certificateholder for accrued interest that relates to a period prior to the
issue date of the REMIC Regular Certificate. The stated redemption price at
maturity of a REMIC Regular Certificate includes the original principal
amount of the REMIC Regular Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest." Qualified stated interest generally means interest payable at a
single fixed rate or qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one
year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately
takes into account the length of the interval between payments. Distributions
of interest on REMIC Regular Certificates with respect to which Deferred
Interest will accrue will not constitute qualified stated interest payments,
and the stated redemption price at maturity of such REMIC Regular
Certificates includes all distributions of interest as well as principal
thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during
the first period is treated as the amount by which the stated redemption
price at maturity of the Certificate exceeds its issue price for purposes of
the de minimis rule described below. The OID Regulations suggest that all
interest on a long first period REMIC Regular Certificate that is issued with
non-de minimis OID, as determined under the foregoing rule, will be treated
as OID. Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is shorter than the interval between
subsequent Distribution Dates, interest due on the first Distribution Date in
excess of the amount that accrued during the first period would be added to
the Certificates stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the
issue price and stated redemption price at maturity of a REMIC Regular
Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included
in the stated redemption price at maturity of the REMIC Regular Certificate
and the denominator of which is the stated redemption price at maturity of
the REMIC Regular Certificate. Although currently unclear, it appears that
the schedule of such distributions should be determined in accordance with
the Prepayment Assumption. The Prepayment Assumption with respect to a
Series of REMIC Regular Certificates will be set forth in the related
Prospectus Supplement. Holders generally must report de minimis OID pro rata
as principal payments are received, and such income will be capital gain if
the REMIC Regular Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market
discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances
(the "Super-Premium Certificates"). The income tax treatment of such REMIC
Regular Certificates is not entirely certain. For information reporting
purposes, the Trust Fund intends to take the position that the stated
redemption price at maturity of such REMIC Regular Certificates is the sum of
all payments to be made on such REMIC Regular Certificates determined under
the Prepayment Assumption, with the result that such REMIC Regular
Certificates would be issued with OID. The calculation of income in this
manner could result in negative original issue discount (which delays future
accruals of OID rather than being immediately deductible) when prepayments on
the Mortgage Assets exceed those estimated under the Prepayment Assumption.
If the Super Premium Certificates were treated as contingent payment
obligations, it is unclear how holders of those Certificates would report
income or recover their basis. In the alternative, the IRS could assert that
the stated redemption price at maturity of such REMIC Regular Certificates
should be limited to their principal amount (subject to the discussion below
under "-Accrued Interest Certificates"), so that such REMIC Regular
Certificates would be considered for federal income tax purposes to be issued
at a premium. If such a position were to prevail, the rules described below
under "-Taxation of Owners of REMIC Regular Certificates-Premium" would
apply. It is unclear when a loss may be claimed for any unrecovered basis for
a Super-Premium Certificate. It is possible that a holder of a Super-Premium
Certificate may only claim a loss when its remaining basis exceeds the
maximum amount of future payments, assuming no further prepayments or when
the final payment is received with respect to such Super-Premium Certificate.
The Internal Revenue Service (the "IRS") recently issued final
regulations (the "Contingent Regulations") governing the calculation of OID
on instruments having contingent interest payments. The Contingent
Regulations specifically do not apply for the purposes of calculating OID on
debt instruments subject to Code Section 1272(a)(6), such as the REMIC
Regular Certificates. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). Until the
Treasury issues guidance to the contrary, the Trustee intends to base its
computation on Code Section 1272(a)(6) and the OID Regulations as described
in this Prospectus. However, because no regulatory guidance currently exists
under Code Section 1272(a)(6), there can be no assurance that such
methodology represents the correct manner of calculating OID.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular
Certificate generally should not be treated as a Super-Premium Certificate
and the rules described below under "-REMIC Regular Certificates-Premium"
should apply. However, it is possible that holders of REMIC Regular
Certificates issued at a premium, even if the premium is less than 25% of
such Certificate's actual principal balance, will be required to amortize the
premium under an original issue discount method or contingent interest method
even though no election under Code Section 171 is made to amortize such
premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on
a REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the
disposition date. In the case of an original holder of a REMIC Regular
Certificate, a calculation will be made of the portion of the OID that
accrues during each successive period (an "accrual period") that ends on the
day in the calendar year corresponding to a Distribution Date (or if
Distribution Dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last
day of the immediately preceding month) and begins on the day after the end
of the immediately preceding accrual period (or on the issue date in the case
of the first accrual period). This will be done, in the case of each full
accrual period, by (i) adding (a) the present value at the end of the accrual
period (determined by using as a discount factor the original yield to
maturity of the REMIC Regular Certificates as calculated under the Prepayment
Assumption) of all remaining payments to be received on the REMIC Regular
Certificates under the Prepayment Assumption and (b) any payments included in
the stated redemption price at maturity received during such accrual period,
and (ii) subtracting from that total the adjusted issue price of the REMIC
Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first
accrual period is its issue price; the adjusted issue price of a REMIC
Regular Certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment other than a payment of qualified stated interest
made at the end of or during that accrual period. The OID accrued during an
accrual period will then be divided by the number of days in the period to
determine the daily portion of OID for each day in the accrual period. The
calculation of OID under the method described above will cause the accrual of
OID to either increase or decrease (but never below zero) in a given accrual
period to reflect the fact that prepayments are occurring faster or slower
than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable
method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular
Certificate. In computing the daily portions of OID for such a purchaser (as
well as an initial purchaser that purchases at a price higher than the
adjusted issue price but less than the stated redemption price at maturity),
however, the daily portion is reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by
which the price paid by such holder for that REMIC Regular Certificate
exceeds the following amount: (a) the sum of the issue price plus the
aggregate amount of OID that would have been includible in the gross income
of an original REMIC Regular Certificateholder (who purchased the REMIC
Regular Certificate at its issue price), less (b) any prior payments included
in the stated redemption price at maturity, and the denominator of which is
the sum of the daily portions for that REMIC Regular Certificate for all days
beginning on the date after the purchase date and ending on the maturity date
computed under the Prepayment Assumption. A holder who pays an acquisition
premium instead may elect to accrue OID by treating the purchase as a
purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest
if, generally, (i) such interest is unconditionally payable at least
annually, (ii) the issue price of the debt instrument does not exceed the
total noncontingent principal payments and (iii) interest is based on a
"qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates," one "qualified inverse
floating rate," or a combination of "qualified floating rates" that do not
operate in a manner that significantly accelerates or defers interest
payments on such REMIC Regular Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under "-
Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest
rates on Mortgage Loans as qualified stated interest.
In such case, the weighted average rate used to compute the initial
pass-through rate on the REMIC Regular Certificates will be deemed to be the
index in effect through the life of the REMIC Regular Certificates. It is
possible, however, that the IRS may treat some or all of the interest on
REMIC Regular Certificates with a weighted average rate as taxable under the
rules relating to obligations providing for contingent payments. Such
treatment may effect the timing of income accruals on such REMIC Regular
Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such Certificateholder acquires during the year
of the election or thereafter. Similarly, a Certificateholder that makes this
election for a Certificate that is acquired at a premium will 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 "-REMIC Regular Certificates-Premium" herein. The election
to accrue interest, discount and premium on a constant yield method with
respect to a Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal
amount or, in the case of a REMIC Regular Certificate with OID, the adjusted
issue price (determined for this purpose as if the purchaser had purchased
such REMIC Regular Certificate from an original holder) over (ii) the price
for such REMIC Regular Certificate paid by the purchaser. A Certificateholder
that purchases a REMIC Regular Certificate at a market discount will
recognize income upon receipt of each distribution representing amounts
included in such certificate's stated redemption price at maturity. In
particular, under Section 1276 of the Code such a holder generally will be
required to allocate each such distribution 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.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular
Certificate is less than 0.25% of such REMIC Regular Certificate's stated
redemption price at maturity multiplied by such REMIC Regular Certificate's
weighted average maturity remaining after the date of purchase. If market
discount on a REMIC Regular Certificate is considered to be zero under this
rule, the actual amount of market discount must be allocated to the remaining
principal payments on the REMIC Regular Certificate, and gain equal to such
allocated amount will be recognized when the corresponding principal payment
is made. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any
of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at
the time of such payment. The amount of accrued market discount for purposes
of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued 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, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods.
For REMIC Regular Certificates issued with OID, the amount of market discount
that accrues during a period is equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the
OID accruing during the period and the denominator of which is the total
remaining OID at the beginning of the period. For REMIC Regular Certificates
issued without OID, the amount of market discount that accrues during a
period is equal to the product of (a) the total remaining market discount and
(b) a fraction, the numerator of which is the amount of stated interest paid
during the accrual period and the denominator of which is the total amount of
stated interest remaining to be paid at the beginning of the period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the REMIC Regular Certificates) that provide for
payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption
applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also 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 such 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 purchaser of a REMIC Regular Certificate that purchases the REMIC
Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium
and may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that
such Certificateholder acquires during the year of the election or
thereafter. It is not clear whether the Prepayment Assumption would be taken
into account in determining the life of the REMIC Regular Certificate for
this purpose. However, the Legislative History states that the same
rules that apply to accrual of market discount (which rules require use of a
Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have OID)
will also apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the interest
payments on such REMIC Regular Certificates and will be applied as an offset
against such interest payment.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Securities. Absent further guidance
from the IRS, the Trustee intends to account for amortizable bond premium in
the manner described above. Prospective purchasers of the Securities should
consult their tax advisors regarding the possible application of the
Amortizable Bond Premium Regulations.
Deferred Interest. Certain classes of REMIC Regular Certificates may provide
for the accrual of Deferred Interest with respect to one or more ARM Loans.
Any Deferred Interest that accrues with respect to a class of REMIC Regular
Certificates will constitute income to the holders of such Certificates prior
to the time distributions of cash with respect to such Deferred Interest are
made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all
or a portion of the interest payable on such Certificates must be included in
the stated redemption price at maturity of the Certificates and accounted for
as OID (which could accelerate such inclusion). Interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method by
the holders of such Certificates and, therefore, applying the latter analysis
may result only in a slight difference in the timing of the inclusion in
income of interest on such REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event
there are defaults or delinquencies on the Mortgage Assets, amounts that
would otherwise be distributed on the Subordinated Certificates may instead
be distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinated Certificates attributable to
defaults and delinquencies on the Mortgage Assets, except to the extent that
it can be established that such amounts are uncollectible. As a result, the
amount of income reported by a Subordinated Certificateholder in any period
could significantly exceed the amount of cash distributed to such holder in
that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount
of distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets. Timing and
characterization of such losses is discussed in "-REMIC Regular Certificates-
Treatment of Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange,
redemption, or retirement and the seller's adjusted basis in the REMIC
Regular Certificate. Such adjusted basis generally will equal the cost of the
REMIC Regular Certificate to the seller, increased by any OID and market
discount included in the seller's gross income with respect to the REMIC
Regular Certificate, and reduced (but not below zero) by payments included in
the stated redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment that is
part of the stated redemption price at maturity of a REMIC Regular
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over the holder's adjusted basis in the REMIC Regular
Certificate. A REMIC Regular Certificateholder who receives a final payment
that is less than the holder's adjusted basis in the REMIC Regular
Certificate will generally recognize a loss. Except as provided in the
following paragraph and as provided under "-Market Discount" above, any such
gain or loss will be capital gain or loss, provided that the REMIC Regular
Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to
the extent that such gain does not exceed the excess, if any, of (i) the
amount that would have been includible in such holder's income with respect
to the REMIC Regular Certificate had income accrued thereon at a rate equal
to 110% of the AFR as defined in Code Section 1274(d) determined as of the
date of purchase of such REMIC Regular Certificate, over (ii) the amount
actually includible in such holder's income.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
Section applies will be ordinary income or loss.
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 necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method
would require information relating to the holder's purchase price which the
REMIC may not have, it appears that the information reports will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
Accrued Interest Certificates. Certain of the REMIC
Regular Certificates ("Payment Lag Certificates") may provide for payments of
interest based on a period that corresponds to the interval between
Distribution Dates but that ends prior to each such Distribution Date. The
period between the Closing Date for Payment Lag Certificates and their first
Distribution Date may or may not exceed such interval. Purchasers of Payment
Lag Certificates for which the period between the Closing Date and the first
Distribution Date does not exceed such interval could pay upon purchase of
the REMIC Regular Certificates accrued interest in excess of the accrued
interest that would be paid if the interest paid on the Distribution Date
were interest accrued from Distribution Date to Distribution Date. If a
portion of the initial purchase price of a REMIC Regular Certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest") and the REMIC Regular Certificate provides for a payment
of stated interest on the first payment date (and the first payment date is
within one year of the issue date) that equals or exceeds the amount of the
pre-issuance accrued interest, then the REMIC Regular Certificates' issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the
case of a Payment Lag Certificate, the Trust Fund intends to include accrued
interest in the issue price and report interest payments made on the first
Distribution Date as interest to the extent such payments represent interest
for the number of days that the Certificateholder has held such Payment Lag
Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations, if
the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See
"Pass-Through of Non-Interest Expenses of the REMIC" under "-Taxation of
Owners of REMIC Residual Certificates" below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general
be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless, and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any
loss sustained during the taxable year on account of any such Certificates
becoming wholly worthless. Although the matter is not entirely clear,
non-corporate holders of Certificates may be allowed a bad debt deduction at
such time that the principal balance of any such Certificate is reduced to
reflect realized losses resulting from any liquidated Mortgage Assets. The
Internal Revenue Service, however, could take the position that non-corporate
holders will be allowed a bad debt deduction to reflect realized losses only
after all Mortgage Assets remaining in the related Trust Fund have been
liquidated or the Certificates of the related Series have been otherwise
retired. Potential investors and holders of the Certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Certificates, including
any loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such
taxpayers are advised to consult their tax advisors regarding the treatment
of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the REMIC Regular Certificateholder under penalties of
perjury, certifying that such REMIC Regular Certificateholder is a foreign
person and providing the name and address of such REMIC Regular
Certificateholder). If a REMIC Regular Certificateholder is not exempt from
withholding, distributions of interest to such holder, including
distributions in respect of accrued OID, may be subject to a 30% withholding
tax, subject to reduction under any applicable tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual and will not be subject to United States
estate taxes. However, Certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates,
and holders of REMIC Residual Certificates (the "REMIC Residual
Certificateholder") and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates without consulting their
tax advisors as to the possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at
any time during such year, such information as may be deemed necessary or
desirable to assist REMIC Regular Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
REMIC Regular Certificates on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
b. Taxation of Owners of REMIC Residual Certificates
Allocation of the Income of the REMIC to the REMIC Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "-Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a REMIC
Residual Certificate will report on its federal income tax return, as
ordinary income, its share of the taxable income of the REMIC for each day
during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter
ratably to each day in the quarter. Such a holder's share of the taxable
income of the REMIC for each day will be based on the portion of the
outstanding REMIC Residual Certificates that such holder owns on that day.
The taxable income of the REMIC will be determined under an accrual method
and will be taxable to the holders of REMIC Residual Certificates without
regard to the timing or amounts of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income"
for purposes of the taxation of taxpayers subject to the limitations on the
deductibility of "passive losses." As residual interests, the REMIC Residual
Certificates will be subject to tax rules, described below, that differ from
those that would apply if the REMIC Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the Certificates
or as debt instruments issued by the REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such
a mismatching of income and cash distributions (that is, "phantom income").
This mismatching may be caused by the use of certain required tax accounting
methods by the REMIC, variations in the prepayment rate of the underlying
Mortgage Assets and certain other factors. Depending upon the structure of a
particular transaction, the aforementioned factors may significantly reduce
the after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder. Investors should consult their own tax advisors concerning
the federal income tax treatment of a REMIC Residual Certificate and the
impact of such tax treatment on the after-tax yield of a REMIC Residual
Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would
equal the amounts that would have been reported for the same days by an
original REMIC Residual Certificateholder, as described above. The
Legislative History indicates that certain adjustments may be appropriate to
reduce (or increase) the income of a subsequent holder of a REMIC Residual
Certificate that purchased such REMIC Residual Certificate at a price greater
than (or less than) the adjusted basis such REMIC Residual Certificate would
have in the hands of an original REMIC Residual Certificateholder. See "-Sale
or Exchange of REMIC Residual Certificates" below. It is not clear, however,
whether such adjustments will in fact be permitted or required and, if so,
how they would be made. The REMIC Regulations do not provide for any such
adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed
to the REMIC for interest and OID on the REMIC Regular Certificates and,
except as described above under "-Taxation of Owners of REMIC Regular
Certificates-Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable
income of an individual using the accrual method of accounting, except that
(i) the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will
be deductible as business bad debts, and (iii) the limitation on the
deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC's gross income includes interest, original issue discount
income, and market discount income, if any, on the Mortgage Loans, reduced by
amortization of any premium on the Mortgage Loans, plus income on
reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the REMIC Regular
Certificates. Note that the timing of cancellation of indebtedness income
recognized by REMIC Residual Certificateholders resulting from defaults and
delinquencies on Mortgage Assets may differ from the time of the actual loss
on the Mortgage Asset. The REMIC's deductions include interest and original
issue discount expense on the REMIC Regular Certificates, servicing fees on
the Mortgage Loans, other administrative expenses of the REMIC and realized
losses on the Mortgage Loans. The requirement that REMIC Residual
Certificateholders report their pro rata share of taxable income or net loss
of the REMIC will continue until there are no Certificates of any class of
the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue
prices of the REMIC Regular Certificates and the REMIC Residual Certificates
(or, if a class of Certificates is not sold initially, its fair market
value). Such aggregate basis will be allocated among the Mortgage Assets and
other assets of the REMIC in proportion to their respective fair market
value. A Mortgage Asset will be deemed to have been acquired with discount or
premium to the extent that the REMIC's basis therein is less than or greater
than its principal balance, respectively. Any such discount (whether market
discount or OID) 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 OID on the REMIC Regular
Certificates. The REMIC expects to elect under Code Section 171 to amortize
any premium on the Mortgage Assets. Premium on any Mortgage Asset to which
such election applies would be amortized under a constant yield method. It is
not clear whether the yield of a Mortgage Asset would be calculated for this
purpose based on scheduled payments or taking account of the Prepayment
Assumption. Additionally, such an election would not apply to the yield with
respect to any underlying mortgage loan originated on or before September 27,
1985. Instead, premium with respect to such a mortgage loan would be
allocated among the principal payments thereon and would be deductible by the
REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with
respect to REMIC Regular Certificates except that the 0.25% per annum de
minimis rule and adjustments for subsequent holders described therein will
not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the
REMIC's taxable income. However, REMIC taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in its
assets, and, as described above, the issue price of the REMIC Residual
Certificates will be added to the issue price of the REMIC Regular
Certificates in determining the REMIC's initial basis in its assets. See "-
Sale or Exchange of REMIC Residual Certificates" below. For a discussion of
possible adjustments to income of a subsequent holder of a REMIC Residual
Certificate to reflect any difference between the actual cost of such REMIC
Residual Certificate to such holder and the adjusted basis such REMIC
Residual Certificate would have in the hands of an original REMIC Residual
Certificateholder, see "-Allocation of the Income of the REMIC to the REMIC
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would
be allocated among the REMIC Residual Certificateholders in the same manner
as the REMIC's taxable income. The net loss allocable to any REMIC Residual
Certificate will not be deductible by the holder to the extent that such net
loss exceeds such holder's adjusted basis in such REMIC Residual Certificate.
Any net loss that is not currently deductible by reason of this limitation
may only be used by such REMIC Residual Certificateholder to offset its share
of the REMIC's taxable income in future periods (but not otherwise). The
ability of REMIC Residual Certificateholders that are individuals or closely
held corporations to deduct net losses may be subject to additional
limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual Certificate
should be aware that the IRS recently finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked-to-market.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC
will be allocated to holders of the related REMIC Residual Certificates in
their entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest
in a REMIC Regular Certificate or a REMIC Residual Certificate directly or
through a pass-through interest holder that is required to pass miscellaneous
itemized deductions through to its owners or beneficiaries (e.g., a
partnership, an S corporation or a grantor trust), such expenses will be
deductible under Code Section 67 only to the extent that such expenses, plus
other "miscellaneous itemized deductions" of the individual, exceed 2% of
such individual's adjusted gross income. In addition, Code Section 68
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the
"Applicable Amount") will be reduced by the lesser of (i) 3% of the excess of
the individual's adjusted gross income over the Applicable Amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the taxable
year. The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section
67 or Code Section 68 may be substantial. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. The REMIC is required to report to each pass-through
interest holder and to the IRS such holder's allocable share, if any, of the
REMIC's non-interest expenses. The term "pass-through interest holder"
generally refers to individuals, entities taxed as individuals and certain
pass-through entities, but does not include real estate investment trusts.
REMIC Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will be subject to federal income tax in all events. Thus, for example, an
excess inclusion (i) may not be offset by any unrelated losses, deductions or
loss carryovers of a REMIC Residual Certificateholder; (ii) will be treated
as "unrelated business taxable income" within the meaning of Code Section 512
if the REMIC Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income (see "-Tax-Exempt Investors" below); and (iii) is not eligible for any
reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "-Non-U.S. Persons" below.
With respect to any REMIC Residual Certificateholder, the excess
inclusions for any calendar quarter is the excess, if any, of (i) the income
of such REMIC Residual Certificateholder for that calendar quarter from its
REMIC Residual Certificate over (ii) the sum of the "daily accruals" (as
defined below) for all days during the calendar quarter on which the REMIC
Residual Certificateholder holds such REMIC Residual Certificate. For this
purpose, the daily accruals with respect to a REMIC Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable
portion of the product of the "adjusted issue price" (as defined below) of
the REMIC Residual Certificate at the beginning of the calendar quarter and
120 percent of the "Federal long-term rate" in effect at the time the REMIC
Residual Certificate is issued. For this purpose, the "adjusted issue price"
of a REMIC Residual Certificate at the beginning of any calendar quarter
equals the issue price of the REMIC Residual Certificate, increased by the
amount of daily accruals for all prior quarters, and decreased (but not below
zero) by the aggregate amount of payments made on the REMIC Residual
Certificate before the beginning of such quarter. The "federal long-term
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.
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 Code Section
857(b)(2), 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. Regulated investment companies, common trust
funds and certain cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1,
1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the
alternative minimum taxable income of a residual holder. First, alternative
minimum taxable income for such residual holder is determined without regard
to the special rule that taxable income cannot be less than excess
inclusions. Second, a residual holder's alternative minimum taxable income
for a tax year cannot be less than excess inclusions for the year. Third, the
amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions. These rules are effective
for tax years beginning after December 31, 1986, unless a residual holder
elects to have such rules apply only to tax years beginning after August 20,
1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital
to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a
distribution exceeds such adjusted basis, it will be treated as gain from the
sale of the REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except
that the recognition of loss may be limited under the "wash sale" rules
described below). A holder's adjusted basis in a REMIC Residual Certificate
generally equals the cost of such REMIC Residual Certificate to such REMIC
Residual Certificateholder, increased by the taxable income of the REMIC that
was included in the income of such REMIC Residual Certificateholder with
respect to such REMIC Residual Certificate, and decreased (but not below
zero) by the net losses that have been allowed as deductions to such REMIC
Residual Certificateholder with respect to such REMIC Residual Certificate
and by the distributions received thereon by such REMIC Residual
Certificateholder. In general, any such gain or loss will be capital gain or
loss provided the REMIC Residual Certificate is held as a capital asset.
However, REMIC Residual Certificates will be "evidences of indebtedness"
within the meaning of Code Section 582(c)(1), so that gain or loss recognized
from sale of a REMIC Residual Certificate by a bank or thrift institution to
which such Section applies would be ordinary income or loss.
Except as 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 REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool"
(as defined in Code Section 7701(i)) 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 Code Section 1091. In that event, any
loss realized by the REMIC Residual Certificateholder on the sale will not be
deductible, but, instead, will increase such REMIC Residual
Certificateholder's adjusted basis in the newly acquired asset.
Prohibited Transactions and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived from
"prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other
than a Mortgage Asset 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 Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund
for any Series of Certificates will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "Contributions Tax"). No Trust Fund for any
Series of Certificates will accept contributions that would subject it to
such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be 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 income from foreclosure
property other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax
that may be imposed on a REMIC relating to any Series of Certificates arises
out of or results from (i) a breach of the related Master Servicer's,
Trustee's or Seller's obligations, as the case may be, under the related
Agreement for such Series, such tax will be borne by such Master Servicer,
Trustee or Seller, as the case may be, out of its own funds or (ii) the
Seller's obligation to repurchase a Mortgage Loan, such tax will be borne by
the Seller. In the event that such Master Servicer, Trustee or Seller, as the
case may be, fails to pay or is not required to pay any such tax as provided
above, such tax will be payable out of the Trust Fund for such Series and
will result in a reduction in amounts available to be distributed to the
Certificateholders of such Series.
Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC will not be subject to any Prohibited
Transaction Tax, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than the amounts
retained to meet claims) to holders of Regular and REMIC Residual
Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis
in the REMIC Residual Certificate exceeds the amount of cash distributed to
such REMIC Residual Certificateholder in final liquidation of its interest,
then it would appear that the REMIC Residual Certificateholder would be
entitled to a loss equal to the amount of such excess. It is unclear whether
such a loss, if allowed, will be a capital loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will
be furnished quarterly to each REMIC Residual Certificateholder who held a
REMIC Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. The REMIC does
not intend to register as a tax shelter pursuant to Code Section 6111 because
it is not anticipated that the 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 the REMIC, in a manner to be provided in Treasury regulations, with
the name and address of such person and other information.
Tax-Exempt Investors
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to
such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "-Taxation of Owners
of REMIC Residual Certificates-Excess Inclusions" above.
Residual Certificate Payments Non-U.S. Persons
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "-Taxation of Owners of REMIC Regular Certificates-Non-U.S. Persons"
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC
Residual Certificates should qualify as "portfolio interest," subject to the
conditions described in "-Taxation of Owners of REMIC Regular Certificates"
above, but only to the extent that the underlying mortgage loans were
originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a REMIC Residual Certificate that is excess inclusion income will
not be subject to reduction under any applicable tax treaties. See "-Taxation
of Owners of REMIC Residual Certificates-Excess Inclusions" above. If the
portfolio interest exemption is unavailable, such amount will be subject to
United States withholding tax when paid or otherwise distributed (or when the
REMIC Residual Certificate is disposed of) under rules similar to those for
withholding upon disposition of debt instruments that have OID. The Code,
however, grants the Treasury Department authority to issue regulations
requiring that those amounts be taken into account earlier than otherwise
provided where necessary to prevent avoidance of tax (for example, where the
REMIC Residual Certificates do not have significant value). See "-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" above. If the
amounts paid to REMIC Residual Certificateholders that are not U.S. persons
are effectively connected with their conduct of a trade or business within
the United States, the 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U.S.
federal income taxation at regular graduated rates. For special restrictions
on the transfer of REMIC Residual Certificates, see "-Tax-Related
Restrictions on Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their
tax advisors as to the possible adverse tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of REMIC Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests
in such entity are not held by "disqualified organizations" (as defined
below). Further, a tax is imposed on the transfer of a residual interest in a
REMIC to a "disqualified organization." The amount of the tax equals the
product of (A) an amount (as determined under the REMIC Regulations) equal to
the present value of the total anticipated "excess inclusions" with respect
to such interest for periods after the transfer and (B) the highest marginal
federal income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or
other middleman) for a disqualified organization, in which event the tax is
imposed on the agent. The person otherwise liable for the tax shall be
relieved of liability for the tax if the transferee furnished to such person
an affidavit that the transferee is not a disqualified organization and, at
the time of the transfer, such person does not have actual knowledge that the
affidavit is false. A "disqualified organization" means (A) the United
States, any State, possession or political subdivision thereof, any foreign
government, any international organization or any agency or instrumentality
of any of the foregoing (provided that such term does not include an
instrumentality if all its activities are subject to tax and, except for
FHLMC, a majority of its board of directors is not selected by any such
governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified
organization and, for such period, the pass-through entity does not have
actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means (i) a regulated investment company, real estate
investment trust or common trust fund, (ii) a partnership, trust or estate
and (iii) certain cooperatives. Except as may be provided in Treasury
regulations not yet issued, any person holding an interest in a pass-through
entity as a nominee for another will, with respect to such interest, be
treated as a pass-through entity. The tax on pass-through entities is
generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common
trust funds and publicly-traded partnerships the tax shall apply only to
taxable years of such entities beginning after December 31, 1988.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may
be purchased, transferred or sold, directly or indirectly, without the
express written consent of the Master Servicer. The Master Servicer will
grant such consent to a proposed transfer only if it receives the following:
(i) an affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to
be bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a "U.S. Person," as defined above, unless no significant
purpose of the transfer is to enable the transferor to impede the assessment
or collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its
share of the taxable income of the REMIC. A transferor is presumed not to
have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to the
transferor that the residual interest may generate tax liabilities in excess
of the cash flow and the transferee represents that it intends to pay such
taxes associated with the residual interest as they become due. If a transfer
of a Noneconomic REMIC Residual Certificate is disregarded, the transferor
would continue to be treated as the owner of the REMIC Residual Certificate
and would continue to be subject to tax on its allocable portion of the net
income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This
rule appears to apply to a transferee who is not a U.S. Person unless such
transferee's income in respect of the REMIC Residual Certificate is
effectively connected with the conduct of a United States trade or business.
A REMIC Residual Certificate is deemed to have a tax avoidance potential
unless, at the time of transfer, the transferor reasonably expects that the
REMIC will distribute to the transferee amounts that will equal at least 30
percent of each excess inclusion, and that such amounts will be distributed
at or after the time the excess inclusion accrues and not later than the end
of the calendar year following the year of accrual. If the non-U.S. Person
transfers the REMIC Residual Certificate to a U.S. Person, the transfer will
be disregarded, and the foreign transferor will continue to be treated as the
owner, if the transfer has the effect of allowing the transferor to avoid tax
on accrued excess inclusions. The provisions in the REMIC Regulations
regarding transfers of REMIC Residual Certificates that have tax avoidance
potential to foreign persons are effective for all transfers after June 30,
1992. The Agreement will provide that no record of beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with
a duly completed I.R.S. Form 4224 and the Trustee consents to such transfer
in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in
any purported transferee. Investors in REMIC Residual Certificates are
advised to consult their own tax advisors with respect to transfers of the
REMIC Residual Certificates and, in addition, pass-through entities are
advised to consult their own tax advisors with respect to any tax which may
be imposed on a pass-through entity.
State Tax Considerations
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own 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"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the restrictions
of ERISA, and assets of such plans may be invested in the Certificates
without regard to the ERISA considerations described below, subject to other
applicable federal and state law. However, any such governmental or church
plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Prohibited Transactions
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless
a statutory or administrative exemption applies to the transaction. Section
4975 of the Code imposes certain excise taxes (or, in some cases, a civil
penalty may be assessed pursuant to Section 502(i) of ERISA) on parties in
interest which engage in nonexempt prohibited transactions.
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining
what constitutes the assets of a Plan. This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity investment" will be deemed for purposes of ERISA to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other
assets held by the Trust. In such an event, the Depositor, the Servicers, the
Trustee and other persons, in providing services with respect to the assets
of the Trust, may be parties in interest, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA (and of Section 4975 of the
Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest.
"Benefit plan investors" are defined as Plans as well as employee benefit
plans not subject to ERISA (e.g., governmental plans). The 25% limitation
must be met with respect to each class of certificates, regardless of the
portion of total equity value represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to J.P. Morgan Securities Inc. Prohibited Transaction
Exemption 90-23 (the "Exemption"), which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain certificates representing an undivided
interest in certain asset-backed pass-through trusts, with respect to which
J.P. Morgan Securities Inc. or any of its affiliates is the sole underwriter
or the manager or co-manager of the underwriting syndicate; and (2) the
servicing, operation and management of such asset-backed pass-through trusts,
provided that the general conditions and certain other conditions set forth
in the Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets forth
the following general conditions which must be satisfied before a transaction
involving the acquisition, sale and holding of the Certificates or a
transaction in connection with the servicing, operation and management of the
Trust Fund may be eligible for exemptive relief thereunder: (1)The
acquisition of the Certificates by a Plan is on terms (including the price
for such Certificates) that are at least as favorable to the investing Plan
as they would be in an arm's-length transaction with an unrelated party;
(2)The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust Fund; (3)The Certificates acquired by the Plan have
received a rating at the time of such acquisition that is in one of the three
highest rating categories from any of Duff & Phelps Inc., Fitch Investors
Service, Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group; (4)The Trustee is not an affiliate of the Underwriters, the Depositor,
the Servicers, any borrower whose obligations under one or more Mortgage
Loans constitute more than 5% of the aggregate unamortized principal balance
of the assets in the Trust, or any of their respective affiliates (the
"Restricted Group"); (5)The sum of all payments made to and retained by the
Underwriters in connection with the distribution of the Certificates
represents not more than reasonable compensation for underwriting such
Certificates; the sum of all payments made to and retained by the Depositor
pursuant to the sale of the Mortgage Loans to the Trust represents not more
than the fair market value of such Mortgage Loans; the sum of all payments
made to and retained by the Servicers represent not more than reasonable
compensation for the Servicers' services under the Agreements and
reimbursement of the Servicer's reasonable expenses in connection therewith;
and (6)The Plan investing in the Certificates is 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.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of
the Exemption and (b) that the specific and general conditions set forth in
the Exemption and the other requirements set forth in the Exemption would be
satisfied.
Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any Certificates 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. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to
the availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
Prospectus Supplement with respect to a Series of Certificates may contain
additional information regarding the application of the Exemption, PTCE 83-1,
or any other exemption, with respect to the Certificates offered thereby.
Legal Investment
The Prospectus Supplement for each Series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (the "SMMEA Certificates"). As "mortgage related securities,"
the SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including, but not limited to, state chartered savings banks,
commercial banks, savings and loan associations and insurance companies, as
well as trustees and state government employee retirement systems) 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. Alaska, Arkansas, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Kansas, Maryland,
Michigan, Missouri, Nebraska, New Hampshire, New York, North Carolina, Ohio,
South Dakota, Utah, Virginia and West Virginia enacted legislation, on or
before the October 4, 1991 cutoff established by SMMEA for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases
by requiring the affected investors to rely solely upon existing state law,
and not SMMEA. Accordingly, the investors affected by such legislation will
be authorized to invest in SMMEA Certificates only to the extent provided in
such legislation. Accordingly, investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to
determine whether and to what extent the Offered Certificates constitute
legal investments for them.
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 with "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. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be
subject to restrictions on investment in certain classes of Offered
Certificates. Any financial institution which is subject to the jurisdiction
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation ("FDIC"), the
Office of Thrift Supervision ("OTS"), the National Credit Union
Administration ("NCUA") or other federal or state agencies with similar
authority should review any applicable rules, guidelines and regulations
prior to purchasing any Offered Certificate. The Federal Financial
Institutions Examination Council, for example, has issued a Supervisory
Policy Statement on Securities Activities effective February 10, 1992 (the
"Policy Statement"). The Policy Statement has been adopted by the Comptroller
of the Currency, the Federal Reserve Board, the FDIC, the OTS and the NCUA
(with certain modifications), with respect to the depository institutions
that they regulate. The Policy Statement prohibits depository institutions
from investing in certain "high-risk mortgage securities" (including
securities such as certain classes of Offered Certificates), except under
limited circumstances, and sets forth certain investment practices deemed to
be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth
model investment guidelines for the insurance industry. Institutions subject
to insurance regulatory authorities may be subject to restrictions on
investment similar to those set forth in the Model Law and other
restrictions.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization
of this Offered Certificate 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.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more
than a special percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under
SMMEA, the Depositor will make no representations as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase any 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 Certificates) may adversely affect the
liquidity of the Certificates.
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 and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors.
Plan of Distribution
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates
may be effected from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related Prospectus Supplement, the Offered
Certificates will be distributed in a firm commitment underwriting, subject
to the terms and conditions of the underwriting agreement, by J.P. Morgan
Securities Inc. ("JPMSI") acting as underwriter with other underwriters, if
any, named therein. In such event, the Prospectus Supplement may also specify
that the underwriters will not be obligated to pay for any Offered
Certificates agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Depositor. In connection with the sale of
Offered Certificates, underwriters may receive compensation from the
Depositor or from purchasers of Offered Certificates in the form of
discounts, concessions or commissions. The Prospectus Supplement will
describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by JPMSI acting as agent or in some cases as
principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If JPMSI acts as agent in the sale of
Offered Certificates, JPMSI will receive a selling commission with respect to
such Offered Certificates, depending on market conditions, expressed as a
percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
Series of Certificates will be disclosed in the related Prospectus
Supplement. To the extent that JPMSI elects to purchase Offered Certificates
as principal, JPMSI may realize losses or profits based upon the difference
between its purchase price and the sales price. The Prospectus Supplement
with respect to any Series offered other than through underwriters 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 will indemnify JPMSI and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments JPMSI and any underwriters may be required to
make in respect thereof.
In the ordinary course of business, JPMSI and the Depositor may engage
in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
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 in connection with reoffers
and sales by them of Offered Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each Series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment grade class may be initially retained by the Depositor,
and may be sold by the Depositor at any time in private transactions.
Legal Matters
Certain legal matters in connection with the Certificates, including certain
federal income tax consequences, will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York.
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 he
included in this Prospectus or in the related Prospectus Supplement.
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 a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage
loans 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 Mortgagors 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 in extreme cases might
fail to recoup their initial investments.
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.
Index of Principal Definitions
<TABLE>
<CAPTION>
TERM IN THE PROSPECTUS PAGE(S) ON WHICH
TERM IS DEFINED
<S> <C>
1986 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Certificate Interest . . . . . . . . . . . . . . . . . . . . . . . . . .
ADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable Bond Premium Regulations . . . . . . . . . . . . . . . . . . . . . .
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . .
Balloon Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit Plan Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crime Control Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disqualifying Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Hazard Condition . . . . . . . . . . . . . . . . . . . . . . . . .
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JPMSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Model Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment Lag Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-Issuance Accrued Interest . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Primary Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prohibited Transactions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualified Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refinance Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regular Certificateholders . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Residual Certificateholder . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing Transfer Event . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SMMEA Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specially Serviced Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . .
Stripped ARM Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Bond Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Coupon Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Interest Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Principal Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Super-Premium Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thrift Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrantying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
Annex A to the Prospectus Supplement
Dated _______, 199_
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
SERIES 199_-C_
MORTGAGE
PASS-THROUGH CERTIFICATES
_____________ (MICROSOFT EXCEL)
____________ (LOTUS)
The attached diskette contains two spreadsheet files (the "Spreadsheet
Files") that can be put on a user-specified hard drive or network drive.
These two files are "_______________". The file "____________" is a Microsoft
Excel, Version 4.0 spreadsheet, and the file "_______________" is a Lotus
123, Version 3.0 spreadsheet. Each file provides, in electronic format,
certain statistical information that appears under the caption "Description
of the Mortgage Pool-Certain Characteristics of the Mortgage Loans" in the
Prospectus Supplement and in Annex A to the Prospectus Supplement with
respect to all the Mortgage Loans. Defined terms used in the Spreadsheet
Files but not otherwise defined therein shall have the respective meanings
assigned to them in the Prospectus Supplement. All the information contained
in the Spreadsheet Files are subject to the same limitations and
qualifications contained in this Prospectus Supplement. Prospective investors
are strongly urged to read the Prospectus Supplement in its entirety prior to
accessing the Spreadsheet Files.
___________
Microsoft Excel and Lotus 123 are registered trademarks of Microsoft
Corporation and Lotus Development Corporation, respectively.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . $606,061
Printing and Engraving Fees . . . . . . . . . . . . . . . . . 150,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . 600,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . 300,000
Trustee Fees and Expenses . . . . . . . . . . . . . . . . . . 100,000
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . 1,050,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 43,939
Total . . . . . . . . . . . . . . . . . . . . . . $2,850,000
_____________
* All amounts except the SEC Registration Fee are estimates of
expenses incurred or to be incurred in connection with the issuance
and distribution of three Series of Certificates in an aggregate
principal amount assumed for these purposes to be equal to
$2,226,355,000 of Certificates.
Item 15. Indemnification of Directors and Officers.
Under the proposed form of Underwriting Agreement, the Underwriter is
obligated under certain circumstances to indemnify officers and directors of
J.P. Morgan Commercial Mortgage Finance Corp. (the "Company") who sign the
Registration Statement, and certain controlling persons of the Company,
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Act") and the Securities Exchange Act of 1934, as
amended.
The Company's Certificate of Incorporation provides for indemnification
of directors and officers of the Company to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents
in connection with actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that
they are or were such directors, officers, employees or agents, against
expenses incurred in any such action, suit or proceeding. The Delaware
General Corporation Law also provides that the Registrant may purchase
insurance on behalf of any such director, officer, employee or agent.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action pursuant to the Pooling and Servicing Agreement, except for
such person's own misfeasance, bad faith or gross negligence in the
performance of duties. The Pooling and Servicing Agreement will provide
further that, with the exceptions stated above, any director, officer,
employee or agent of the Company will be indemnified and held harmless by the
Trust Fund against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the
Certificates, other than any loss, liability or expense (i) related to any
specific Mortgage Loan or Mortgage Loans (except as
any such loss, liability or expense shall be otherwise reimbursable pursuant
to the Pooling and Servicing Agreement), (ii) incurred in connection with any
violation by him or her of any state or federal securities law or
(iii) imposed by any taxing authority if such loss, liability or expense is
not specifically reimbursable pursuant to the terms of the Pooling and
Servicing Agreement.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the
Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax matters
24.1 Consent of Brown & Wood LLP (included in Exhibits 5.1
and 8.1
hereto)
25.1 Powers of Attorney (included in Part II)
________________
* Incorporated by reference to the Registration Statement on
Form S-3 (Reg. No. 333-4554)
Item 17. Undertakings.
A. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, 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 against the Registrant 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 of 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.
B. Undertaking pursuant to Rule 415 Offering.
The Registrant hereby undertakes:
(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 Act;
(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;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Act, 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.
C. Undertaking in respect of incorporation by reference.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities and 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
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 New York, State of New York, on
July 11, 1997.
J.P. MORGAN COMMERCIAL MORTGAGE
FINANCE CORP.
By: /s/ Michael A. Jungman
________________________________
Michael A. Jungman
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that William S. Demchak, Debra F. Stone,
Grace B. Vogel, and Mindy R. Connelly each whose signature appears below
constitutes and appoints Michael A. Jungman, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and any 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
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 11, 1997.
Signature Title
/s/ William S. Demchak Director, Chairman of the Board
_______________________
William S. Demchak
/s/ Michael A. Jungman Director, President
_______________________
Michael A. Jungman (Principal Executive Officer)
/s/ Debra F. Stone Director
_________________________
Debra F. Stone
/s/ Grace B. Vogel Controller
_________________________
Grace B. Vogel (Principal Accounting Officer)
/s/ Mindy R. Connelly Treasurer
_______________________
Mindy R. Connelly (Principal Financial Officer)
EXHIBIT INDEX
Exhibit No. Description Page No.
___________ ___________ ________
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax matters
24.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1
hereto)
25.1 Powers of Attorney (included in Part II)
________________
* Incorporated by reference to the Registration Statement on Form S-3
(Reg. No. 333-4554)
EXHIBIT 5.1
BROWN & WOOD LLP
ONE TRADE WORLD CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
July 11, 1997
J.P. Morgan Commercial
Mortgage Finance Corp.
60 Wall Street
New York, New York 10260-0060
Re: J.P. Morgan Commercial Mortgage Finance
Corp., Registration Statement on Form S-3
-----------------------------------------
Ladies and Gentlemen:
We have acted as counsel to J.P. Morgan Commercial Mortgage Finance
Corp., a Delaware corporation (the "Registrant"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), on July 11, 1997 for the registration under the Act of
Mortgage Pass-Through Certificates (the "Certificates"). Each series of such
Certificates will be issued pursuant to a separate pooling and servicing
agreement (the "Pooling and Servicing Agreement"), among the Registrant, a
trustee, a master servicer or servicer and/or a special servicer, each to be
identified in the prospectus supplement for such series of Certificates.
We have made such investigation of law as we deem appropriate and have
examined the proceedings heretofore taken and are familiar with the
procedures proposed to be taken by the Registrant in connection with the
authorization, issuance and sale of such Certificates.
Based on the foregoing, we are of the opinion that:
(i) When each Pooling and Servicing Agreement in respect of which we
have participated as your counsel has been duly authorized by all necessary
corporate action and has been duly executed and delivered, it will constitute
a valid and binding obligation of the Registrant enforceable in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); and
(ii) When the issuance, execution and delivery of the Certificates in
respect of which we have participated as your counsel have been duly
authorized by all necessary corporate action, and when such Certificates have
been duly executed, authenticated and delivered and sold as described in the
Registration Statement, such Certificates will be legally and validly issued
and the holders of such Certificates will be entitled to the benefits
provided by the Pooling and Servicing Agreement pursuant to which such
Certificates were issued.
In rendering the foregoing opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Registrant acting within the scope
of their official capacities and have not verified the accuracy or
truthfulness thereof. We have also assumed the genuineness of the signatures
appearing upon such public records, certifications, documents and
proceedings. In addition, we have assumed that each such Pooling and
Servicing Agreement and the related Certificates will be executed and
delivered in substantially the form filed as exhibits to the Registration
Statement, and that such Certificates will be sold as described in the
Registration Statement. We express no opinion as to the laws of any
jurisdiction other than the laws of the State of New York and the federal
laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus and the Prospectus Supplement forming a
part of the Registration Statement, without implying or admitting that we are
"experts" within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder, with respect to any
part of the Registration Statement, including this exhibit.
Very truly yours,
BROWN & WOOD LLP
EXHIBIT 8.1
BROWN & WOOD LLP
ONE TRADE WORLD CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
July 11, 1997
J.P. Morgan Commercial
Mortgage Finance Corp.
60 Wall Street
New York, New York 10260-0060
Re: J.P. Morgan Commercial Mortgage Finance
Corp., Registration Statement on Form S-3
-----------------------------------------
Ladies and Gentlemen:
We have acted as counsel to J.P. Morgan Commercial Mortgage Finance
Corp., a Delaware corporation (the "Registrant"), in connection with the
issuance and sale of its Mortgage Pass-Through Certificates that evidence
interests in certain pools of mortgage loans (the "Certificates"). Each
series of Certificates will be issued pursuant to a Pooling and Servicing
Agreement among the Registrant, a trustee, a master servicer or servicer
and/or a special servicer, each to be specified in the prospectus supplement
for such series of Certificates. We have advised the Registrant with respect
to certain federal income tax consequences of the proposed issuance of the
Certificates. This advice is summarized under the headings "Summary of
Prospectus -- Tax Status of the Certificates" and "Certain Federal Income Tax
Consequences" in the Prospectus and "Summary of Prospectus Supplement --
Certain Federal Income Tax Consequences" and "Certain Federal Income Tax
Consequences" in the Prospectus Supplement relating to the Certificates in
respect of which we participated as your counsel, all as part of the
Registration Statement on Form S-3 (the "Registration Statement"), filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), on July 11, 1997 for the registration of such
Certificates under the Act. The information set forth in the Prospectus and
the Prospectus Supplement under the captions "Summary of Prospectus -- Tax
Status of the Certificates", "Certain Federal Income Tax Consequences" and
"Summary of Prospectus Supplement -- Certain Federal Income Tax
Consequences", to the extent that it constitutes matters of law or legal
conclusions, is correct in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the heading "Certain Federal Income Tax Consequences" in
the Prospectus forming a part of the Registration Statement, without implying
or admitting that we are "experts" within the meaning of the Act or the rules
and regulations of the Securities and Exchange Commission issued thereunder,
with respect to any part of this Registration Statement, including this
exhibit.
Very truly yours,
BROWN & WOOD LLP
