As filed with the Securities and Exchange Commission on September 17, 1998
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. | |
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================================
<S> <C> <C> <C> <C>
TITLE OF SHARES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Pass-Through Certificates.... $1,000,000 100% $1,000,000 $295
========================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
</TABLE>
------------------
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.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1998
$________________ (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, as 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.
[This Prospectus Supplement may be used by the Underwriter, an affiliate of the
Depositor and the Master Servicer, in connection with offers and sales related
to market making transactions in the Certificates.]
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.]
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 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.
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
PROSPECTUS SUPPLEMENT
Executive Summary S-
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-
Master Servicer and Special Servicer S-
Description of the Pooling and Servicing Agreement S-
Use of Proceeds S-
Certain Federal Income Tax Consequences S-
State Tax Considerations S-
ERISA Considerations S-
Legal Investment S-
Plan of Distribution S-
Legal Matters S-
Rating S-
Index of Principal Terms S-
Annex A: Certain Characteristics of the 100 Mortgage Loans with
the Highest Principal Balances as of the Cut-off Date A-1
Annex B: Global Clearance, Settlement and Tax Documentation Procedures B-1
PROSPECTUS
Prospectus Supplement 3
Available Information 3
Incorporation of Certain Information by Reference 5
Summary of Prospectus 6
Risk Factors 14
Description of the Trust Funds 22
Use of Proceeds 28
Yield Considerations 28
The Depositor 31
Description of the Certificates 32
Description of the Agreements 39
Description of Credit Support 55
Certain Legal Aspects of Mortgage Loans and the Leases 57
Certain Federal Income Tax Consequences 72
State Tax Considerations 97
ERISA Considerations 97
Legal Investment 99
Plan of Distribution 100
Legal Matters 101
Financial Information 101
Rating 101
Index of Principal Terms 102
EXECUTIVE SUMMARY
Prospective investors are advised to read carefully, and should rely solely on,
the detailed information appearing elsewhere in this Prospectus Supplement and
the accompanying Prospectus in making their investment decision. The following
Executive Summary does not include all relevant information relating to the
Offered Certificates or the Mortgage Loans, particularly with respect to the
risks and special considerations involved with an investment in the Offered
Certificates, and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Prior to making any
investment decision, a prospective investor should review fully this Prospectus
Supplement and the Prospectus. Capitalized terms used and not otherwise defined
herein have the respective meanings assigned to them in this Prospectus.
CLASS RATING BY INITIAL % OF % CREDIT
SENIOR OFFERED AGGREGATE TOTAL SUPPORT
CERTIFICATES CERTIFICATE
PRINCIPAL
AMOUNT
Subordinate Offered
Certificates
CLASS DESCRIPTION PASS-THROUGH WEIGHTED PRINCIPAL
RATE AVERAGE LIFE(1) WINDOW(1)
(YEARS) (MONTHS)
Senior Offered Certificates
Subordinate Offered Certificates
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.
[Seller Morgan Guaranty Trust Company of New York
("MGT" or the "Seller"). Approximately _____%
of the Mortgage Loans were originated by the
Seller and the remaining were originated by
various other institutions (collectively with
the Seller, the "Originators"). The Seller is
an affiliate of the Depositor and of J.P.
Morgan Securities Inc., the Underwriter.]
[Originators _______Mortgage Loans representing
approximately ______% of the Initial Pool
Balance were originated by ____________, a
_________; _______Mortgage Loans representing
approximately ______% of the Initial Pool
Balance were originated by ____________, a
_________.]
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 [debt
obligations 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).]
[Certain Mortgage Loans permit the applicable
Mortgagor after a specified period (in most
cases not less than two years from the
Delivery Date), to obtain the release of the
related Mortgaged Property from the lien of
the related Mortgage upon substitution of
direct non-callable obligations of the United
States providing payments in amounts equal to
the scheduled payments due on such Mortgage
Loan to the related Maturity Date. The Master
Servicer shall, on behalf of the related
Mortgagor, purchase such obligations of the
United States for deposit into the Trust
Fund.
[__ 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.
Special Principal Payment
Considerations The rate and timing of principal payments, if
any, on the Offered 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 a
representation and warranty) on the Mortgage
Loans. [As described herein, certain of the
Mortgage Loans are in the related Prepayment
Premium Period and, if certain voluntary
prepayments are made, a Prepayment Premium
will be required to be paid during such
period.] See "The Mortgage Pool" above and
"Description of the Mortgage Pool" herein.
All classes of Offered Certificates entitled
to payments of principal are subject to
priorities for payment of principal as
described herein. Distributions of principal
on classes having an earlier priority of
payment will be directly affected by the
rates of prepayments of the Mortgage Loans.
The timing of commencement of principal
distributions and the weighted average lives
of classes of Certificates with a later
priority of payment will be affected by the
rates of prepayments experienced both before
and after the commencement of principal
distributions on such classes.
Special Yield Considerations The yield to maturity on each class of the
Offered 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 breaches of representations and
warranties) and the collection and allocation
of any Prepayment Premium on the Mortgage
Loans and the allocation thereof to reduce
the Class Balance or Notional Amount. The
yield to maturity on each class of the
Offered Certificates will also depend on the
Pass-Through Rate and the purchase price for
each such Certificate. The yield to investors
on any class of Offered Certificates will be
adversely affected by any allocation thereto
of Prepayment Interest Shortfalls on the
Mortgage Loans, which may result from the
distribution of interest only to the date of
a prepayment occurring during any month
following the related Determination Date
(rather than a full month's interest). See
"Description of the
Certificates--Distributions--Interest
Distributions on the Certificates" herein.
In general, if a class of Offered
Certificates 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. If a class of Offered
Certificates 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 that assumed at
the time of purchase.
[The yield to investors on the Class__
Certificates will be sensitive to the rate
and timing of prepayments, defaults and
liquidations on the Mortgage Loans. The rate
of such prepayments, defaults and
liquidations on the Mortgage Loans may
fluctuate significantly over time. A
significantly faster than expected rate of
such prepayments, defaults and liquidations
on the Mortgage Pool will have a negative
effect on the yield to such investors and
could result in the failure of investors in
the Class__ Certificates to recover their
initial investments. In addition, because
holders of the Class __ Certificates have
rights to relatively larger portions of
interest payments on Mortgage Loans with
higher Mortgage Interest Rates than on
Mortgage Loans with lower Mortgage Interest
Rates, and because Mortgage Loans with higher
Mortgage Interest Rates are generally likely
to prepay at a faster rate than Mortgage
Loans with lower Mortgage Interest Rates, the
yield on the Class __ Certificates will be
materially and adversely affected to a
greater extent than the yields on other
Offered Certificates if the Mortgage Loans
with higher Mortgage Interest Rates prepay
faster than the Mortgage Loans with lower
Mortgage Interest Rates. See "Certain
Prepayment, Maturity and Yield
Considerations," especially "--Class __
Certificate Yield Considerations" herein.]
[The sequential class structure of the
Offered Certificates causes the yield of
certain classes to be particularly sensitive
to changes in the rates of principal payments
(including prepayments, defaults,
liquidations and purchases of Mortgage Loans
due to a breach of a representation and
warranty) of the Mortgage Loans and other
factors.]
The yield to investors on any of the
Certificates will be sensitive to losses due
to defaults on the Mortgage Loans (and the
timing thereof), because the amount of such
losses will be allocable to such class to the
extent such losses are not allocated to a
subordinate class of Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal
and interest by any such class of
Certificates may be adversely affected by
losses even if such class does not ultimately
bear such loss.
If a Servicer or the Trustee makes an
advance, it will be entitled to interest
thereon at the [Prime Rate] determined in
accordance with the Pooling and Servicing
Agreement to the extent provided therein.
Therefore, losses may be allocated to a class
of Offered Certificates with respect to any
delinquent Monthly Payment and certain other
expenses advanced by a Servicer or the
Trustee.
[The Special Servicer will be entitled to
receive compensation in the form of a
percentage of the outstanding principal
balance of each Mortgage Loan and an
additional amount equal to a percentage of
the outstanding principal balance of any
Mortgage Loan which is being serviced by the
Special Servicer (a "Specially Serviced
Mortgage Loan") prior to the right of
Certificateholders to receive distributions
on the Certificates. Such additional
compensation with respect to the Specially
Serviced Mortgage Loans will result in
shortfalls which will be allocated to the
classes of Certificates with the lowest
payment priority for purposes of application
of the Adjusted Available Distribution Amount
in the order described herein. See "Master
Servicer and Special Servicer--Servicing and
Other Compensation and Payment of Expenses"
herein.]
See "Certain Prepayment, Maturity and Yield
Considerations" herein and "Yield
Considerations" 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 under ERISA or
Section 4975 of the Code or whether there
exists any statutory, regulatory 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.
PREPAYMENTS ON THE MORTGAGE LOANS WILL DECREASE THE VALUE OF YOUR
CERTIFICATES. 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.
YOUR YIELD WILL BE DIFFERENT, AND MAY BE LOWER, THAN YOU ANTICIPATE.
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.
[THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH SOME OF THE MORTGAGE LOANS
AND MORTGAGED PROPERTIES THAT ARE PART OF THIS MORTGAGE POOL.] [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.
[A SUBSTANTIAL NUMBER OF THE MORTGAGED PROPERTIES ARE CONCENTRATED IN.
GEOGRAPHIC REGIONS. A DOWNTURN IN ANY SUCH REGION WILL ADVERSELY AFFECT THE
PAYMENT ON THE MORTGAGE LOANS AND YOUR CERTIFICATES. _____ 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.]
THERE ARE ENVIRONMENTAL RISKS ASSOCIATED WITH SOME OF THE MORTGAGED
PROPERTIES. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal and remediation of hazardous or
toxic substances on, under, adjacent to or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefor as to any property
is generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. In addition, the presence of
hazardous or toxic substances, or the failure to properly remediate such
property, may adversely affect the owner's or operator's ability to borrow funds
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility.
Certain laws impose liability for release of asbestos into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury associated with exposure to asbestos.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable as an "owner" or "operator" for the costs of responding to a
release or threat of a release of hazardous substances on or from a Mortgagor's
property, if agents or employees of a lender are deemed to have participated in
the management of the Mortgagor's property, regardless of whether a previous
owner caused the environmental damage. The Trust Fund's potential exposure to
liability for cleanup costs pursuant to CERCLA may increase if the Trust Fund
actually takes possession of a Mortgagor's property, or control of its
day-to-day operations, as for example through the appointment of a receiver.
[The Pooling and Servicing Agreement provides that the Special
Servicer, acting on behalf of the Trust Fund, may not acquire, through
foreclosure or deed in lieu thereof, title to a Mortgaged Property or take over
its operation unless the Special Servicer has previously determined, based on a
report prepared by a qualified person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws or that taking the actions necessary to comply with such laws
is reasonably likely to produce a greater recovery on a present value basis than
not taking such actions and (ii) there are no circumstances known to the Special
Servicer relating to the use of hazardous substances or petroleum-based
materials which require investigation or remediation, or that if such
circumstances exist, taking such remedial actions is reasonably likely to
produce a greater recovery on a present value basis than not taking such
actions.]
MORTGAGOR DEFAULTS WILL DECREASE THE VALUE OF YOUR CERTIFICATES. 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:]
[SOME OF THE ORIGINATORS REQUIRE GREATER SCRUTINY DUE TO THEIR TROUBLED
HISTORY . 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 MAY TAKE ACTIONS WHICH ARE DETRIMENTAL TO THE
CERTIFICATEHOLDERS. 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.]
[THE LACK OF ATTORNMENT PROVISIONS IN THE MORTGAGE MAY CAUSE A
FAVORABLE LEASE TO BE TERMINATED UPON FORECLOSURE OF A MORTGAGED PROPERTY. Some
of the tenant leases, including the anchor tenant leases, contain certain
provisions that require the tenant to attorn to (that is, recognize as landlord
under the lease) a successor owner of the property following foreclosure. Some
of the leases, including the anchor tenant leases, may be either subordinate to
the liens created by the Mortgage Loans or else contain a provision that
requires the tenant to subordinate the lease if the mortgagee agrees to enter
into a non-disturbance agreement. In some states, if tenant leases are
subordinate to the liens created by the Mortgage Loans and such leases do not
contain attornment provisions, such leases may terminate upon the transfer of
the property to a foreclosing lender or purchaser at foreclosure. Accordingly,
in the case of the foreclosure of a Mortgaged Property located in such a state
and leased to one or more desirable tenants under leases that do not contain
attornment provisions, such Mortgaged Property could experience a further
decline in value if such tenants' leases were terminated (e.g., if such tenants
were paying above-market rents). If a Mortgage is subordinate to a lease, the
lender will not (unless it has otherwise agreed with the tenant) possess the
right to dispossess the tenant upon foreclosure of the property, and if the
lease contains provisions inconsistent with the Mortgage (e.g., provisions
relating to application of insurance proceeds or condemnation awards), the
provisions of the lease will take precedence over the provisions of the
Mortgage.]
ENFORCEABILITY OF ACCELERATION CLAUSES MAY NOT BE ENFORCED IN THE
EQUITY COURTS OF SOME STATES . 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.
Certain of the Mortgage Loans will be secured in part 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" in the
Prospectus.
[ONE ACTION CONSIDERATIONS MAY CAUSE DELAYS IN ENFORCEMENT OF
FORECLOSURES. Several states (including California) have laws that prohibit more
than one "judicial action" to enforce a mortgage obligation, and some courts
have construed the term "judicial action" broadly. The Special Servicer may need
to obtain advice of counsel prior to enforcing any of the Trust Fund's rights
under any of the Mortgage Loans that include Mortgaged Properties where the rule
could be applicable. In addition, in the case of a Pool Loan secured by
Mortgaged Properties located in multiple states, the Special Servicer may be
required to foreclose first on properties located in states where such "one
action" rules apply (and where non-judicial foreclosure is permitted) before
foreclosing on properties located in states where judicial foreclosure is the
only permitted method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans and the Leases--Foreclosure" in the Prospectus.]
APPRAISALS AND MARKET STUDIES ARE ESTIMATES ONLY. In general,
appraisals represent the analysis and opinion of the respective appraisers at or
before the time made and are not guarantees, and may not be indicative, of
present or future value. There can be no assurance that another appraiser would
not have arrived at a different valuation, even if such appraiser used the same
general approach to, and the same method of, appraising the property. Moreover,
appraisals seek to establish the amount a typically motivated buyer would pay a
typically motivated seller. Such amount could be significantly higher than the
amount obtained from the sale of a Mortgaged Property under a distress or
liquidation sale. Information regarding the values of the Mortgaged Properties
as of the Cut-off Date is presented under "Description of the Mortgage Pool"
herein for illustrative purposes only.
CERTAIN PARTIES MAY HAVE CONFLICTS OF INTEREST WITH RESPECT TO A
MORTGAGED PROPERTY. A substantial number of the Mortgaged Properties are managed
by property managers affiliated with the respective Mortgagors. These property
managers may also manage additional properties, including properties that may
compete with the Mortgaged Properties. Moreover, affiliates of the managers
and/or the Mortgagors, or the managers and/or the Mortgagors themselves, may
also own other properties, including competing properties. Accordingly, the
managers of the Mortgaged Properties and the Mortgagors may experience conflicts
of interest in the management and/or ownership of such properties. In addition,
the Seller or affiliates thereof may have other financing arrangements with
affiliates of the Mortgagors and may enter into additional financing
relationships in the future.
RECENT IMPROVEMENTS ON A MORTGAGED PROPERTY MAY NOT COMPLY WITH CURRENT
ZONING LAWS. INSPECTIONS DONE AT THE TIME OF ORIGINATION MAY NOT HAVE IDENTIFIED
ALL THE PROBLEMS OF A MORTGAGED PROPERTY. As a consequence of, among other
things, changes in applicable building and zoning ordinances and codes ("Zoning
Laws") affecting certain of the Mortgaged Properties which have come into effect
after the construction of improvements on such Mortgaged Properties, certain
improvements may not comply fully with current Zoning Laws, including density,
use, parking and set-back requirements, but qualify as permitted non-conforming
uses. Such changes may limit the ability of the Mortgagor to rebuild the
premises "as is" in the event of a substantial casualty loss with respect
thereto and may adversely affect the ability of the Mortgagor to meet its
Mortgage Loan obligations from cash flow. While it is expected that insurance
proceeds would be available for application to the related Mortgage Loan if a
substantial casualty were to occur, no assurance can be given that such proceeds
would be sufficient to pay off such Mortgage Loan in full or, if the Mortgaged
Property were to be repaired or restored in conformity with current law, what
its value would be relative to the remaining balance on the related Mortgage
Loan, whether the Mortgaged Property would have a value equal to that before the
casualty, or what its revenue-producing potential would be.
Inspections of the Mortgaged Properties were conducted in connection
with the origination of the Mortgage Loans by licensed engineers to assess the
structure, exterior walls, roofing interior construction, mechanical and
electrical systems and general condition of the site, buildings and other
improvements located on the Mortgaged Properties. There can be no assurance that
all conditions requiring repair or replacement have been identified in such
inspections.
THERE ARE POTENTIAL COSTS ASSOCIATED WITH THE COMPLIANCE OF THE
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act of
1990 (the "ADA"), all public accommodations must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." To the extent the
Mortgaged Properties do not comply with the ADA, the Mortgagors may be required
to incur costs of complying with the ADA. In addition, noncompliance could
result in the imposition of fines by the federal government or an award of
damages to private litigants. The requirements of the ADA may also be imposed on
a foreclosing lender who succeeds to the interest of the Mortgagor as owner or
landlord. 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.
[THE VOTE OF A SPECIFIED PERCENTAGE OF THE CERTIFICATEHOLDERS MAY BIND
ALL CERTIFICATEHOLDERS . Under certain circumstances, the consent or approval of
the holders of a specified percentage of the aggregate Certificate Balance of
all outstanding Certificates ("Voting Rights") will be required to direct, and
will be sufficient to bind all Certificateholders 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 Pooling and Servicing Agreement in certain circumstances. See "Description
of the Pooling and Servicing Agreement--Voting Rights" herein.]
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]
Adjustment Date 199 199 199 199 199 199
- --------------------------------------------------------------------------------
199
January [ ]
February [ ]
March [ ]
April [ ]
May [ ]
June [ ]
July [ ]
August [ ]
September [ ]
October [ ]
November [ ]
December [ ]
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).]
[Certain Mortgage Loans permit the applicable Mortgagor after a
specified period (in most cases not less than two years from the Delivery Date),
to obtain the release of the related Mortgaged Property from the lien of the
related Mortgage upon substitution of direct non-callable obligations of the
United States providing payments in amounts equal to the scheduled payments due
on such Mortgage Loan to the related Maturity Date. The Master Servicer shall,
on behalf of the related Mortgagor, purchase such obligations of the United
States for deposit into the Trust Fund.
[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:
<TABLE>
<CAPTION>
Mortgage Rates as of the Cut-off Date
<S> <C> <C> <C> <C>
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
- ------------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
</TABLE>
The following table sets forth the types of Mortgaged
Properties securing the Mortgage Loans:
<TABLE>
<CAPTION>
Property Type
<S> <C> <C> <C> <C>
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
- ---- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
</TABLE>
[The following table sets forth the range of Gross Margins for the
Mortgage Loans:]
<TABLE>
<CAPTION>
[Gross Margins]
---------------
<S> <C> <C> <C> <C>
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
- ------------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
</TABLE>
[The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-off Date:]
<TABLE>
<CAPTION>
[Frequency of Adjustments to Mortgage Rates]
<S> <C> <C> <C> <C>
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
- ------------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
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.
</TABLE>
[The following table sets forth the frequency of adjustments to the
Monthly Payments on the Mortgage Loans as of the Cut-off Date:]
<TABLE>
<CAPTION>
[Frequency of Adjustments to Monthly Payments]
<S> <C> <C> <C> <C>
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
- ------------ --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
</TABLE>
[The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:]
<TABLE>
<CAPTION>
[Maximum Lifetime Mortgage Rates]
---------------------------------
<S> <C> <C> <C> <C>
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
- ------------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
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.
</TABLE>
[The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:]
<TABLE>
<CAPTION>
[Minimum Lifetime Mortgage Rates]
---------------------------------
<S> <C> <C> <C> <C>
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
- ------------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
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.
</TABLE>
The following table sets forth the range of principal balances of the
Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
Principal Balances as of the Cut-off Date
-----------------------------------------
<S> <C> <C> <C> <C>
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
- ------------ --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
</TABLE>
The following tables set forth the original and remaining terms to
maturity (in months) of the Mortgage Loans:
<TABLE>
<CAPTION>
Original Term to Maturity in Months
-----------------------------------
<S> <C> <C> <C> <C>
Percent by
Aggregate Aggregate
Original 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
-------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
</TABLE>
<TABLE>
<CAPTION>
Remaining Term to Maturity in Months
------------------------------------
<S> <C> <C> <C> <C>
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
--------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
</TABLE>
The following tables set forth the respective years in which the
Mortgage Loans were originated and are scheduled to mature:
<TABLE>
<CAPTION>
Mortgage Loan Year of Origination
---------------------------------
<S> <C> <C> <C> <C>
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
---- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
Mortgage Loan Year of Scheduled Maturity
----------------------------------------
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
---- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
</TABLE>
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.
<TABLE>
<CAPTION>
Cut-off Date LTV Ratios
-----------------------
<S> <C> <C> <C> <C>
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
- --------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Weighted Average Cut-off
Date LTV Ratio:
Note: Percentage totals may not add due to rounding.
</TABLE>
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.]
<TABLE>
<CAPTION>
Debt Service Coverage Ratios as of the Cut-off Date
---------------------------------------------------
<S> <C> <C> <C> <C>
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
- ------------ --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
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.
</TABLE>
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:
<TABLE>
<CAPTION>
Geographic Distribution
-----------------------
<S> <C> <C> <C> <C>
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
----- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
[regional breakdown to be provided as appropriate]
</TABLE>
[____% 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.]
<TABLE>
<CAPTION>
[Mortgage Loan Lock-out Dates]
------------------------------
<S> <C> <C> <C> <C>
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
- --------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
</TABLE>
[___% 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.]
<TABLE>
<CAPTION>
[Mortgage Loan Prepayment Premiums]
-----------------------------------
<S> <C> <C> <C> <C>
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
- ---------- --------- ------ ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =======
Note: Percentage totals may not add due to rounding.
</TABLE>
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.]
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
BOOK-ENTRY REGISTRATION. The Offered Certificates will be initially
issued through the book-entry facilities of DTC, or CEDEL or the Euroclear
System ("Euroclear") if they are participants of such systems, or indirectly
through organizations which are participants in such systems. As to any such
class of Offered Certificates, the record holder of such Certificates will be
DTC's nominee. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories (the
"Depositories"), which in turn will hold such positions in customers' securities
accounts in Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
("DTC Participants", and together with the CEDEL and Euroclear participating
organizations, the "Participants") and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Other institutions that are not Participants but
clear through or maintain a custodial relationship with Participants (such
institutions, "Indirect Participants") have indirect access to DTC's clearance
system.
Because of time zone differences, the securities account of a CEDEL or
Euroclear Participant (each as defined below) as a result of a transaction with
a DTC Participant (other than a depositary holding on behalf of CEDEL or
Euroclear) will be credited during the securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear Participant or CEDEL Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of securities by or through
a CEDEL Participant or Euroclear Participant to a DTC Participant (other than
the depository for CEDEL or Euroclear) will be received with value on the DTC
settlement date, but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants or Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositories; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC. CEDEL
Participants or Euroclear Participants may not deliver instructions directly to
the Depositories.
CEDEL, as a professional depository, holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
"Clearance Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policies for Euroclear on
behalf of Euroclear Participants. The Euroclear Operator is the Belgian branch
of a New York banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission. Securities clearance accounts and cash accounts with
the Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for forwarding such
payments to Participants, each of which will be responsible for disbursing such
payments to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of DTC
Registered Certificates under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account the DTC Registered
Certificates are credited and whose aggregate holdings represent no less than
any minimum amount of Percentage Interests or voting rights required therefor.
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 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 DTC Registered
Certificates or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Beneficial Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Pooling and Servicing Agreement;
provided, however, that Beneficial Owners will be permitted to request and
receive information furnished to Certificateholders by the Trustee subject to
receipt by the Trustee of a certification in form and substance acceptable to
the Trustee stating that the person requesting such information is a Beneficial
Owner. Otherwise, the Beneficial Owners will be permitted to receive information
furnished to Certificateholders and to exercise the rights of Certificateholders
only indirectly through DTC, its Participants and Indirect Participants.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Offered Certificates among
Participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE CERTIFICATES. 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 an event described in the preceding paragraph,
the Trustee is required to notify, through DTC, Participants who have ownership
of DTC Registered Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered Certificates.
Upon surrender by DTC of the definitive certificates representing the DTC
Registered Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will reissue the DTC Registered Certificates as
Definitive Certificates issued in the respective principal amounts owned by
individual Beneficial Owners, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as Certificateholders under the Pooling
and Servicing Agreement.
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
- -----------------
Initial Percent............. ___% __% __% __% __% __%
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 199_.........
__________ 25, 200_.........
__________ 25, 200_.........
__________ 25, 200_.........
__________ 25, 200_.........
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 POOLING AND SERVICING 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
----------------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
By Dollar By Dollar By Dollar
By No. of Amount of By No. of Amount of By No. of Amount of
Loans Loans Loans Loans Loans Loans
----- ----- ----- ----- ----- -----
(Dollar Amount in Thousands)
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 % % % % % %
- ----------
(1) Includes bankruptcies which preclude foreclosure.
</TABLE>
[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 upon the
workout and REO experience of ______________________________________________,
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 "real estate assets"
within the meaning of Section 856(c)(5)(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)(5)(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.
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
[A fiduciary of any employee benefit plan or of other retirement plans
or 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 employee benefit plans subject to
ERISA or 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 IBCA,
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 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
15. City Appraised Value]
16. State
17. Zip code
18. Rate index
19. First rate change
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1998
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 debt obligations 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."
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.
- -------------------
(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
Prospectus Supplement 3
Available Information 4
Incorporation Of Certain Information By Reference 5
Summary Of Prospectus 5
Risk Factors 11
Description Of The Trust Funds 18
Use Of Proceeds 24
Yield Considerations 24
The Depositor 28
Description Of The Certificates 28
Description Of The Agreements 36
Description Of Credit Support 51
Certain Legal Aspects Of The Mortgage Loans And The Leases 53
Certain Federal Income Tax Consequences 68
State Tax Considerations 92
Erisa Considerations 93
Legal Investment 96
Plan Of Distribution 97
Legal Matters 98
Financial Information 98
Rating 98
Index Of Principal Terms 99
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.
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 evidencing interests in, or debt
obligations 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--Prepayments and Effect on Average Life of Certificates and 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 of certain other retirement plans or
arrangements, including individual retirement accounts and annuities and Keogh
plans, that are subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Code, and an investment manager of
a collective investment fund or separate account in which such plans, accounts,
annuities or arrangements are invested, should carefully review with their legal
advisors whether the purchase or holding of Offered Certificates could give rise
to a transaction that is prohibited or is not otherwise permissible 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 "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.
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 "Warranting 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 Sellers"), 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 (a "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--Prepayments and Effect on Average Life of
Certificates and 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 Sellers 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
Sellers 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 on 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
Sellers 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 twelve-month 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 Sellers 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 agreements. 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.
Whether actions taken by a lender would constitute such participation
in the management of a facility or property, so that the lender loses the
protection of this "second creditor exclusion," has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent. In 1990, the United States Court of Appeals for the Eleventh
Circuit suggested, in United States v. Fleet Factors Corp., that the mere
capacity of the lender to influence a borrower's decisions regarding disposal of
hazardous substances was sufficient participation in the management of the
borrower's business to deny the protection of the secured creditor exclusion to
the lender, regardless of whether the lender actually exercised such influence.
Other judicial decisions did not interpret the secured creditor exclusion as
narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996 (the "Asset Conservation Act"), which took effect on September 30, 1996.
The Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or of the borrower. The
Asset Conservation Act also provides that participation in the management of the
property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the secured property.
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.
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.
a. 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 December 30, 1997 the IRS issued final 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 generally be long-term if the Grantor Trust Certificate has been owned for
more than one year. Long-term capital gains of individuals are subject to
reduced maximum tax rates while capital gains on the sale of assets held less
than one year by individuals are generally subject to ordinary income rates. The
deductibility of capital losses is limited.
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 (other
than a partnership that is not treated as a United States person under any
applicable Treasury regulations), 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 persons have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons also will be a U.S. Holder.
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.
f. NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
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 December 30, 1997 the IRS issued final 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, and will generally be
long-term if the REMIC Regular Certificateholder held it for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax rates
while capital gains on the sale of assets held less than one year by individuals
are generally subject to ordinary income rates. The deductibility of capital
losses is limited.
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.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
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 and will be long-term if the
REMIC Residual Certificate has been held for more than one year. 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. Long-term capital gains of individuals
are subject to reduced maximum tax rates while capital gains on the sale of
assets held less than one year by individuals are generally subject to ordinary
income rates. The deductibility of capital losses is limited.
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
Sellers' obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Sellers, as
the case may be, out of its own funds or (ii) the Sellers' obligation to
repurchase a Mortgage Loan, such tax will be borne by the Sellers. In the event
that such Master Servicer, Trustee or Sellers, 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"), and Section 4975 of the Code impose certain restrictions on employee
benefit and other plans subject to ERISA or to Section 4975 of the Code
("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, regulatory 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 less than 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 IBCA, Inc., Moody's Investors Service,
Inc. and Standard & Poor's Ratings Group (each, a "Rating Agency");
(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.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which extends exemptive relief to certain
mortgage-backed and asset backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the "Obligations")
supporting payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three month period following the closing date (the "Pre-Funding Period"),
instead of requiring that all such Obligations be either identified or
transferred on or before the Closing Date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the certificates being offered
(the "Pre-Funding Limit") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the Closing Date (the
"Additional Obligations") must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which
terms and conditions have been approved by a Rating Agency.
(3) The transfer of such Additional Obligations to the trust
during the Pre-Funding Period must not result in the certificates to be
covered by the Exemption receiving a lower credit rating from a Rating
Agency upon termination of the Pre-Funding Period than the rating that
was obtained at the time of the initial issuance of the certificates by
the trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the Pre-Funding Period must not be more than
100 basis points lower than the average interest rate for the
Obligations transferred to the trust on the Closing Date.
(5) In order to insure that the characteristics of the
Additional Obligations are substantially similar to the original
Obligations which were transferred to the Trust Fund:
(i) the characteristics of the Additional Obligations
must be monitored by an insurer or other credit support
provider that is independent of the depositor; or
(ii) an independent accountant retained by the
depositor must provide the depositor with a letter (with
copies provided to each Rating Agency rating the certificates,
the related underwriter and the related trustee) stating
whether or not the characteristics of the Additional
Obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were
applicable to the Obligations transferred to the trust as of
the Closing Date.
(6) The Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier in certain circumstances
if the pre-funding account falls below the minimum level specified in
the pooling and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding
may be invested only in certain permitted investments ("Permitted
Investments").
(8) The related prospectus or prospectus supplement must
describe:
(i) any pre-funding account and/or capitalized
interest account used in connection with a pre-funding
account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the
Pre-Funding Limit for the trust; and
(iv) that the amounts remaining in the pre-funding
account at the end of the Pre-Funding Period will be remitted
to certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must describe
the Permitted Investments for the pre-funding account and/or
capitalized interest account and, if not disclosed in the related
prospectus or prospectus supplement, the terms and conditions for
eligibility of Additional Obligations.
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 ERISA or 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 TERMS
IRS ..........................................................................80
1986 Act .....................................................................74
Accounts .....................................................................39
Accrual Certificates.......................................................8, 28
Accrued Certificate Interest..................................................30
ADA ..........................................................................68
Agreements ....................................................................7
Amortizable Bond Premium Regulations......................................71, 83
Applicable Amount ............................................................88
ARM Loans ................................................................22, 74
Asset Conservation Act........................................................64
Asset Sellers ................................................................18
Available Distribution Amount.................................................29
Balloon Mortgage Loans........................................................14
Bankruptcy Code ..............................................................60
Beneficial Owners ............................................................35
Book-Entry Certificates.......................................................29
Cash Flow Agreement........................................................7, 24
Cash Flow Agreements...........................................................1
Cede ......................................................................4, 35
CERCLA ...................................................................16, 64
Certificate ..................................................................36
Certificate Balance........................................................8, 30
Certificateholder ............................................................35
Certificateholders............................................................18
Certificates ..............................................................5, 95
Closing Date .................................................................79
CMBS ...................................................................1, 6, 18
CMBS Agreement ...............................................................23
CMBS Issuer ..................................................................23
CMBS Servicer ................................................................23
CMBS Trustee ................................................................23
Code .........................................................................10
Commercial Loans .............................................................19
Commercial Properties......................................................6, 19
Commission ....................................................................4
Contingent Regulations........................................................80
Contributions Tax ............................................................90
Cooperative ..............................................................19, 56
Cooperative Loans ............................................................56
Cooperatives .................................................................19
Covered Trust ............................................................15, 52
CPR ..........................................................................26
Credit Support .........................................................1, 7, 24
Crime Control Act ............................................................69
Cut-off Date ..................................................................8
Debt Service Coverage Ratio...................................................20
Deferred Interest ............................................................76
Definitive Certificates...................................................29, 36
Depositor ....................................................................18
Determination Date............................................................29
Disqualifying Condition.......................................................65
Distribution Account..........................................................41
Distribution Date .............................................................8
DTC .......................................................................4, 35
Environmental Hazard Condition................................................65
Equity Participations.........................................................22
ERISA ....................................................................10, 93
Exchange Act ..................................................................4
Exemption ....................................................................94
FDIC .....................................................................39, 96
Grantor Trust Certificates.....................................................9
Hazardous Materials...........................................................66
Indirect Participants.........................................................35
Insurance Proceeds............................................................40
IRS ..........................................................................71
JPMSI ........................................................................97
L/C Bank .....................................................................53
Labor ........................................................................94
Lease ......................................................................4, 6
Lease Assignment ..............................................................1
Legislative History...........................................................75
Lessee .....................................................................4, 6
Liquidation Proceeds......................................................40, 42
Loan-to-Value Ratio...........................................................21
Lock-out Date ................................................................22
Lock-out Period...............................................................22
Mark-to-Market Regulations....................................................88
Master REMIC..................................................................78
Master Servicer................................................................5
Model Law.....................................................................96
Mortgage Assets............................................................1, 18
Mortgage Interest Rate.....................................................6, 22
Mortgage Loans..........................................................1, 6, 18
Mortgage Notes...............................................................19
Mortgaged Properties...........................................................6
Mortgages.................................................................19, 54
Mortgagor.....................................................................54
Multifamily Loans.............................................................19
Multifamily Properties.....................................................6, 18
NCUA..........................................................................96
Net Operating Income..........................................................20
New Regulations...........................................................77, 86
Nonrecoverable Advance........................................................32
Offered Certificates...........................................................1
OID.......................................................................69, 71
OID Regulations...............................................................71
Originator....................................................................19
OTS...........................................................................96
Participants..................................................................35
Pass-Through Rate..........................................................8, 30
Payment Lag Certificates......................................................84
Permitted Investments.........................................................40
Plans.........................................................................93
Policy Statement..............................................................96
Prepayment....................................................................26
Prepayment Assumption.........................................................74
Prepayment Premium............................................................22
Primary Servicer...............................................................5
Prohibited Transactions Tax...................................................90
Purchase Price................................................................39
Rating Agency.................................................................10
RCRA..........................................................................65
Record Date...................................................................29
Refinance Loans...............................................................21
Related Proceeds..............................................................32
Relief Act ...................................................................68
REMIC .........................................................................9
REMIC Certificates............................................................77
REMIC Regular Certificateholde................................................78
REMIC Regular Certificates.................................................9, 77
REMIC Regulations ............................................................69
REMIC Residual Certificateholder..............................................85
REMIC Residual Certificates................................................9, 77
Restricted Group .............................................................95
Retained Interest ............................................................47
RICO .........................................................................68
Senior Certificates........................................................8, 28
Series ..........................................................1, 5, 9, 12, 26
Servicer ......................................................................9
Servicing Standard............................................................42
Servicing Transfer Event......................................................43
SMMEA ........................................................................95
SMMEA Certificates............................................................95
Special Servicer ..............................................................5
Specially Serviced Mortgage Loan..............................................43
Stripped ARM Obligations......................................................75
Stripped Bond Certificates....................................................73
Stripped Coupon Certificates..................................................73
Stripped Interest Certificates.............................................8, 28
Stripped Principal Certificates............................................8, 28
Subordinate Certificates...................................................8, 28
Subsidiary REMIC .............................................................78
Super-Premium Certificates....................................................79
Title V ......................................................................67
Trust Assets ..................................................................3
Trust Fund ....................................................................1
Trustee .......................................................................5
U.S. Person ..............................................................76, 92
UCC ..........................................................................35
Underlying CMBS ..............................................................18
Underlying Mortgage Loans.....................................................18
Value ........................................................................21
Voting Rights ................................................................17
Warranting Party .........................................................11, 38
Whole Loans ..................................................................18
<PAGE>
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.............................$ 590,000
Printing and Engraving Fees......................$ 300,000
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....................................$ 60,000
Total........................................$3,000,000
----------
* 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 $2,589,673,000 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. 333-31095)
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 September 16,
1998.
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, James M. Collins and Michael A. Jungman, each whose signature appears
below constitutes and appoints each of Michael A. Jungman, Lawrence J. Blume and
Bianca A. Russo, or any of them, 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 September 16, 1998.
SIGNATURE TITLE
/s/ William S. Demchak Director, Chairman of the Board
---------------------------
William S. Demchak
/s/ Michael A. Jungman Director, President
--------------------------- (Principal Executive Officer)
Michael A. Jungman
/s/ Debra F. Stone Director
---------------------------
Debra F. Stone
/s/ James M. Collins Controller
--------------------------- (Principal Accounting and
James M. Collins 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. 333-31095)
EXHIBIT 5.1
BROWN & WOOD LLP
ONE TRADE WORLD CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
September 17, 1998
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 September 17, 1998 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
September 17, 1998
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 September 17, 1998
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
