As filed with the Securities Exchange Commission on May 16, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
MIDLAND REALTY ACCEPTANCE CORP.
(Exact name of registrant as specified in its charter)
Missouri 43-1745475
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Midland Realty Acceptance Corp.
210 West 10th Street, 6th Floor
Kansas City, Missouri 64105
(816) 435-5000
(Address, including zip code, and telephone number, including area
code of registrant's principal executive offices)
Alan L. Atterbury
Midland Realty Acceptance Corp.
210 West 10th Street, 6th Floor
Kansas City, Missouri 64105
(816) 435-5000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------------------
Copy to:
William A. Hirsch, Esq.
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108
Approximate date of commencement of proposed sale to the public: From time to
time 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, please check the following box.
X
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, please 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
under the Securities Act of 1933, please check the following box.
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
===========================================================================================
Title of Amount to be Proposed maximum Proposed maximum Amount of
securities to registered offering price per aggregate offering registration fee
be registered security* price*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage
Pass-Through $1,000,000 100% $1,000,000 $344.83
Certificates,
issued in series
===========================================================================================
</TABLE>
*Estimated solely for the purpose of calculating the registration fee.
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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
Showing Location of Items in Prospectus
Required by Items of Form S-3
Item Caption in Prospectus
1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus....................... Forepart of Registration Statement
and Outside Front Cover Page**
2. Inside Front and Outside Back Cover Pages of Prospectus
Inside Front and Outside Back Cover
Pages**
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges
Risk Factors; The Depositor**
4. Use of Proceeds.................. Use of Proceeds**
5. Determination of Offering Price.. *
6. Dilution......................... *
7. Selling Security Holders......... *
8. Plan of Distribution............. Plan of Distribution**
9. Description of Securities to Be RegOutside Front Cover Page; Description
of the Certificates; The Mortgage
Pools; Servicing of the Mortgage
Loans; Enhancement; Certain Legal
Aspects of the Mortgage Loans;
Certain Federal Income Tax
Consequences; ERISA Considerations;
Legal Investment**
10. Interest of Named Experts and Couns*l
11. Material Changes................. *
12. Incorporation of Certain Information by Reference
Incorporation of Certain Information
by Reference
13. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities...................... *
- -----------------
* Omitted, since item is not applicable or answer is negative.
** To be completed or provided from time to time by Prospectus Supplement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PRELIMINARY PROSPECTUS SUPPLEMENT,
DATED MAY 16, 1996
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 1996)
$[ ] (Approximate)
Midland Realty Acceptance Corp. (Depositor)
[__________________________________] (Mortgage Loan Seller)
Midland Loan Services, L.P. (Master Servicer)
Commercial Mortgage Pass-Through Certificates, Series [ ]
The Commercial Mortgage Pass-Through Certificates, Series [ ] (the
"Certificates") will consist of [ ] Classes of Certificates, designated as the
Class A Certificates, the Class B Certificates, the Class C Certificates, [the
Class [EC] Certificates], [the Class [PO] Certificates], [the Class [IO]
Certificates)], (collectively, the "Regular Certificates"), the Class R
Certificates and the Class LR Certificates (together, the "Residual
Certificates"). Only the Class A, Class B and Class [ ] Certificates (the
"Offered Certificates") are offered hereby.
(continued on next page)
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MORTGAGE LOAN SELLER, THE MASTER SERVICER, THE SPECIAL SERVICER,
THE TRUSTEE, [THE FISCAL AGENT] OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED
UNDER "RISK FACTORS" AT PAGE S-20 IN THIS PROSPECTUS SUPPLEMENT
AND PAGE 3 OF THE PROSPECTUS BEFORE PURCHASING ANY OF THE OFFERED
CERTIFICATES.
=========================================================================
Initial Related Final
Certificate Pass-Through Distribution
Class Balance (1) Rate [(2)] Date (3)
- -------------------------------------------------------------------------
Class A ......... $
- -------------------------------------------------------------------------
Class B ......... $
- -------------------------------------------------------------------------
Class [ ]....... $
----
=========================================================================
(1) Approximate, subject to an upward or downward variance of up
to [___]%.
[(2) In addition to distributions of principal and interest,
holders of certain Classes of Certificates will be entitled to receive a
portion of the Prepayment Premiums received from the borrowers as
described herein. See "DESCRIPTION OF THE CERTIFI-
CATES--Distribution--Prepayment Premiums" herein.] (3) The Rated Final
Distribution Dates for each Class of Offered Certificates is the
Distribution Date occurring two years after the latest Assumed Maturity
Date of any of the Mortgage Loans. The "Assumed Maturity Date" of (a) any
Mortgage Loan that is not a Balloon Loan is the maturity date of such
Mortgage Loan and (b) any Balloon Loan is the date on which such Mortgage
Loan would be deemed to mature in accordance with its original
amortization schedule absent its Balloon Payment.
[The Offered Certificates will be purchased by Prudential Securities
Incorporated (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 approximately
$[ ], before deducting certain expenses expected to be approximately
$[_______] payable by the Depositor. The Offered Certificates are offered by
the Underwriter, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter and subject to its right to reject orders in whole
or in part. It is expected that delivery of the Offered Certificates will be
made in [book-entry form through the Same-Day Funds Settlement System of The
Depository Trust Company ("DTC"]) [definitive fully registered form at the
offices of the Underwriter], on or about , the "Delivery Date"),
against payment therefor in immediately available funds.
Prudential Securities Incorporated
, 1996
<PAGE>
(continued from previous page)
The Certificates will represent beneficial ownership interests in a trust
fund (the "Trust Fund") to be created by Midland Realty Acceptance Corp. (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of [ ] fixed-rate [and ____ variable rate] mortgage loans, with original
terms to maturity of not more than [ ] years (the "Mortgage Loans"), secured by
first liens on commercial and multifamily residential properties (each, a
"Mortgaged Property") [If applicable, describe any other assets to be included
in Trust Fund (e.g., installment contracts or participations)].
The Mortgaged Properties consist of [multifamily residential housing,]
[nursing homes,] [congregate care facilities,] [retail properties,] [office
buildings,] [self-storage facilities,] [light industrial/industrial properties,]
[hotels,] [mobile home parks] and [mixed use properties.] The Mortgage Loans
will be sold to the Depositor by the Mortgage Loan Seller on or prior to the
date of initial issuance of the Certificates. The characteristics of the
Mortgage Loans and the related Mortgaged Properties are described under
"DESCRIPTION OF THE MORTGAGE POOL" herein.
The Class A, Class B and Class C Certificates (the "P&I Certificates")
will be entitled to distributions of interest on their respective Certificate
Balances at the applicable Pass-Through Rate for each such Class. [The Class
[EC] Certificates will be entitled to distributions of Class [EC] Excess
Interest, on each Distribution Date occurring on or prior to [ ] (the "EC
Maturity Date"). "Class [EC] Excess Interest" is an amount equal to the Class
[EC] Pass-Through Rate multiplied by the Class [EC] Notional Balance. The Class
[EC] Certificates will not be entitled to any distributions (other than any
unpaid Class Interest Shortfalls) after the EC Maturity Date.] [With respect to
each Distribution Date, the Class [IO] Certificates will be entitled to
distributions of interest at the Class [IO] Pass-Through Rate on the Class [IO]
Notional Balance.] [The Class [PO] Certificates are principal only and will not
be entitled to distributions of interest.] See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.
Distributions of principal and interest, as applicable, on the Regular
Certificates will be made, to the extent of Available Funds, on the [ ] day of
each month or, if any such day is not a Business Day, on the next succeeding
Business Day, beginning in [ ] (each, a "Distribution Date"). Distributions
allocable to interest on the Certificates will be made as described herein under
"DESCRIPTION OF THE CERTIFICATES--Distributions" herein. The rights of the
holders of the Class B and Class C Certificates (the "Subordinate Certificates")
to receive distributions of principal and interest will be subordinate to such
rights of the holders of the Class A Certificates (the "Senior Certificates");
the rights of the holders of the Class C Certificates to receive such
distributions will be subordinate to such rights of the holders of the Class B
Certificates. In addition, each Class of Certificates will have the benefit of
subordination of the Class LR and Class R Certificates to the extent of any
distributions to which it would otherwise be entitled. [Describe subordination
provisions of Class [EC] Certificates, Class [IO] Certificates and Class [PO]
Certificates, if applicable.] See "DESCRIPTION OF THE
CERTIFICATES--Subordination [; Credit Enhancement]" herein.
The Residual Certificates are not entitled to distributions of interest or
principal.
The yield to maturity on each Class of the Regular Certificates will be
sensitive, [and, in the case of the Class [EC], Class [IO] and Class [PO]
Certificates, will be very sensitive,] to the amount and timing of debt service
payments (including both voluntary and involuntary prepayments, defaults and
liquidations) on the Mortgage Loans, and payments with respect to repurchases
thereof that are applied in reduction of the Certificate Balance of such Class
[(or, in the case of the Class [EC] Certificates or the Class [IO] Certificates,
which reduce the Class [EC] Notional Balance or the Class [IO] Notional Balance,
respectively)]. No representation is made as to the rate of prepayments on or
liquidations of the Mortgage Loans or as to the
S-2
<PAGE>
anticipated yield to maturity of any Class of Regular Certificates. [Each] of
the Mortgage Loans generally provides that for a specified amount of time during
which a prepayment is permitted, it must be accompanied by payment of a
Prepayment Premium. Prepayment Premiums are distributable to the Regular
Certificates as described herein under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Prepayment Premiums" herein.
The yield to investors on each Class of the Regular Certificates will also
be very sensitive to the timing and magnitude of losses on the Mortgage Loans
due to liquidations to the extent that the Certificate Balances of the Class or
Classes of Certificates that are subordinate to such Class have been reduced to
zero. A loss on any one of the Mortgage Loans included in the Mortgage Pool
could result in a significant loss, and in some cases a complete loss, of an
investor's investment in any Class of the Regular Certificates. No
representation is made as to the rate of liquidations of or losses on the
Mortgage Loans.
The Certificates are being issued pursuant to a Pooling and Servicing
Agreement dated as of [ ] (the "Pooling and Servicing Agreement"), by and among
the Depositor, Midland Loan Services, L.P., as servicer (the "Master Servicer"),
[ ], as special servicer (the
"Special Servicer"),
[ ] as trustee (the "Trustee"), [and [ ] as fiscal agent (the "Fiscal Agent").]
The obligations of the Master Servicer with respect to the Certificates will be
limited to its contractual servicing obligations and the obligation under
certain circumstances to make Advances with respect to the Mortgage Loans. See
"THE POOLING AND SERVICING AGREEMENT" herein.
It is a condition to the issuance of the Certificates that the Class A
Certificates, the Class B Certificates and the Class [ ] Certificates be rated [
] by each of [________________________________] (the "Rating Agencies"). The
Class [ ], Class R and Class LR Certificates are unrated.
Elections will be made to treat designated portions of the Trust Fund
(such portions of the Trust Fund, the "Trust REMICs"), and the Trust REMICs will
qualify, as two separate "real estate mortgage investment conduits" (each a
"REMIC" or, alternatively, the "Upper-Tier REMIC" and the "Lower-Tier REMIC")
for federal income tax purposes. As described more fully herein, the Class A,
Class B, Class C, [Class [EC]], [Class [IO]] and [Class [PO]] Certificates will
constitute "regular interests" in the Upper-Tier REMIC, and the Class R
Certificates and Class LR Certificates will constitute the sole Class of
"residual interests" in the Upper-Tier REMIC and the Lower-Tier REMIC,
respectively. Prospective investors in the Class R Certificates and Class LR
Certificates are cautioned that their respective REMIC taxable income and the
liability thereon will exceed, and may substantially exceed, cash distributions
to such holders during certain periods, in which event such holders must have
sufficient alternative sources of funds to pay such tax liability. It is likely
that the Class R Certificates and Class LR Certificates will be considered
"noneconomic residual interests," certain transfers of which may be disregarded
for federal income tax purposes. The Class R Certificates and Class LR
Certificates may not be purchased by or transferred to, among others, (i) a
"Disqualified Organization," (ii) except under certain limited circumstances, a
person who is not a "U.S. Person," (iii) a Plan or (iv) any person or entity who
the transferor knows or has reason to know will be unwilling or unable to pay
when due any federal, state or local taxes with respect thereto. Holders of the
Class R Certificates and Class LR Certificates will be required to include the
taxable income or loss of the Upper-Tier REMIC and Lower-Tier REMIC,
respectively, in determining their federal taxable income. It is anticipated
that all or a substantial portion of the taxable income of the Upper-Tier REMIC
and Lower-Tier REMIC includible by the Class R Certificateholders and Class LR
Certificateholders, respectively, will be treated as "excess inclusion" income
subject to special limitations for federal income purposes. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," "DESCRIPTION OF THE CERTIFICATES--Delivery, Form and
Denomination" and "ERISA CONSIDERATIONS" herein and "CERTAIN FEDERAL
S-3
<PAGE>
INCOME TAX CONSEQUENCES," "DESCRIPTION OF THE CERTIFICATES" and
"ERISA CONSIDERATIONS" in the Prospectus.
There is currently no secondary market for the Certificates. The
Underwriter has advised that it currently intends to make a secondary market in
the Certificates, but it is under 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 or will provide investors with a sufficient level of liquidity of
investment. See "RISK FACTORS--Limited Liquidity" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional Information is contained in the
Prospectus and investors are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and
Prospectus. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments and subscriptions.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE OFFERED CERTIFICATES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the Offered Certificates. This
Prospectus Supplement and the accompanying Prospectus, which form a part of the
Registration Statement, omit certain information contained in such Registration
Statement pursuant to the rules and regulations of the Commission. The
Registration Statement can be inspected and copied at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W, Washington D.C. 20549.
S-4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus. See "INDEX OF SIGNIFICANT DEFINITIONS" herein and in
the Prospectus.
Title of Certificates.... [ ] Commercial
-------------------------
Mortgage Pass-Through Certificates,
Series [ ] (the "Certificates").
-----
The Certificates......... $[ ] initial aggregate
principal balance ("Certificate
Balance") of Class A Certificates;
$[ ] initial Certificate
Balance of Class B Certificates;
$[ ] initial Certificate
Balance of Class C Certificates;
[Class [EC] Certificates];
[Class [IO] Certificates];
[Class [PO] Certificates];
Class R Certificates; and
Class LR Certificates.
The aggregate initial Certificate
Balance of all Classes of Certificates
is subject to a permitted variance of
plus or minus [_____] % as described
herein. The Certificates will be
issued pursuant to a Pooling and
Servicing Agreement to be dated as of
[ ] (the "Pooling and
-----------------
Servicing Agreement") among the
Depositor, the Master Servicer, the
Special Servicer, the Trustee [and the
Fiscal Agent]. Only the Class A,
Class B and Class [ ] Certificates
---
are offered hereby.
The Class C, Class [ ], Class R and
Class LR Certificates (collectively,
the "Private Certificates") have not
been registered under the 1933 Act and
are not offered hereby. Accordingly,
to the extent this Prospectus
Supplement contains information
regarding the terms of the Private
Certificates, such information is
provided solely because of its
relevance to a prospective purchaser
of an Offered Certificate.
Depositor................ Midland Realty Acceptance Corp., a
Missouri corporation and a wholly
owned subsidiary of Midland Loan
Services, L.P. (the "Master
Servicer"). See "THE DEPOSITOR" in
the Prospectus.
S-5
<PAGE>
Master Servicer.......... Midland Loan Services, L.P., a
Missouri limited partnership. See
"THE MASTER SERVICER" herein.
Special Servicer......... [ ], a
------------------------------
[_________________________]. See "THE
SPECIAL SERVICER" herein.
Trustee..................
[
], a [_________________]. See "THE
POOLING AND SERVICING AGREEMENT--The
Trustee" herein.
[Fiscal Agent............
[
], a [_________________]. See "THE
POOLING AND SERVICING AGREEMENT--The
Fiscal Agent" herein.]
Cut-off Date............. [ ]
-----------------------------
[(except with respect to [ ] loans
---
for which the Cut-off Date is
[ ])].
----------------------
Closing Date............. On or about [ ].
--------------------
Distribution Date........ The [ ] day of each month, or if
----
such [ ] day is not a Business Day,
----
the Business Day immediately following
such day, commencing on
[ ]. As used
--------------------
herein, a "Business Day" is any day
other than a Saturday, Sunday or a day
in which banking institutions in the
States of New York, Missouri or
[insert jurisdiction where Trustee is
located] are authorized or obligated
by law, executive order or
governmental decree to close.
Record Date.............. With respect to each Distribution
Date, the close of business on the
last Business Day of the month
preceding the month in which such
Distribution Date occurs.
Interest Accrual Period.. With respect to any Distribution
Date, the calendar month preceding the month in
which such Distribution Date occurs. Interest for
each Interest Accrual Period is calculated based on
a 360-day year consisting of twelve 30-day months.
Scheduled Final
Distribution Date...... [____________________________________].
Rated Final
Distribution Date...... As to each Class of Certificates
[(other than the Class [EC]
Certificates)], [______________],
which is the Distribution Date
occurring two years after the latest
Assumed Maturity Date of
S-6
<PAGE>
any of the Mortgage Loans. The
"Assumed Maturity Date" of (i) any
Mortgage Loan that is not a Balloon
Loan is the maturity date of such
Mortgage Loan and (ii) any Balloon
Loan is the date on which such
Mortgage Loan would be deemed to
mature in accordance with its original
amortization schedule absent its
Balloon Payment.
Collection Period........ With respect to each Distribution
Date, the period beginning on the day
following the Determination Date in
the month preceding the month in which
such Distribution Date occurs (or, in
the case of the Distribution Date
occurring in [ ] on the day
--------
after the Cut-off Date) and ending on
the Determination Date in the month in
which such Distribution Date occurs.
Determination Date....... The [ ] day of any month, or if such
---
[ ] day is not a Business Day, the Business Day
immediately preceding such [ ] day, commencing on [
].
Due Date................. With respect to any Mortgage Loan, the
date on which scheduled payments are
due on such Mortgage Loan (without
regard to grace periods), which date,
for [ ] of the Mortgage Loans, is the
--
first day of the month, [and which
date, for [ ] of the Mortgage Loans,
---
is the [ ] day of the month].
---
Denominations............ [The Class [ ] and Class [ ]
--- ---
Certificates will be issued in minimum
denominations of Certificate Balance
[or Notional Balance, as applicable,]
of [$100,000] and multiples of
[$1,000] in excess thereof and will be
registered in the name of a nominee of
The Depository Trust Company ("DTC"
and, together with any successor
depository selected by the Depositor,
the "Depository") and beneficial
interests therein will be held by
investors through the book-entry
facilities of the Depository. The
Depositor has been informed by DTC
that its nominee will be Cede & Co.
Beneficial owners will hold and
transfer their respective ownership
interests in and to such Book-Entry
Certificates through the book-entry
facilities of DTC and will not be
entitled to definitive, fully
registered Certificates except in the
limited circumstances set forth
herein.] [The Class [ ] and Class
---
[ ] Certificates will be issued in
----
minimum denominations of Certificate
Balance [or Notional Balance, as
applicable,] of [$100,000] and
multiples of [$1,000] in excess
thereof [(or $1 in excess thereof with
respect to the Class [ ] and Class
---
[ ] Certificates)] and will be
----
issuable in definitive physical
registered form.] The Residual
Certificates will each be issuable in
registered definitive physical form,
in minimum denominations of [__]%
Percentage Interest and integral
multiples of a [__]% Percentage
Interest in excess thereof. See
"DESCRIPTION OF
S-7
<PAGE>
THE CERTIFICATES--Delivery, Form and
Denomination" herein.
The Mortgage Pool........ The Mortgage Pool will consist of [
] mortgage loans (the "Mortgage
Loans"). The Mortgage Loans have an
aggregate Cut-off Date Principal
Balance (the "Initial Pool Balance")
of approximately $[ ],
---------------
subject to a permitted variance of
plus or minus [___]%. All numerical
information provided herein with
respect to the Mortgage Loans is
provided on an approximate basis. All
weighted averaged information
regarding the Mortgage Loans reflects
weighting of the Mortgage Loans by
their Cut-off Date Principal
Balances. See "DESCRIPTION OF THE
MORTGAGE POOL--Changes in Mortgage Pool
Characteristics" herein.
The "Cut-off Date Principal Balance"
of each Mortgage Loan is equal to the
unpaid principal balance thereof as of
the Cut-off Date, after application of
all payments of principal due on or
before such date, whether or not
received. The Cut-off Date Principal
Balances of the Mortgage Loans range
from approximately $[ ] to
----------
approximately $[ ], and the
----------
average Cut-off Date Principal Balance
of the Mortgage Loans is approximately
$[ ].
[Each] Mortgage Loan is [, except as
discussed below,] secured by a first
mortgage or deed of trust lien on the
borrower's fee simple or leasehold
estate in certain land used for
commercial or multifamily residential
purposes, all buildings and
improvements thereon and certain
personal property located thereon
(each, a "Mortgaged Property").
[Describe Mortgage Loans secured by
second or third liens.] [[ ]
---------
of the Mortgage Loans, which represent
approximately [ ]% of the Initial
--
Pool Balance, are secured by
multifamily residential properties
(each, a "Multifamily Loan" and
"Multifamily Property,"
respectively);] [[ ] Mortgage Loans,
---
which represent approximately [ ]%
---
of the Initial Pool Balance, are
secured by a nursing home (a "Nursing
Home Loan" and "Nursing Home
Property," respectively);] [[ ]
-----
Mortgage Loans, which represent
approximately [ ]% of the Initial
---
Pool Balance, are secured by
congregate care facilities (each, a
"Congregate Care Loan" and "Congregate
Care Property," respectively);]
[[ ] Mortgage Loans, which
---------
represent approximately [ ]% of the
---
Initial Pool Balance, are secured by
retail shopping centers (each, a
"Retail Loan" and "Retail Property,"
respectively)]; [[ ] Mortgage Loans,
---
which represent approximately [ ]%
---
of the Initial Pool Balance, are
secured by office buildings (each, an
"Office Building Loan" and "Office
Building Property," respectively)];
S-8
<PAGE>
[[ ] Mortgage Loans, which represent
---
approximately [ ]% of the Initial
---
Pool Balance, are secured by mixed use
properties consisting of a retail and
office component (each, a
"Retail/Office Loan" and
"Retail/Office Property")]; [[ ]
---
Mortgage Loans, which represent
approximately [ ]% of the Initial
---
Pool Balance, are secured by
self-storage facilities (each, a
"Self-Storage Loan" and "Self-Storage
Property," respectively)]; [[ ]
---
Mortgage Loans, which represent
approximately [ ]% of the Initial
---
Pool Balance, are secured by light
industrial/industrial properties
(each, a "Light Industrial/Industrial
Loan" and "Light Industrial/Industrial
Property," respectively)]; [[ ]
----
Mortgage Loans, which represent
approximately [ ]% of the Initial
----
Pool Balance, are secured by a hotel
(a "Hotel Loan" and "Hotel Property,"
respectively)]; [[ ] Mortgage
----
Loans, which represent approximately
[ ]% of the Initial Pool Balance,
----
are secured by a mobile home park
(each, a "Mobile Home Park Loan" and
"Mobile Home Park Property,"
respectively)]; [[ ] Mortgage Loans,
---
which represent approximately [ ]%
---
of the Initial Pool Balance, are
secured by a mixed use property
consisting of a retail and multifamily
component (a "Retail/Multifamily Loan"
and "Retail/Multifamily Property,"
respectively)]; [[ ] Mortgage Loans,
---
which represent approximately [ ]%
---
of the Initial Pool Balance, are
secured by mixed use property
consisting of office, multifamily and
retail components (an
"Office/Multifamily/Retail Loan" and
"Office/Multifamily/Retail Property,"
respectively)]; and [[ ] Mortgage
---
Loans, which represent approximately
[ ]% of the Initial Pool Balance,
----
are secured by mixed use property
consisting of an office and warehouse
component (each, an "Office/Warehouse
Loan" and "Office/Warehouse Property,"
respectively)].
[ ] of the Mortgage Loans,
----------
which represent approximately [ ]%
---
of the Initial Pool Balance, are
secured by liens on Mortgaged
Properties located in [ ]; [
--------
] of the Mortgage Loans, which
represent approximately [ ]% of the
---
Initial Pool Balance, are secured by
liens on Mortgaged Properties located
in [ ]; and [ ] of the
-------- ------
Mortgage Loans, which represent
approximately [ ]% of the Initial
---
Pool Balance, are secured by liens on
Mortgaged Properties located in
[ ]. The remaining
-------------
Mortgaged Properties are located
throughout [ ] other states [and the
---
District of Columbia], and not more
than [____]% of the Initial Pool
Balance is secured by Mortgaged
Properties located in any individual
state among those other states [or the
District of Columbia].
[All] of the Mortgage Loans provide
for scheduled payments of principal
and interest (each, a "Monthly
Payment") to be due on
S-9
<PAGE>
the [first] day of each month, [except
with respect to [ ] Mortgage Loans,
---
as to which Monthly Payments are due
on the day of each month].
-----
[Each] Mortgage Loan accrues interest
at a rate per annum (a "Mortgage
Rate") that is fixed for the entire
term of such Mortgage Loan [and [___]
of the Mortgage Loans accrue interest
at a variable Mortgage Rate.] [No
Mortgage Loan permits negative
amortization or the deferral of
accrued interest.] [If any Mortgage
Loans have variable Mortgage Rates,
describe adjustment mechanism.]
[ ] of the Mortgage Loans,
---------
which represent approximately [ ]%
---
of the Initial Pool Balance, provide
for monthly payments of principal
based on amortization schedules longer
than the remaining terms of such
Mortgage Loans (such Mortgage Loans,
the "Balloon Loans"), such that
substantial amounts of principal are
due and payable on the respective
maturity dates (each such payment,
together with accrued interest on the
respective Balloon Loan for the
one-month period ending on the day
preceding its respective maturity
date, a "Balloon Payment"), unless
prepaid prior thereto. [ ] of
------
the Mortgage Loans, which represent
approximately [ ]% of the Initial
---
Pool Balance, are fully amortizing
over their stated terms.
The Mortgage Loan Seller will sell the
Mortgage Loans to the Depositor and,
in connection therewith, the Mortgage
Loan Seller will make certain
representations and warranties, as
more fully described herein. The
Depositor will assign the Mortgage
Loans, together with its rights and
remedies in respect of breaches of the
Mortgage Loan Seller's representations
and warranties, to the Trustee for the
benefit of Certificateholders. See
"THE POOLING AND SERVICING
AGREEMENT--Representations and
Warranties; Repurchase."
[If applicable, describe any other
assets to be included in the Mortgage
Pool (e.g., installment contracts or
participations).]
The characteristics of the Mortgage
Pool are more fully described herein
under the heading "DESCRIPTION OF THE
MORTGAGE POOL" and the characteristics
of the individual Mortgage Loans are
more particularly described in Annex A
hereto.
Distributions............ The per annum rate at which interest
accrues (the "Pass-Through Rate") on
the Class [ ] and [ ] Certificates
--- ---
during any Interest Accrual Period
will be equal to [ ]% and [ ]%,
--- ---
respectively. [With respect to each
Interest Accrual Period up to and
including [ ] (the
---------------------
"EC Maturity Date"), the Class [EC]
S-10
<PAGE>
Certificates will be entitled to an
amount equal to
[_____________________]. The Class
[EC] Certificates are not entitled to
distributions (other than any Class
Interest Shortfalls following the EC
Maturity Date.] [The Pass-Through
Rate on the Class [ ] Certificates
---
during any Interest Accrual Period
will be equal to the greater of (i)
the [Weighted Average Net Mortgage
Rate] and (ii) [ ]%. [The
---
Pass-Through Rate on the Class [IO]
Certificates during any Interest
Accrual Period will be equal to the
[Weighted Average Net Mortgage
Rate].] [The Class [PO] Certificates
are principal-only certificates and
are not entitled to distributions in
respect of interest.]
On each Distribution Date, each Class
of Certificates [(other than the Class
[EC] Certificates)] will be entitled
to receive interest distributions in
an amount equal to the Class Interest
Distribution Amount for such Class and
Distribution Date, together with any
Class Interest Shortfalls remaining
from prior Distribution Dates, in each
case to the extent of Available Funds,
if any, remaining after (i) payment of
the Interest Distribution Amount and
Class Interest Shortfall for each
other outstanding Class of
Certificates, if any, bearing an
earlier sequential designation of such
Class, (ii) Payment of the Pooled
Principal Distribution Amount for such
Distribution Date to each outstanding
Class of Certificates having an
earlier sequential designation and
(iii) payment of the unreimbursed
amount of Realized Losses, if any, up
to an amount equal to the aggregate of
such unreimbursed amount previously
allocated to each other outstanding
Class of Certificates having an
earlier sequential designation.
References herein to the earlier (or
later) sequential designation of such
Classes of Certificates means such
Classes in alphabetical order (or such
Classes in reverse alphabetical
order); [provided, however, that the
Class [ ] and Class [ ]
--- ---
Certificates will be treated pari
passu.]
The "Class Interest Distribution
Amount" with respect to any
Distribution Date and any Class of
Regular Certificates [other than the
Class [EC], Class [IO] and Class [PO]
Certificates] is equal to interest
accrued during the related Interest
Accrual Period at the applicable
Pass-Through Rate for such Class and
such Interest Accrual Period on the
Certificate Balance of such Class;
provided that reductions of the
Certificate Balance of such Class as a
result of distributions in respect of
principal or the allocation of losses
on the Distribution Date occurring in
such Interest Accrual Period will be
deemed to have been made as of the
first day of such Interest Accrual
Period. [With respect to any
Distribution Date and the Class [EC]
Certificates, the "Class Interest
Distribution Amount" will equal (i)
for any Distribution
S-11
<PAGE>
Date occurring on or prior to the EC
Maturity Date, the Class [EC] Excess
Interest and (ii) thereafter, zero;
provided that reductions of the
Notional Balance of such Class as a
result of distributions in respect of
principal or the allocation of losses
on the Distribution Date occurring in
such Interest Accrual Period will be
deemed to have been made as of the
first day of such Interest Accrual
Period.] [With respect to any
Distribution Date and the Class [IO]
Certificates, the "Class Interest
Distribution Amount" will equal an
amount equal to the product of the
Class [IO] Pass-Through Rate and the
Class [IO] Notional Balance; provided
that reductions of the Notional
Balance of such Class as a result of
distributions in respect of principal
or the allocation of losses on the
Distribution Date occurring in such
Interest Accrual Period will be deemed
to have been made as of the first day
of such Interest Accrual Period.] The
Class Interest Distribution Amount of
each Class will be reduced by its
allocable sum of the amount of any
Prepayment Interest Shortfalls not
offset by Servicing Fees with respect
to such Distribution Date, all as
provided herein. [The Class [PO]
Certificates are principal-only
certificates and have no Class
Interest Distribution Amount.]
The Pooled Principal Distribution
Amount for each Distribution Date will
be distributed, first, to the Class A
Certificates, until the Certificate
Balance thereof has been reduced to
zero and thereafter, sequentially to
each other Class of Regular
Certificates [(other than the Class
[EC] and Class [IO] Certificates,
neither of which has a Certificate
Balance and neither of which is
entitled to distributions in respect
of principal)] until its Certificate
Balance is reduced to zero, in each
case, to the extent of Available Funds
remaining after required distributions
of interest to such Class [(or, with
respect to the Class [IO]
Certificates, to the Class [PO]
Certificates)] and interest and
principal payable to any other
outstanding Class that has an equal or
higher priority that is entitled to
distributions on such Distribution
Date.
[In addition, on each Distribution
Date following the EC Maturity Date,
an amount equal to the excess of
Available Funds over the amounts paid
to all Classes of Certificates in
respect of interest, principal and
[(other than with respect to the Class
[PO] Certificates)] unreimbursed
Realized Losses (together with
interest thereon) on such Distribution
Date will be distributed in reduction
of the Certificate Balances of the
Class C Certificates, then the Class B
Certificates, then the Class A
Certificates [and finally the Class
[PO] Certificates,] in each case until
the Certificate Balance of each
thereof has been reduced to zero.
S-12
<PAGE>
The "Pooled Principal Distribution
Amount" for any Distribution Date is
equal to the sum (without
duplication), for all Mortgage Loans,
of (i) the principal component of all
scheduled Monthly Payments (other than
Balloon Payments) that become due
(regardless of whether received) on
the Mortgage Loans during the related
Collection Period; (ii) the principal
component of all Assumed Scheduled
Payments as applicable, deemed to
become due (regardless of whether
received) during the related
Collection Period with respect to any
Mortgage Loan that is delinquent in
respect of its Balloon Payment; (iii)
the Scheduled Principal Balance of
each Mortgage Loan that was
repurchased from the Trust Fund in
connection with the breach of a
representation or warranty or
purchased from the Trust Fund pursuant
to the Pooling and Servicing
Agreement, in either case, during the
related Collection Period; (iv) the
portion of Unscheduled Payments
allocable to principal of any Mortgage
Loan that was liquidated during the
related Collection Period; (v) the
principal component of all Balloon
Payments received during the related
Collection Period; (vi) all other
Principal Prepayments received in the
related Collection Period; and (vii)
any other full or partial recoveries
in respect of principal, including
Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds and Net
REO Proceeds.
See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.
S-13
<PAGE>
Advances................. Subject to the limitations described
herein, the Master Servicer is
required to make advances (each such
amount, a "P&I Advance") in respect of
delinquent Monthly Payments on the
Mortgage Loans. The Master Servicer
will not be required to advance the
full amount of any Balloon Payment not
made by the related borrower on its
due date, but will advance an amount
equal to the monthly payment (or
portion thereof not received) deemed
to be due on the Mortgage Loan after
such default, calculated based on the
original amortization schedule of such
Mortgage Loan with interest as
described herein. With respect to any
Distribution Date and any Seriously
Delinquent Loan, P&I Advances will
only be made if and to the extent that
Available Funds for such Distribution
Date (exclusive of any P&I Advance
with respect to any Seriously
Delinquent Loans) are not sufficient
to make full distributions in
accordance with the Available Funds
Allocation to each Class of
Certificates whose Certificate Balance
would not be reduced by Anticipated
Losses with respect to all Seriously
Delinquent Loans. Therefore, neither
(i) the most subordinate Class (or
Classes) of Certificates outstanding
at any time nor (ii) any other Class
of Certificates whose Certificate
Balance would be reduced if Realized
Losses occurred in the amount of
anticipated losses with respect to all
Seriously Delinquent Loans will
receive distributions on any
Distribution Date on which one or more
Mortgage Loans is a Seriously
Delinquent Loan unless Available Funds
for such Distribution Date (exclusive
of any P&I Advances with respect to
any Seriously Delinquent Loans) exceed
the amount necessary to make full
distributions in accordance with the
Available Funds Allocation to each
Class of Certificates that is senior
to such Class. See "THE POOLING AND
SERVICING AGREE- MENT--Advances"
herein. If the Master Servicer fails
to make a required P&I Advance, the
Trustee, acting in accordance with the
servicing standard, will be required
to make such P&I Advance, [and if the
Trustee fails to make a required P&I
Advance, the Fiscal Agent will be
required to make such P&I Advance.
See "THE POOLING AND SERVICING
AGREEMENT--the Fiscal Agent" herein].
Subordination; Credit Enhancement As a means of providing
a certain amount of
protection to the
holders of the Class A
Certificates against
losses associated with
delinquent and defaulted
Mortgage Loans, the
rights of the holders of
the Class B and Class C
Certificates to receive
distributions of
interest and principal,
as applicable, will be
subordinated to such
rights of the holders of
the Class A
Certificates. Each
other Class of Regular
Certificates will
likewise be protected by
the subordination
offered by the other
Classes of Certificates
that bear a later
alphabetical
designation.
S-14
<PAGE>
[describe subordination provisions of
Class [EC] Certificates, Class [IO]
Certificates and Class [PO]
Certificates, if applicable.] This
subordination will be effected in two
ways: (i) by the preferential right of
the holders of a Class of Certificates
to receive, on any Distribution Date,
the amounts of both interest and
principal, as applicable,
distributable in respect of such
Certificates on such Distribution Date
prior to any distribution being made
on such Distribution Date in respect
of any Classes of Certificates
subordinate thereto and (ii) by the
allocation of Realized Losses to the
Certificates in reverse order of their
alphabetical designations; [provided
that Realized Losses are allocated pro
rata to the Class [ ] Certificates
---
and the Class [ ] Certificates.]
---
See "DESCRIPTION OF THE
CERTIFICATES--Subordination [; Credit
Enhancement]" herein. Shortfalls in
Available Funds resulting from
additional Master Servicer or Special
Servicer compensation, interest on
Advances, extraordinary expenses of
the Trust Fund or otherwise will be
allocated in the same manner as
Realized Losses. [No other form of
credit enhancement is offered for the
benefit of the holders of the Offered
Certificates.] [Describe any other
form of credit enhancement.]
The Residual Certificates The holders of the Class R and
Class LR Certificates will not be
entitled to distributions of
interest or principal. The holders
of the Class R and Class LR
Certificates are not expected to
receive any distributions until
after the Certificate Balances of
all other Classes of Certificates
have been reduced to zero and only
to the extent of any Available
Funds remaining in the Distribution
Account and Collection Account,
respectively, on any Distribution
Date after the distribution to the
holders of the Regular Certificates
and to the Trustee as holder of the
Lower- Tier Regular Interests,
respectively, of all amounts that
they are entitled to receive on
such Distribution Date.
Optional Termination..... [The Special Servicer,] [the Master
Servicer,] [the Depositor] and [any
holder of the Class LR Certificates
representing more than a [___]%
Percentage Interest of the Class LR
Certificates] will each have the
option to purchase, at the purchase
price specified herein, all of the
Mortgage Loans, and all property
acquired through exercise of remedies
in respect of any Mortgage Loans,
remaining in the Trust Fund, and
thereby effect a termination of the
Trust Fund and early retirement of the
then outstanding Certificates, on any
Distribution Date on which the
aggregate Scheduled Principal Balance
of the Mortgage Loans remaining in the
Trust Fund is less than [ ]% of the
--
Initial Pool Balance. See "THE
POOLING AND SERVICING
AGREEMENT--Optional Termination" herein.
S-15
<PAGE>
[Auction................. If the Trust Fund has not been earlier
terminated as described under "THE
POOLING AND SERVICING
AGREEMENT--Optional Termination"
herein, the Trustee will on the
Distribution Date occurring in
[ ] of each year from
----------------
and including [ ] and on any date
----
after the Distribution Date occurring
in [ ] on which the
--------------------
Trustee receives an unsolicited bona
fide offer to purchase all (but not
less than all) of the Mortgage Loans
(each, an "Auction Valuation Date"),
request that [____] independent
financial advisory or investment
banking or investment brokerage firms
nationally recognized in the field of
real estate analysis and reasonably
acceptable to the Master Servicer
provide the Trustee with an estimated
value at which the Mortgage Loans and
all other property acquired in
respect of any Mortgage Loan in the
Trust Fund could be sold pursuant to
an auction. If the aggregate value
of the Mortgage Loans and all other
property acquired in respect of any
Mortgage Loan, as determined by the
average of the three highest such
estimates, equals or exceeds the
aggregate amount of the Certificate
Balances of all Certificates
outstanding on the Auction Valuation
Date plus expenses, the Trustee shall
auction the Mortgage Loans and such
property and thereby effect a
termination of the Trust Fund and
early retirement of the then
outstanding Certificates. The Trustee
will accept no bid lower than the
Certificate Balances of all
Certificates outstanding on the
Auction Valuation Date plus expenses.
See "POOLING AND SERVICING
AGREEMENT--Auction" herein.]
Certain Federal Income
Tax Consequences....... Elections will be made to treat the
Trust REMICS, and the Trust REMICs
will qualify, as two separate real
estate mortgage investment conduits
(each, a "REMIC" or, in the
alternative, the "Upper-Tier REMIC"
and the "Lower-Tier REMIC") for
federal income tax purposes. The
Class A, Class B, Class C, [Class
[EC]], [Class [IO]] and [Class [PO]]
Certificates (collectively, the
"Regular Certificates") will represent
"regular interests" in the Upper-Tier
REMIC and the Class R Certificates
will be designated as the sole Class
of "residual interest" in the Upper-
Tier REMIC. Certain uncertificated
classes of interests will represent
"regular interests" in the Lower-Tier
REMIC (the "Lower-Tier Regular
Interests") and the Class LR
Certificates will be designated as the
sole Class of "residual interest" in
the Lower-Tier REMIC.
The Regular Certificates will be
treated as newly originated debt
instruments for federal income tax
purposes. Beneficial owners
S-16
<PAGE>
of the Offered Certificates will be
required to report income thereon in
accordance with the accrual method of
accounting. [The Class [EC] and Class
[IO] Certificates will be issued with
original issue discount in an amount
equal to the excess of all
distributions of interest expected to
be received thereon over their
respective issue prices (including
accrued interest).] [The Class [PO]
Certificates will be issued with
original issue discount in an amount
equal to the excess of the Initial
Certificate Balances thereof over
their issue price.] [It is
anticipated that the Class [__]
Certificates will be issued with
original issue discount in an amount
equal to their Initial Certificate
Balances plus [__] days of interest at
the initial Pass-Through Rate thereon
over their respective issue prices
(including accrued interest).] [It is
further anticipated that the Class
[__] Certificates will be issued at a
premium for federal income tax
purposes.] See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" herein.
The Prepayment Assumption that will be
used for purposes of accruing original
issue discount with respect to the
Regular Certificates and determining
whether such original issue discount
with respect to the Regular
Certificates is de minimis, and that
may be used by a holder to amortize
premium, is described herein as
Scenario [3] under the heading "YIELD
CONSIDERATIONS--Weighted Average Life
of the Regular Certificates." No
representation is made as to the rate,
if any, at which the Mortgage Loans
will prepay.
[Although not free from doubt, it is
anticipated that any Prepayment
Premiums allocable to the Regular
Certificates will be ordinary income
to a Certificateholder as such amounts
accrue. See "DESCRIPTION OF THE
CERTIFI- CATES--Distributions" herein.]
Holders of the Class R and Class LR
Certificates will be required to
include the taxable income or loss of
the Upper-Tier REMIC and the
Lower-Tier REMIC, respectively, in
determining their federal taxable
income. It is anticipated that all or
a substantial portion of the taxable
income of the Upper-Tier REMIC and the
Lower-Tier REMIC includible by the
Class R and Class LR
Certificateholders, respectively, will
be named as "excess inclusion" income
subject to special limitations for
federal income tax purposes. Further,
significant restrictions apply to the
transfer of the Class R and Class LR
Certificates. The Class R
Certificates will, and Class LR
Certificate may, be considered
"noneconomic residual interests,"
certain transfers of which may be
disregarded for federal income tax
purposes.
S-17
<PAGE>
ERISA Considerations..... The United States Department of Labor
has issued to the Underwriter an
individual prohibited transaction
exemption, Prohibited Transaction
Exemption 90-32, which generally
exempts from the application of
certain of the prohibited transaction
provisions of Section 406 of the
Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and
the excise taxes imposed by Sections
4975(a) and (b) of the Code and the
civil penalties imposed by 502(i) of
ERISA, transactions relating to the
purchase, sale and holding of
pass-through certificates such as the
Class A Certificates by employee
benefit plans and certain other
retirement arrangements, including
individual retirement accounts and
Keogh plans, which are subject to
ERISA and the Code (all of which are
hereinafter referred to as "Plans"),
collective investment funds in which
such Plans are invested and insurance
companies using assets of separate
accounts or general accounts which
include assets of Plans (or which are
deemed pursuant to ERISA to include
assets of Plans) and the servicing and
operation of mortgage pools such as
the Mortgage Pool, provided that
certain conditions are satisfied. See
"ERISA CONSIDERATIONS" herein.
THE CLASS B, CLASS C, CLASS [EC],
CLASS [PO] AND CLASS [IO]],
CERTIFICATES ARE SUBORDINATED TO ONE
OR MORE OTHER CLASSES OF CERTIFICATES
AND, ACCORDINGLY, THE CLASS B, CLASS
C, CLASS [EC], CLASS [PO] AND CLASS
[IO]], CERTIFICATES MAY NOT BE
PURCHASED BY OR TRANSFERRED TO A PLAN
OR PERSON ACTING ON BEHALF OF ANY PLAN
OR USING THE ASSETS OF ANY SUCH PLAN,
OTHER THAN AN INSURANCE COMPANY USING
ASSETS OF ITS GENERAL ACCOUNT UNDER
CIRCUMSTANCES IN WHICH SUCH PURCHASE
OR TRANSFER WOULD NOT CONSTITUTE OR
RESULT IN A PROHIBITED TRANSACTION.
NEITHER THE CLASS R CERTIFICATES NOR
THE CLASS LR CERTIFICATES MAY BE
PURCHASED BY OR TRANSFERRED TO A PLAN.
Ratings.................. It is a condition to the issuance of
the Certificates that: the Class A
Certificates, the Class B Certificates
and the Class [___] Certificates each
be rated [______________] by each of
[__________________]. The Class [ ],
---
Class R and Class LR Certificates are
unrated. 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
likelihood or frequency of prepayments
(both voluntary and
S-18
<PAGE>
Involuntary) or the possibility that
Certificateholders might suffer a
lower than anticipated yield, nor does
a security rating address the
likelihood of receipt of Prepayment
Premiums or the likelihood of
collection by the Master Servicer of
Default Interest. See "RISK FACTORS"
and "RATINGS" herein.
Legal Investment......... The Certificates will [not] constitute
"mortgage related securities" within
the meaning of the Secondary Mortgage
Market Enhancement Act of 1984. The
appropriate characterization of the
Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the
Certificates, may be subject to
significant interpretative
uncertainties. Accordingly, investors
should consult their own legal
advisors to determine whether and to
what extent the Certificates
constitute legal investments for them.
See "LEGAL INVESTMENT" herein and in the
Prospectus.
S-19
<PAGE>
RISK FACTORS
[Description will vary based on the particular Mortgage
Pool.]
Prospective holders of Certificates should consider, among other things,
the following factors in connection with the purchase of the Certificates.
Prospective Investors should also consider the factors listed under "RISK
FACTORS" in the Prospectus.
The Mortgage Loans
The Mortgage Loans, the proceeds of which are the sole source of payments
on the Certificates, are not insured or guaranteed by any governmental entity,
by any private mortgage insurer or by the Depositor, the Mortgage Loan Seller,
the Master Servicer, the Special Servicer, the Trustee, [the Fiscal Agent] or
any of their respective affiliates. [ ] of the Mortgage Loans are fully recourse
loans, while [ ] of the Mortgage Loans are non-recourse loans. In the event of a
default under a non-recourse Mortgage Loan, recourse generally may be had only
against the related Mortgaged Property and other assets that have been pledged
to secure such Mortgage Loan. The Mortgage Loans are secured by the following
types of properties: [multifamily,] [nursing homes,] [congregate care
facilities,] [retail,] [self-storage,] [office buildings,] [industrial,]
[hotel,] [mobile home parks] and [certain mixed use properties.] Certain risks
attend an investment in mortgage loans secured by commercial and multifamily
properties generally and mortgage loans secured by the types of properties
securing the Mortgage Loans specifically. See "DESCRIPTION OF THE MORTGAGE
POOL--Investment in Commercial and Multifamily Mortgage Loans" herein.
Prepayment and Yield Considerations
The yield to maturity on the Regular Certificates will depend on, among
other things, (i) the allocation and timing of any delinquencies, defaults,
losses or other shortfalls experienced on the Mortgage Loans and the allocation
thereof to the various Classes of Certificates, (ii) the rate and timing of
principal payments (including both voluntary and involuntary prepayments, such
as prepayments resulting from casualty or condemnation, defaults and
liquidations) on the Mortgage Loans and the allocation thereof to reduce the
Certificate Balances [(or Notional Balances)] of the Certificates and (iii) the
accrual of interest on unreimbursed Advances, the accrual of Special Servicing
Fees [and Disposition Fees] and the incurrence of other servicing expenses as to
which the right of payment or reimbursement from the Trust Fund is senior to the
rights of Certificateholders.
All but [ ] of the Mortgage Loans are Balloon Loans that will have
substantial payments (that is, Balloon Payments) due at their stated maturities
unless previously prepaid. Balloon Loans involve a greater risk of default to
the lender than self-amortizing loans because the ability of a borrower to make
a Balloon Payment typically will depend upon its ability either to refinance the
related Mortgaged Property or to sell such Mortgaged Property at a price
sufficient to permit the borrower to make the Balloon Payment. The ability of a
borrower to accomplish either of these goals will be affected by a number of
factors at the time of attempted sale or refinancing, including the level of
available mortgage rates, the fair market value of the related Mortgaged
Property, the borrower's equity in the related Mortgaged Property, the financial
condition of the borrower and operating history of the related Mortgaged
Property, tax laws, prevailing economic conditions and the availability of
credit for multifamily or commercial properties (as the case may be) generally.
See "YIELD CONSIDERATIONS--Regular Certificates--Balloon Payments" herein.
Effect of Borrower Defaults and Delinquencies. The
aggregate amount of distributions on the Regular Certificates, the
yield to maturity of the Regular Certificates, the rate of
principal payments on the Regular
S-20
<PAGE>
Certificates and the weighted average life of the Regular Certificates will be
affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. Losses on the Mortgage Loans will be allocated to the
Certificates in reverse order of their alphabetical Class designations,
beginning with the Class C Certificates, until the Certificate Balance thereof
has been reduced to zero, prior to any allocation of losses to the next most
subordinate Class. [Losses allocated to the Class [PO] Certificates will reduce
the Class [IO] Notional Balance.] If a purchaser of a Regular Certificate of any
Class calculates its anticipated yield based on an assumed default rate 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 [or, with respect to the Class [EC] or Class [IO]
Certificates, such losses result in a reduction of the Class [EC] Notional
Balance or the Class [IO] Notional Balance, respectively,] such purchaser's
actual yield to maturity will be lower than the anticipated yield 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
Regular 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 will be the effect on such investor's yield to maturity.
The distribution of Liquidation Proceeds to the Class or Classes of
Certificates then entitled to distributions in respect of principal will reduce
the weighted average life of such Classes and may reduce or increase the
weighted average life of the other Classes of Certificates.
Regardless of whether losses ultimately result, prior to the liquidation
of any defaulted Mortgage Loan, delinquencies on the Mortgage Loans may
significantly delay the receipt of payments by the holder of a Regular
Certificate to the extent that Advances or the subordination of another Class of
Certificates does not fully offset the effects of any delinquency or default.
The Available Funds generally consist of, as more fully described herein,
principal and interest on the Mortgage Loans actually collected or advanced. The
Master Servicer's, the Trustee's [or the Fiscal Agent's] obligation, as
applicable, to make Advances is limited to the extent described under "THE
POOLING AND SERVICING AGREEMENT--Advances" herein. In particular, with respect
to any Distribution Date, P&I Advances will only be made with respect to any
Seriously Delinquent Loan if and to the extent that Available Funds for such
Distribution Date (exclusive of any Advance with respect to any Seriously
Delinquent Loan) are not sufficient to make full distributions in accordance
with the Available Funds Allocation to each Class of Certificates whose
Certificate Balance would not be reduced by Anticipated Losses with respect to
all Seriously Delinquent Loans. Therefore, neither (i) the most subordinate
Class (or Classes) of Certificates outstanding at any time nor (ii) any other
Class of Certificates whose Certificate Balance would be reduced if Realized
Losses occurred in the amount of Anticipated Losses with respect to all
Seriously Delinquent Loans will receive distributions on any Distribution Date
on which one or more Mortgage Loans is a Seriously Delinquent Loan unless
Available Funds for such Distribution Date (exclusive of any P&I Advances with
respect to any Seriously Delinquent Loans) exceed the amount necessary to make
full distributions in accordance with the Available Funds Allocation to each
Class of Certificates that is senior to such Class. In addition, no Advances are
required to be made to the extent that, in the good faith judgment of the Master
Servicer, the Trustee [or the Fiscal Agent], as applicable, any such Advance, if
made, would be nonrecoverable from proceeds of the Mortgage Loan to which such
Advance relates. See "THE POOLING AND SERVICING AGREEMENT--Advances" herein.
Effect of Prepayments and Other Unscheduled Payments. The actual rate of
prepayment of principal on the Mortgage Loans cannot be predicted. The
investment performance of the Certificates may vary materially and adversely
from the investment expectations of investors due to the rate of prepayments on
the Mortgage Loans being higher or lower than anticipated by investors. In
addition, in the event of any repurchase of a Mortgage Loan by the Mortgage Loan
Seller from the Trust Fund under the circumstances described under "THE POOLING
AND SERVICING AGREEMENT--Representations and Warranties;
S-21
<PAGE>
Repurchase" herein, the repurchase price paid will be passed through to the
holders of the Certificates with the same effect as if such Mortgage Loan had
been prepaid in full (except that no Prepayment Premium will be payable with
respect to any such repurchase). No representation is made as to the anticipated
rate of prepayments (voluntary or involuntary) on the Mortgage Loans or as to
the anticipated yield to maturity of any Certificate. Furthermore, the
distribution of Liquidation Proceeds to the Class or Classes of Certificates
then entitled to distributions in respect of principal will reduce the weighted
average lives of such Classes. See "YIELD CONSIDERATIONS" herein.
In general, the yield on Certificates purchased at a premium or at a
discount [and the yield on the Class [EC] and Class [IO] Certificates, which
have no Certificate Balances,] will be sensitive to the amount and timing of
principal distributions thereon [(or in reduction of Notional Balance)]. The
occurrence of principal distributions at a rate faster than that anticipated by
an investor at the time of purchase will cause the actual yield to maturity of a
Certificate purchased at a premium to be lower than anticipated. [The yield to
maturity of the Class [EC] and Class [IO] Certificates will be especially
sensitive to the occurrence of high rates of principal distributions.]
Conversely, if a Certificate is purchased at a discount [(especially the Class
[PO] Certificates)] 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.
[All] of the Mortgage Loans require the payment of Prepayment Premiums in
connection with voluntary prepayments during a certain period following the
origination thereof. The requirement that voluntary prepayments be accompanied
by Prepayment Premiums expires prior to the maturity date of [each] Mortgage
Loan. [In addition, [ ] of the Balloon Loans, representing approximately [ ]% of
the Initial Pool Balance, permit the related borrowers to make voluntary
prepayments sufficient to amortize fully the principal balance thereof over the
remaining term thereof without the payment of Prepayment Premiums. Such
borrowers have [not] made any such voluntary prepayments since the origination
of such Balloon Loans.] The prepayment terms of each of the Mortgage Loans are
more particularly described herein under the heading "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and Conditions of the Mortgage Loans."
Provisions requiring Prepayment Premiums may not be enforceable in some
states and under federal bankruptcy law and may constitute interest for usury
purposes. Accordingly, no assurance can be given that the obligation to pay a
Prepayment Premium will be enforceable under applicable state or federal law or,
if enforceable, that the foreclosure proceeds received with respect to a
defaulted Mortgage Loan will be sufficient to make such payment.
Prepayment Premiums, to the extent actually collected from borrowers, will
be allocated among the Certificates as described under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Prepayment Premiums" herein. No assurance can be
given that the distribution of Prepayment Premiums to any Class of Certificates
will offset any diminution in yield resulting from the increased level of
principal distributions caused by any borrower prepayments. [The Class [ ]
Certificates are not entitled to receive any distributions in respect of
Prepayment Premiums.] [In addition, the Class [ ] Certificates are unlikely to
receive any distributions in respect of Prepayment Premiums.]
[Investors in the Class [EC] and Class [IO] Certificates should consider
the risk that the occurrence of voluntary and involuntary principal prepayment
on the Mortgage Loans could result in the failure of such investors to recover
fully their initial investments.]
[Weighted Average Net Mortgage Rate. The Pass-Through Rate on each of the
Class [ ] and Class [__] Certificates is equal to the greater of (i) the
Weighted Average Net Mortgage Rate and (ii) [ ]%. The Weighted Average Net
Mortgage Rate will be affected by modifications to the Mortgage Rate applicable
to
S-22
<PAGE>
any Mortgage Loan. If the Weighted Average Net Mortgage Rate were to fall below
[ ]%, the Pass-Through Rate on the Class [ ] and Class [___] Certificates would
be [ ]%, and there will not be sufficient cash flow to make all interest
payments due on each of such Classes and the Class [IO] Certificates. Any such
interest shortfall would affect the Class [IO] Certificates prior to affecting
the Class [ ] Certificates and would affect the Class [ ] Certificates prior to
affecting the Class [ ] Certificates. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.]
Effect of Interest on Advances, Special Servicing Fees and Other Servicing
Expenses. As and to the extent described herein, the Master Servicer, the
Trustee [or the Fiscal Agent,] as applicable, will be entitled to receive
interest on unreimbursed Advances at the Advance Rate from the date on which the
related Advance is made to the date on which such amounts are reimbursed (which
in no event will be later than the Determination Date following the date on
which funds are available to reimburse such Advance with interest thereon at the
Advance Rate). The Master Servicer's, the Trustee's [or the Fiscal Agent's]
right, as applicable, to receive such payments of interest is prior to the
rights of Certificateholders to receive distributions on the Regular
Certificates and, consequently, may result in losses being allocated to the
Regular Certificates that would not otherwise have resulted, absent the accrual
of such interest. See "THE POOLING AND SERVICING AGREEMENT--Advances" herein. In
addition, certain circumstances, including delinquencies in the payment of
principal and interest, will result in a Mortgage Loan being specially serviced.
The Special Servicer is entitled to additional compensation for special
servicing activities, including Special Servicing Fees [and Disposition Fees],
which may result in losses being allocated to the Regular Certificates that
would not otherwise have resulted absent such compensation. See "THE POOLING AND
SERVICING AGREEMENT--Special Servicing" herein.
Residual Certificates. The Class R and Class LR Certificates are not
entitled to regular distributions. The Class R and Class LR Certificates will
only be entitled to distributions after the Certificate Balances of all other
Classes of Certificates have been reduced to zero and only to the extent of any
funds remaining in the Distribution Account and Collection Account,
respectively. In the case of the Class LR Certificates, the existence of any
funds remaining in the Collection Account may result from the allocation of
Available Funds to the Lower-Tier Regular Interests as described in the
Available Funds Allocation. See "DESCRIPTION OF THE CERTIFICATES--Distributions"
herein. No assurance can be given that any funds will remain in the Collection
Account for distribution to the Class LR Certificates. In the case of the Class
R Certificates, no funds are expected to remain in the Distribution Account for
distribution thereto. Therefore, the Class R and Class LR Certificateholders'
REMIC taxable income and the tax liability thereon will substantially exceed
cash distributions to such holders during certain periods. There can be no
assurance as to the amount by which such taxable income or such tax liability
will exceed cash distributions in respect of the Class R Certificates and Class
LR Certificates during any such period and no representation is made with
respect thereto. Due to the special tax treatment of residual interests, the
after-tax return of the Class R Certificates and Class LR Certificates may be
significantly lower than would be the case if the Class R Certificates and Class
LR Certificates were taxed as debt instruments, or may be negative. See "YIELD
CONSIDERATIONS" herein.
Limited Liquidity
There is currently no secondary market for the Regular Certificates. The
Underwriter has advised that it currently intends to make a secondary market in
the Regular Certificates, but it is under no obligation to do so. Accordingly,
there can be no assurance that a secondary market for the Regular Certificates
will develop. Moreover, if a secondary market does develop, there can be no
assurance that it will provide holders of Regular Certificates with liquidity of
investment or that it will continue for the life of the Regular Certificates.
The Regular Certificates will not be listed on any securities exchange.
S-23
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of [ ] multifamily and commercial "whole"
mortgage loans (the "Mortgage Loans"). The Mortgage Loans have an aggregate
Cut-off Date Principal Balance of approximately $[ ] (the "Initial Pool
Balance"), subject to a variance of plus or minus [ ]%. The "Cut-off Date
Principal Balance," of each Mortgage Loan is the unpaid principal balance
thereof as of the Cut-off Date, after application of all payments of principal
due on or before such date, whether or not received. Any description of the
terms and provisions of the Mortgage Loans is a generalized description of the
terms and provisions of the Mortgage Loans in the aggregate. Many of the
individual Mortgage Loans have special terms and provisions that deviate from
the generalized, aggregated description.
[Each] Mortgage Loan is evidenced by a promissory note (each, a "Note")
and secured [except as discussed below,] by a mortgage, deed of trust, deed to
secure debt or other similar security instrument (a "Mortgage") that creates a
first lien on a fee simple or leasehold estate in real property (a "Mortgaged
Property"), improved by [(a) an apartment building or complex consisting of five
or more rental units (a "Multifamily Property," and any Mortgage Loan secured
thereby, a "Multifamily Loan")]; [(b) a nursing home (a "Nursing Home Property,"
and any Mortgage Loan secured thereby, a "Nursing Home Loan")]; [(c) a
congregate care facility (a "Congregate Care Property," and any Mortgage Loan
secured thereby, a "Congregate Care Loan")]; [(d) a retail property (a "Retail
Property," and any Mortgage Loan secured thereby, a "Retail Loan")]; [(e) an
office building (an "Office Building Property," and any Mortgage Loan secured
thereby, an "Office Building Loan"]; [(f) a retail/office property (a
"Retail/Office Property," and any Mortgage Loan secured thereby, a
"Retail/Office Loan")]; [(g) a self-storage facility (a "Self-Storage Property,"
and any Mortgage Loan secured thereby, a "Self-Storage Loan")]; [(h) a light
industrial/industrial property (a "Light Industrial/Industrial Property," and
any Mortgage Loan secured thereby, a "Light Industrial/Industrial Loan")]; [(i)
a hotel (a "Hotel Property," and any Mortgage Loan secured thereby, a "Hotel
Loan")]; [(j) a mobile home park (a "Mobile Home Park Property," and any
Mortgage Loan secured thereby,"a "Mobile Home Park Loan")]; [(k) a
retail/multifamily property (a "Retail/Multifamily Property," and any Mortgage
Loan secured thereby, a "Retail/Multifamily Loan")]; [(l) an
office/multifamily/retail property (an "Office/Multifamily/Retail Property" and
any Mortgage Loan secured thereby, an "Office/Multifamily/Retail Loan")]; or
[(m) an office/warehouse property (an "Office/Warehouse Property," and any
Mortgage Loan secured thereby, an "Office/Warehouse Loan")]. [Describe any
mortgage loans secured by
S-24
<PAGE>
second or third liens.] The percentage of the Initial Pool Balance represented
by each type of Mortgaged Property is as follows:
Percentage of
Property Type Initial Pool Balance
[Multifamily] %
[Nursing Home] %
[Congregate Care] %
[Retail] %
[Self-Storage] %
[Office Building] %
[Light Industrial/Industrial] %
[Retail/Office] %
[Hotel] %
[Mobile Home Park] %
[Retail/Multifamily] %
[Office/Multifamily/Retail] %
[Office/Warehouse] %
Approximately [ ]% of the Initial Pool Balance represents the refinancing of
existing mortgage indebtedness.
None of the Mortgage Loans is insured or guaranteed by the United States
of America, any governmental agency or instrumentality, any private mortgage
insurer or by the Depositor, the Mortgage Loan Seller, the Master Servicer, the
Special Servicer, the Trustee [or the Fiscal Agent] or any of their respective
affiliates. [ ] of the Mortgage Loans are fully recourse loans, while [ ] of the
Mortgage Loans are non-recourse loans. In the event of a borrower default under
a non-recourse Mortgage Loan, recourse generally may be had only against the
specific Mortgaged Property or Mortgaged Properties securing such Mortgage Loan
and such limited other assets as have been pledged to secure such Mortgage Loan,
and not against the borrower's other assets. However, generally, upon the
occurrence of certain circumstances as set forth in the Mortgage Loan documents,
typically including, without limitation, fraud, intentional misrepresentation,
waste, misappropriation of tenant security deposits or rent, and in some cases
failure to maintain any required insurance or misappropriation of any insurance
proceeds or condemnation awards, recourse generally may be had against the
borrower for damages sustained by the mortgagee. [With respect to [ ] of the
Mortgage Loans representing approximately ___% of the Initial Pool Balance, the
corporate parent company of the related borrower has unconditionally guaranteed
the payment of the related Mortgage Loan. However, guarantors may have limited
assets and there can be no assurance that any guarantor will have sufficient
assets to support obligations under the related guaranty.] See "--Investment in
Commercial and Multifamily Mortgage Loans--Borrower Default; Non-Recourse
Mortgage Loans" herein.
[Describe originators of Mortgage Loans and how the Mortgage Loans will be
acquired by the Mortgage Loan Seller.] The originators of the Mortgage Loans are
referred to herein collectively as the "Originators" and individually as an
"Originator."
The Depositor will purchase the Mortgage Loans to be included in the
Mortgage Pool on or before the Closing Date from the Mortgage Loan Seller
pursuant to a Mortgage Loan Purchase and Sale Agreement (the "Mortgage Loan
Purchase and Sale Agreement") to be dated as of [ ] (the "Loan Purchase Closing
Date"), between the Mortgage Loan Seller and the Depositor. The Mortgage Loan
Seller will be obligated to repurchase a Mortgage Loan in the event of a breach
of a representation or warranty of the
S-25
<PAGE>
Mortgage Loan Seller with respect to such Mortgage Loan, as described under "THE
POOLING AND SERVICING AGREEMENT--Representations and Warranties; Repurchase"
herein. [The Mortgage Loan Seller has only limited assets with which to fulfill
any repurchase obligations that may arise.] There can be no assurance that the
Mortgage Loan Seller has or will have sufficient assets with which to fulfill
any repurchase obligations that may arise. The Depositor will not have any
obligation to fulfill any such obligation if the Mortgage Loan Seller fails to
do so. The Depositor will assign the Mortgage Loans in the Mortgage Pool,
together with the Depositor's rights and remedies against the Mortgage Loan
Seller in respect of breaches of representations or warranties regarding the
Mortgage Loans, to the Trustee pursuant to the Pooling and Servicing Agreement.
The Master Servicer and the Special Servicer will each service the Mortgage
Loans pursuant to the Pooling and Servicing Agreement. See "THE POOLING AND
SERVICING AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments."
Security for the Mortgage Loans
Each Mortgage Loan is secured by a Mortgage encumbering the related
borrower's interest in the related Mortgaged Property. [ ] of the Mortgage Loans
are secured by fee simple interests in the related Mortgaged Property; [ ]
Mortgage Loans are secured solely by a leasehold interest in the related
Mortgaged Property; and [ ] Mortgage Loans are secured by a leasehold interest
in a portion of the related Mortgaged Property and a fee simple interest in a
portion of the related Mortgaged Property. [ ] of the Mortgage Loans are fully
recourse loans, while [ ] of the Mortgage Loans are non-recourse loans. [Each]
Mortgage Loan is also secured by an assignment of the related borrower's
interest in the leases, rents, issues and profits of the related Mortgaged
Property. In certain instances, additional collateral exists in the nature of
[letters of credit,] [the establishment of one or more reserve or escrow
accounts for necessary repairs and replacements, tenant improvements and leasing
commissions, real estate taxes, assessments and insurance premiums, deferred
maintenance and/or scheduled capital improvements or as reserves against
delinquencies in Monthly Payments (such accounts, "Reserve Accounts")], [a
pledge of all of the ownership interests in a borrower] or [the assignment of
the proceeds of purchase options]. The aggregate amount on deposit in the
Reserve Accounts as of the Cut-off Date was approximately $[ ]. [Each] Mortgage
Loan provides for the indemnification of the mortgagee by the related borrower
for the presence of any hazardous substances affecting the Mortgaged Property.
However, the borrowers generally have limited assets [(and, with respect to [ ]
of the Mortgage Loans, the related borrowers' indemnification obligations are
non-recourse obligations)] and there can be no assurance that any borrower will
have sufficient assets to support any such indemnification obligations that may
arise. See "--Investment in Commercial and Multifamily Mortgage
Loans--Environmental Risks" herein. [Each] Mortgage constitutes a first lien on
a Mortgaged Property, subject generally only to (i) liens for real estate and
other taxes and special assessments, (ii) covenants, conditions, restrictions,
rights of way, easements and other encumbrances whether or not of public record
as of the date of recording of such Mortgage, such exceptions having been
acceptable to the Mortgage Loan Seller in connection with the purchase of the
related Mortgage Loan, and (iii) such other exceptions and encumbrances on the
Mortgaged Property as are reflected in the related title insurance policies.
[Describe any Mortgage Loans secured by second or third liens.]
Underwriting Standards
[Describe underwriting standards]
S-26
<PAGE>
Certain Terms and Conditions of the Mortgage Loans
[Generally describe material provisions of Mortgage Loans, including due
dates, interest rates, amortization, prepayment provisions, "due-on-encumbrance"
or "due-on-sale" provisions, events of default and required insurance.]
Certain Characteristics of the Mortgage Pool
As of the Cut-off Date, the Mortgage Loans had the following
characteristics: (a) Mortgage Rates ranging from approximately [ ]% per annum to
[ ]% per annum; (b) a weighted average Mortgage Rate of approximately [ ]% per
annum; (c) approximate principal balances ranging from $[ ] to $[ ]; (d) an
average principal balance of approximately $[ ]; (e) original terms to scheduled
maturity ranging from approximately [ ] months to [ ] months; (f) remaining
terms to scheduled maturity ranging from approximately [ ] months to [ ] months;
(g) a weighted average remaining term to scheduled maturity of approximately [ ]
months; (h) Cut-off Date Loan-to-Value ("LTV") Ratios ranging from approximately
[ ]% to [ ]%; (i) a weighted average Cut-off Date LTV Ratio of approximately [
]%; (j) Cut-off Date Debt Service Coverage Ratios ranging from approximately [
]x to [ ]x; and (k) a weighted average Cut-off Date Debt Service Coverage Ratio
of approximately [ ]x.
The following tables and Annex A set forth certain information with
respect to the Mortgage Loans and the Mortgaged Properties. The statistics in
the following tables and Annex A were primarily derived from information
provided to the Depositor by the Originator or the Mortgage Loan Seller, which
information may have been obtained from the borrowers without independent
verification except as noted. [Financial statements supplied by the borrowers,
and on the basis of which certain information contained in the following charts
and Annex A was derived, were not prepared in accordance with generally accepted
accounting principles.] For purposes of the tables and Annex A:
(1) "Underwritten Cash Flow" means, with respect to any Mortgage
Loan, the cash flow available for debt service for a 12-month period, as
determined by the Originator in accordance with the standards of a prudent
commercial mortgage lender based upon recent information supplied by the
related borrower prior to the origination of such mortgage loan, and
generally adjusted, if determined appropriate by the Originator, to: (a)
deduct any non-cash items such as depreciation or amortization; (b) deduct
capital expenditures; (c) reflect a more appropriate occupancy rate; (d)
reflect replacement, capital expenditure and other reserves required by
the related Mortgage Loan documents; (e) reflect a market rate management
fee; (f) reflect market rental rates; (g) exclude certain percentage rent,
delinquent rents and non-recurring income; (h) reflect an allowance for
tenant improvements and leasing commissions; and (i) reflect such other
adjustments determined appropriate by the Originator. The Depositor has
not made any attempt to verify the accuracy of any operating statements or
other information provided by each borrower. In addition, "Underwritten
Cash Flow" is not intended to be and is not a substitute for or an
improvement upon properly determined net income as determined in
accordance with generally accepted accounting principles as a measure of
the results of a Mortgaged Property's operations or a substitute for cash
flows from operating activities determined in accordance with generally
accepted accounting principles as a measure of liquidity. No
representation is made as to the future net cash flow of the properties,
nor is "Underwritten Cash Flow" set forth herein intended to represent
such future net cash flow.
(2) "[199__] Net Operating Income" is the net operating income for a
Mortgaged Property as established by financial statements provided by the
borrowers as of December 31, [199 ]. [199__] Net Operating Income does not
necessarily reflect accrual of certain costs such as taxes and
S-27
<PAGE>
capital expenditures and does not reflect non-cash items such as
depreciation or amortization. In some cases, capital expenditures may have
been treated by a borrower as an expense and the Depositor does not
represent that the borrowers' financial statements were prepared in
accordance with generally accepted accounting principles. The Depositor
has not made any attempt to verify the accuracy of any operating
statements or other information provided by each borrower or to reflect
changes in net operating income that may have occurred since the date of
the last operating statements provided by each borrower for the related
Mortgaged Property. "[199__] Net Operating Income" was generally not
determined in accordance with generally accepted accounting principles and
is not intended to be and is not a substitute for or an improvement upon
properly determined net income as determined in accordance with generally
accepted accounting principles as a measure of the results of a Mortgaged
Property's operations.
(3) "Appraised Value" means, for each of the Mortgaged Properties,
the appraised value of such property as determined by an appraisal thereof
made not more than [one year] prior to the origination date of the related
Mortgage Loan and reviewed by [the Originator/Mortgage Loan Seller].
(4) "Annual Debt Service" means, for any Mortgage Loan, the current
annual debt service (including interest allocable to payment of the
Servicing Fee and principal) payable with respect to such Mortgage Loan
during the 12-month period commencing on the Cut-off Date (assuming no
principal prepayments occur).
(5) "DSCR" or "Debt Service Coverage Ratio" means, with respect to
any Mortgage Loan, (a) the Underwritten Cash Flow for the related
Mortgaged Property divided by (b) the Annual Debt Service for such
Mortgage Loan.
(6) "Loan-to-Value Ratio" or "LTV" means, with respect to any
Mortgage Loan, the principal balance of such Mortgage Loan as of the
Cut-off Date divided by the Appraised Value of the Mortgaged Property
securing such Mortgage Loan.
(7) "Balloon LTV" for any Mortgage Loan is calculated in the same
manner as LTV, except that the principal balance used to calculate the
Balloon LTV has been adjusted to give effect to the amortization of such
Mortgage Loan scheduled to take place prior to its maturity date.
(8) "Balloon Amount" for each Mortgage Loan is equal to the principal
amount, if any, due at maturity, taking into account scheduled
amortization, assuming no prepayments or defaults.
(9) "Occupancy Rate" means the percentage of gross leasable area,
rooms, units, beds, pads or sites of a Mortgaged Property that are leased
or occupied. Occupancy rates are calculated within a recent period.
(10) "Adjusted Annualized Year To Date Net Operating Income" as used
herein, means the year to date net operating income as determined by [the
Originator/Mortgage Loan Seller] divided by the number of months shown and
multiplied by 12, adjusted by extraordinary expenditures during the period
covered by the year to date financial information. Certain of such
adjustments are described in the Financial Comments column in the table in
Annex A.
(11) Due to rounding, percentages may not add to 100%
and amounts may not add to the indicated total.
<PAGE>
<TABLE>
Range of Cut-off Date Principal Balances
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
Cut-off Mortgage by Number Cut-off Aggregate Average Average
Balances Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
Range of Mortgage Rates
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
Mortgage Mortgage by Number Cut-off Aggregate Average Average
Rates Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-29
<PAGE>
<TABLE>
Range of Remaining Term of Amortization (in Months)
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
Remaining Mortgage by Number Cut-off Aggregate Average Average
Amort (In Loans Date Principal Cut-off Date Mortgage DSCR(x)
Months) Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg Term:
</TABLE>
<TABLE>
Range of Maturity Years
<CAPTION>
Year of Number of Percent Aggregate Pct by Weighted Weighted
Maturity Mortgage by Number Cut-off Aggregate Average Average
Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-30
<PAGE>
<TABLE>
Range of Loan Origination Years
<CAPTION>
Year of Number of Percent Aggregate Pct by Weighted Weighted
Origi- Mortgage by Number Cut-off Aggregate Average Average
nation Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
Range of LTVs
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
LTV Mortgage by Number Cut-off Aggregate Average Average
Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg LTV: %
</TABLE>
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<PAGE>
<TABLE>
Range of DSCRs
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
DSCR(x) Mortgage by Number Cut-off Aggregate Average Average
Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg DSCR:
</TABLE>
<TABLE>
Range of Property Age (in Years)
<CAPTION>
Range of Number of Percent Aggregate Pct by Weighted Weighted
Effective Mortgage by Number Cut-off Aggregate Average Average
Age of Loans Date Principal Cut-Off Date Mortgage DSCR(x)
Property Balance Principal Rate
Balance
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg Age:
</TABLE>
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<PAGE>
<TABLE>
Types of Mortgaged Properties
<CAPTION>
Number of Percent Aggregate Pct by Weighted Weighted
Mortgage by Number Cut-off Aggregate Average Average
Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Property Balance
Type
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
Geographic Distribution of the Mortgaged Properties
<CAPTION>
Number of Percent Aggregate Pct by Weighted Weighted
Mortgage by Number Cut-off Aggregate Average Average
Loans Date Principal Cut-off Date Mortgage DSCR(x)
Balance Principal Rate
Balance
Property
Location
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for
scheduled principal payments due on the Mortgage Loans on or before the Cut-off
Date. Prior to the issuance of the Certificates, one or more Mortgage Loans may
be removed from the Mortgage Pool if the Depositor deems such removal necessary
or appropriate or if it is prepaid. A limited number of other mortgage loans [or
mortgage loan participations] may be included in the Mortgage Pool prior to the
issuance of the Certificates, unless including such mortgage loans [or mortgage
loan participations] would materially alter the characteristics of the Mortgage
Pool as described herein. Accordingly, the range of Mortgage Rates and
maturities, as well as the other characteristics of the Mortgage Loans
constituting the Mortgage Pool at the time the Certificates are issued may vary
from those described herein.
A Current Report on Form 8-K (the "Form 8-K") 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 Certificates. The Form 8-K
will be available to Certificateholders of the related Series
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<PAGE>
promptly after its filing. In the event that 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.
Investment in Commercial and Multifamily Mortgage Loans
[Disclosure will vary based on the particular Mortgage Pool.]
Borrower Default; Non-recourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed by any governmental entity, by any private mortgage
insurer or by the Depositor, the Mortgage Loan Seller, the Master Servicer, the
Special Servicer, the Trustee, [the Fiscal Agent] or any of their respective
affiliates.
However, as more fully described under "--General" above and "THE POOLING AND
SERVICING AGREEMENT--Representations and Warranties; Repurchase," the Mortgage
Loan Seller will be obligated to repurchase a Mortgage Loan if certain of its
representations or warranties concerning such Mortgage Loan are breached.
However, there can be no assurance that it will be in a financial position to
effect such repurchase. See "THE MORTGAGE LOAN SELLER" herein. [The Mortgage
Loan Seller generally will have the right to require the Originator to
repurchase such Mortgage Loan if a representation or warranty in the agreement
pursuant to which the Mortgage Loan Seller acquired such Mortgage Loan is also
breached.
Since Midland is both the Originator of [___] of the Mortgage Loans and the
Master Servicer, the ability of Midland to perform its obligations as Master
Servicer under the Pooling and Servicing Agreement may be jeopardized if it
incurs significant liabilities as an Originator for the repurchase of Mortgage
Loans as to which there has been a breach of a representation or warranty.]
[ ] of the Mortgage Loans are fully recourse loans, while [___] of the
Mortgage Loans are non-recourse loans, which means that in the event of a
borrower default, recourse may be had only against the specific Mortgaged
Property and other assets, if any, that have been pledged to secure such
Mortgage Loan, and not to any other of the borrower's assets. Consequently,
payment of each Mortgage Loan prior to maturity is dependent primarily on the
sufficiency of the net operating income of the related Mortgaged Property and
payment at maturity (whether at scheduled maturity or, in the event of a default
under the Mortgage Loan, upon the acceleration of such maturity) is dependent
primarily upon the then market value of the Mortgaged Property.
[With respect to [ ] of the Mortgage Loans representing approximately [ ]%
of the Initial Pool Balance, [the Originator] obtained the unconditional
guaranty of the corporate parent company of the related borrower of the
obligations of such borrower in connection with such Mortgage Loan. The Master
Servicer or the Special Servicer, as applicable, on behalf of the Trustee and
Certificateholders, will be entitled to enforce the terms of such guaranty. The
guaranty is intended to encourage the performance by the related borrower or the
guarantor of the obligations to which the guaranty relates. However, the
guarantor under such guaranty may have limited assets and there can be no
assurance that such guarantor will have sufficient assets to support its
obligation under such guaranty. In addition, any action to enforce such guaranty
will likely involve significant expense and delays to the Trust Fund and may not
be enforceable if the related guarantor should become the subject of a
bankruptcy, insolvency, reorganization, moratorium or other similar proceedings.
Furthermore, in some states, actions against guarantors may be limited by
anti-deficiency legislation.]
Commercial and Multifamily Lending Generally. Commercial and multifamily
lending generally is viewed as exposing a lender to a greater risk of loss than
one-to-four family residential lending. Commercial and multifamily lending
typically involves larger loans to single obligors than one-to-four family
residential lending and therefore provides lenders with less diversification of
risk and has the potential for greater losses resulting from the delinquency
and/or default of individual loans. The repayment of loans secured by
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<PAGE>
commercial or multifamily properties is typically dependent upon the successful
operation of such properties. As noted above, [ ] of the Mortgage Loans are
non-recourse loans, the payment of which is dependent primarily upon the
sufficiency of the net operating income of the related Mortgaged Property and
the market value of such Mortgaged Property.
Commercial and multifamily property values and net operating income are
subject to volatility. There can be no assurance that historical operating
results will be comparable to future operating results. Net operating income may
be reduced, and the borrower's ability to repay a Mortgage impaired, as a result
of an increase in vacancy rates for the Mortgaged Property, a decline in rental
rates as leases are renewed or entered into with new tenants, an increase in
operating expenses of the Mortgaged Property and/or an increase in capital
expenditures needed to maintain the Mortgaged Property and make needed
improvements. The income from and market value of a Mortgaged Property may be
adversely affected by such factors as changes in the general economic climate,
local conditions such as an oversupply of space or a reduction in demand for
real estate in the area, attractiveness to tenants and guests, perceptions
regarding a property's safety, convenience and services, and competition from
other available space. Real estate values and income are also affected by such
factors as government regulations and changes in real estate, zoning or tax
laws, a property owner's willingness and ability to provide capable management,
changes in interest rate levels, the availability of financing and potential
liability under environmental and other laws.
a. Aging and Deterioration of Commercial and Multifamily Properties.
The age, construction quality and design of a particular property may affect the
occupancy level as well as the rents that may be charged for individual leases
or, in the case of [the Congregate Care Properties], [the Nursing Home
Properties] and [the Hotel Properties], the amounts that customers may be
charged for the occupancy thereof. The effects of poor construction quality are
likely to increase over time in the form of increased maintenance and capital
improvements. Even good construction will deteriorate over time if the property
managers do not schedule and perform adequate maintenance in a timely fashion.
If, during the term of a Mortgage Loan, properties of a similar type are built
in the area where the property securing such Mortgage Loan is located or other
similar properties in such area are substantially updated and refurbished during
that time, the value of such property could be reduced.
b. Leases. Income from and the market value of the Mortgaged
Properties would be adversely affected if vacant space in the Mortgaged
Properties could not be leased for a significant period of time, if tenants were
unable to meet their lease obligations or if, for any other reason, rental
payments could not be collected. If a significant portion of a Mortgaged
Property is leased to a single tenant, the consequences of a failure of such
tenant to perform its obligations under the related lease, or the failure of the
borrower to relet such portion of such Mortgaged Property in the event that such
tenant vacates (either as a result of a default by the tenant or the expiration
of the term of the lease), will be more pronounced than if such Mortgaged
Property were leased to a greater number of tenants. See "--Tenant Matters"
herein. Upon the occurrence of an event of default by a tenant, delays and costs
in enforcing the lessor's rights could occur. Repayment of the Mortgage Loans
may be affected by the expiration or termination of space leases and the ability
of the related borrowers to renew the leases or relet the space on economically
favorable terms. No assurance can be given that leases that expire can be
renewed, or that the space covered by leases that expire or are terminated can
be leased at comparable rents, or on comparable terms, or in any timely manner,
or at all. Certain tenants at the Mortgaged Properties may be entitled to
terminate their leases or reduce rents under their leases if an anchor tenant
ceases operations at the related Mortgaged Property. In such cases, there can be
no assurance that any such anchor tenants will maintain operations at the
related Mortgaged Properties.
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<PAGE>
c. Competition. Other [multifamily residences], [retail centers],
[office buildings], [nursing homes], [congregate care facilities], [warehouse
facilities], [industrial properties], [self-storage facilities], [hotels] and
[mobile home parks] located in the areas of the Mortgaged Properties compete
with the Mortgaged Properties of such types to attract [residents], [retailers],
[customers], [tenants] and [guests]. In addition, tenants at the Mortgaged
Properties that have retail space face competition from discount shopping
centers and clubs, factory outlet centers, direct mail and telemarketing.
Increased competition could adversely affect income from and the market value of
the Mortgaged Properties.
d. Quality of Management. The successful operation of the Mortgaged
Properties is also dependent on the performance of the property manager of such
Mortgaged Property. The property manager is responsible for responding to
changes in the local market, planning and implementing the rental rate
structure, including establishing levels of rent payments, and advising the
related borrower so that maintenance and capital improvements can be carried out
in a timely fashion.
[Risks Particular to Nursing Homes and Congregate Care Facilities. The
Mortgage Pool contains [ ] Mortgage Loans, Loan ##[ ], which represent
approximately [ ]% of the Initial Pool Balance, secured by Mortgages on
congregate care facilities. The Mortgage Pool contains [ ] Mortgage Loans, Loan
##[ ], which represent approximately [ ]% of the Initial Pool Balance, secured
by Mortgages on nursing homes. Nursing homes provide long term around-the-clock
residential health care services to residents who require a lower level of care
than that provided by an acute care hospital, but a higher level of care than
that provided in a non-institutional home-like setting. Congregate care
facilities provide housing and limited services such as meal programs to the
"well elderly." Loans secured by liens on properties of these types pose
additional risks not associated with loans secured by liens on other types of
income-producing real estate.
Providers of long-term nursing care and other medical services are subject
to federal and state laws that relate to the adequacy of medical care,
distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to facilities and services and, to the extent they are
dependent on patients whose fees are reimbursed by private insurers, to the
reimbursement policies of such insurers. In addition, facilities where such care
or other medical services are provided are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. The failure of a borrower
under a Nursing Home Loan to maintain or renew any required license or
regulatory approval could prevent it from continuing operations at the related
Nursing Home Property or, if applicable, bar it from participation in government
reimbursement programs.
Nursing home facilities may receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings, policy interpretations,
delays by fiscal intermediaries and government funding restrictions. Moreover,
governmental payors have employed cost-containment measures that limit payments
to health care providers, and from time to time Congress has considered various
proposals for national health care reform that could further limit those
payments. Accordingly, there can be no assurance that payments under government
reimbursement programs will, in the future, be sufficient to reimburse fully the
cost of caring for program beneficiaries. If not, net operating income of the
Nursing Home Properties that receive revenues from those sources, and
consequently the ability of the related borrowers to meet their Mortgage Loan
obligations, could be adversely affected. Additionally, the continued operation
of a nursing home facility subsequent to a foreclosure is dependent upon the
proposed operator satisfying all applicable legal requirements, such as
processing the required license to operate such facility and/or dispense
required pharmaceuticals.
S-36
<PAGE>
Congregate care retirement residences generally do not require licensing
by state or federal regulatory agencies and do not qualify for payments under
the federal Medicare program or state Medicaid programs. However, congregate
care retirement residences are required to be licensed by a state or municipal
authority to provide food service. The failure of a borrower under a Congregate
Care Loan to maintain or renew any required license could impair its ability to
generate operating income.
The operators of such nursing homes and congregate care facilities are
likely to compete on a local and regional basis with others that operate similar
facilities. Some of their competitors may be better capitalized, may offer
services not offered by such operators or may be owned by non-profit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources not available to such operators.
The successful operation of a Nursing Home Property or Congregate Care Property
will generally depend upon the number of competing facilities in the local
market, as well as upon other factors such as its age, appearance, reputation
and management, the types of services it provides and, where applicable, the
quality of care and the cost of that care.]
[Risks Particular to Self-Storage Facilities. The Mortgage Pool contains [
] Mortgage Loans, Loan ##[______], which represent approximately [ ]% of the
Initial Pool Balance, secured by Mortgages on self- storage facilities. The
conversion of self-storage facilities to alternative uses generally requires
substantial capital expenditures. Thus, if the operation of any of the
Self-Storage Properties becomes unprofitable due to decreased demand,
competition, age of improvements or other factors such that the related borrower
becomes unable to meet its obligations on the related Mortgage Loan, the
liquidation value of that Self-Storage Property may be substantially less,
relative to the amount owing on the related Mortgage Loan, than would be the
case if the Self-Storage Property were readily adaptable to other uses. Tenant
privacy, anonymity and efficient access may heighten environmental risks. The
environmental assessments discussed herein did not include an inspection of the
contents of the self-storage units included in the Self-Storage Properties and
there is no assurance that all of the units included in the Self-Storage
Properties are free from hazardous substances or other pollutants or
contaminants or will remain so in the future.
See "--Environmental Risks" below.]
[Risks Particular to Hotel Properties. [ ] of the Mortgage Loans, Loan ##[
], representing approximately [ ]% of the Initial Pool Balance, are secured by
Mortgages on Hotel Properties. These Mortgaged Properties are subject to
operating risks common to the hotel industry. These risks include, among other
things, competition from other hotels, over-building in the hotel industry that
has adversely affected occupancy and daily room rates, increases in operating
costs (which increases may not necessarily in the future be offset by increased
room rates), dependence on business and commercial travelers and tourism,
increases in energy costs and other expenses of travel and adverse effects of
general and local economic conditions. These factors could adversely affect the
related borrower's ability to make payments on the related Mortgage Loans. The
hotel industry is seasonal in nature. This seasonality can be expected to cause
periodic fluctuations in the related borrower's revenues.
Hotel Properties may present additional risks as compared to the other
property types in that: (i) hotels are typically operated pursuant to franchise,
management and operating agreements that may be terminable by the franchisor,
the manager or the operator; (ii) the transferability of a hotel's operating,
liquor and other licenses to the entity acquiring a hotel either through
purchase or foreclosure is subject to the vagaries of local law requirements;
and (iii) because of the expertise and knowledge required to run hotel
operations, foreclosure and a change in ownership (and consequently of
management) may have an especially adverse effect on the perception of the
public and the industry (including franchisors) concerning the quality of a
hotel's operations.]
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<PAGE>
[[ ] of the Hotel Properties, Loan ##[ ], are [ ] franchises. The
continuation of the franchise is subject to specified operating standards and
other terms and conditions. The franchisor periodically inspects its licensed
properties to confirm adherence to its operating standards. The failure of the
Hotel Properties to maintain such standards or adhere to such other terms and
conditions could result in the loss or cancellation of the franchise licenses.
It is possible that the franchisor could condition the continuation of a
franchise license on the completion of capital improvements or the making of
certain capital expenditures that the related borrower determines are too
expensive or are otherwise unwarranted in light of general economic conditions
or the operating results or prospects of the affected hotels. In that event, the
related borrower may elect to allow the franchise license to lapse. In any case,
if the franchise is terminated, the related borrower may seek to obtain a
suitable replacement franchise or to operate such Hotel Property independent of
a franchise license. The loss of a franchise license could have a material
adverse effect upon the operations or the underlying value of the hotel covered
by the franchise because of the loss of associated name recognition, marketing
support and decentralized reservation systems provided by the franchisor.]
[Risks Particular to Mobile Home Parks. [ ] of the Mortgage Loans, Loan
##[ ], representing approximately [ ]% of the Initial Pool Balance, are secured
by Mortgages on Mobile Home Park Properties. A mobile home park is a residential
subdivision designed and improved with home sites that are leased to residents
for the placement of mobile homes and related improvements. Mobile homes are
detached, single- family homes that are produced off-site by manufacturers and
installed within the community. [All] of the Mobile Home Park Properties are
located in developed areas that include other mobile home parks. The number of
competitive mobile home parks in a particular area could have a material adverse
effect on the related borrower's ability to lease sites at the property and on
the rents charged for such sites. In addition, other forms of multi-family
residential properties and single-family housing provide housing alternatives to
potential residents of mobile home parks.
Laws and regulations have been adopted by certain states and
municipalities specifically regulating the ownership and operation of mobile
home parks. Included as part of certain of these laws and regulations are
provisions imposing restrictions on the timing or amount of rental increases and
granting to residents a right of first refusal on sales of their community by
the owner to a third party. Laws and regulations relating to the ownership and
operation of mobile home parks could adversely affect a related borrower by
limiting its ability to increase rents or recover increases in operating
expenses or by making it more difficult in certain circumstances to refinance
the related Mortgage Loan or to sell the Mortgaged Property for purposes of
making any Balloon Payment due upon the maturity of such Mortgage Loan.]
Concentration of Mortgage Loans and Borrowers. Several of the Mortgage
Loans have Cut-off Date Principal Balances that are substantially higher than
the average Cut-off Date Principal Balance. The largest single Mortgage Loan has
a Cut-off Date Principal Balance that represents approximately [ ]% of the
Initial Pool Balance; [provided, however, that [ ] of the Mortgage Loans, which
are cross-collateralized and cross-defaulted, when considered together, have a
Cut-off Date Principal Balance that represents approximately [ ]% of the Initial
Pool Balance]. The [ ] largest Mortgage Loans have Cut-off Date Principal
Balances that represent in the aggregate approximately [ ]% of the Initial Pool
Balance.
[The Mortgage Pool consists of [ ] Mortgage Loans to [ ] separate
borrowers. [ ] of the Mortgage Loans were made to borrowers that are affiliated
with the borrower of another Mortgage Loan. However, no set of Mortgage Loans
made to a single group of affiliated borrowers constitutes more than
approximately [ ]% of the Initial Pool Balance. [ ] of such Mortgage Loans
(which together represent approximately [ ]% of the Initial Pool Balance) are
cross-collateralized and cross-defaulted with the Mortgage Loan made to the
related affiliated borrower. See "--Limitations on Enforceability of
Cross-Collateralization"
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<PAGE>
below. In addition, with respect to [ ] of the Mortgage Loans, the sole tenant
of the related Mortgaged Property is affiliated with the related borrower under
each such Mortgage Loan.]
In general, concentrations in a mortgage pool of loans with
larger-than-average balances can result in losses that are more severe, relative
to the size of the pool than would be the case if the aggregate balance of such
pool were more evenly distributed. Concentrations of Mortgage Loans with the
same borrower or related borrowers can also pose increased risks. For example,
if one borrower that owns or controls several Mortgaged Properties experiences
financial difficulty resulting from the unprofitability of one Mortgaged
Property, such financial difficulty could cause defaults with respect to the
Mortgage Loans secured by the other Mortgaged Properties owned or controlled by
that borrower. Such borrower could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting Monthly Payments
for an indefinite period on all of the related Mortgage Loans.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed-in-lieu of foreclosure, the Special
Servicer would be required under certain circumstances to retain an independent
contractor to operate and manage such Mortgaged Property. Any net income from
such operation and management, other than qualifying "rents from real property,"
or any rental income based on the net profits of a tenant or sub- tenant or
allocable to a service that is non-customary in the area and for the type of
building involved, will subject the Lower-Tier REMIC to federal (and possibly
state or local) tax on such income at the highest marginal corporate rate
(currently 35%), thereby reducing net proceeds available for distribution to
Certificateholders. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of
Regular Interests," "--Taxation of the REMIC" and "--Taxation of Holders of
Residual Certificates" in the Prospectus.
Risk of Different Timing of Mortgage Loan Amortization. If and as
principal payments or prepayments are made on the Mortgage Loans at different
rates, depending upon the amortization schedule and maturity of each Mortgage
Loan, the remaining Mortgage Pool will be subject to more concentrated risk with
respect to the diversity of types of properties and with respect to the number
of borrowers.
Because principal on the Certificates is payable in sequential order, and
no Class receives principal until the Certificate Balance of the preceding Class
or Classes has been reduced to zero [(other than any amounts distributable
pursuant to priority [ ] of the Available Funds Allocation)], Classes that have
a later sequential designation are more likely to be exposed to the risk of
concentration discussed in the preceding paragraph than Classes with higher
sequential priority.
Geographic Concentration. Repayments by borrowers and the market values 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 markets where the Mortgaged Properties are
located, changes in governmental rules and fiscal policies, acts of nature
(which may result in uninsured losses) and other factors that are beyond the
control of the borrowers. The Mortgaged Properties are located in [ ] states
[and the District of Columbia.] [ ] of the Mortgage Loans, which represent
approximately [ ]% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in [___________], [ ] of the Mortgage Loans, which
represent approximately [ ]% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in [ ]. The remaining Mortgaged Properties are
located throughout [ ] other states [and the District of Columbia,] and not more
than [ ]% of the Initial Pool Balance is secured by Mortgaged Properties located
in any individual state among those other states [or the District of Columbia].
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<PAGE>
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other areas
of the country by certain developments affecting industries concentrated in such
state or region. Moreover, in recent periods, several regions of the United
States have experienced significant downturns in the market value of real
estate. To the extent that general economic or other relevant conditions in
states or regions in which concentrations of Mortgaged Properties securing
significant portions of the aggregate principal balance of the Mortgage Loans
are located decline and result in a decrease in commercial property, housing or
consumer demand in the region, the income from and market value of the Mortgaged
Properties may be adversely affected.
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, a current or previous owner or operator of real
property, as well as certain other categories of parties, may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under,
adjacent to or in such property. The environmental condition of nonresidential
properties may be affected by the business operation of tenants and occupants of
the properties. In addition, current and future environmental laws, ordinances
or regulations, including new requirements developed by federal agencies
pursuant to the mandates of the Clean Air Act Amendments of 1990, may impose
additional compliance obligations on business operations that can be met only by
significant capital expenditures.
Secured lenders may be exposed to the following risks: (i) a diminution in
the value of a Mortgaged Property or the inability to foreclose against such
Mortgaged Property; (ii) the potential that the borrower may default on a
Mortgage Loan due to the borrower's inability to pay high remediation costs or
difficulty in bringing its operations into compliance with environmental laws;
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 such Mortgaged Property.
Under the laws of certain states and federal law, failure of a property
owner to perform remediation of certain environmental conditions can give rise
to a lien on the related property to ensure the reimbursement of remedial costs
incurred by state and federal regulatory agencies. In several states such lien
has priority over the lien of an existing mortgage. Any such lien arising with
respect to a Mortgaged Property would adversely affect the value of such
Mortgaged Property as collateral for the related Mortgage Loan and could make
impracticable the foreclosure by the Special Servicer on such Mortgaged Property
in the event of a default by the borrower of its obligations under the related
Mortgage Loan.
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. Under some
environmental 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 borrower's property if the lender
is deemed to have participated in the management of the borrower, regardless of
whether a previous owner caused the environmental damage. One court has held
that a lender will be deemed to have participated in the management of the
borrower if the lender participates in the financial management of the borrower
to a degree indicating the capacity to influence the borrower's treatment of
hazardous waste. The Trust Fund's potential exposure to liability for cleanup
costs will increase if the Trust Fund actually takes possession of a Mortgaged
Property or control of its day-to-day operations; such potential exposure to
environmental liability may also increase if a court grants a petition to
appoint a receiver to operate the Mortgaged Property in order to protect the
Trust Fund's collateral. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Environmental Risks" in the Prospectus.
Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") in the event of the remodeling, renovation or
S-40
<PAGE>
demolition of a building. Such laws, as well as common law standards, may impose
liability for releases of ACMs and may allow third parties to seek recovery from
owners or operators of real properties for personal injuries associated with
such releases. In addition, federal law requires that building owners inspect
their facilities for ACMs and transfer all information regarding ACMs in their
facilities to successive owners.
The United States Environmental Protection Agency (the "EPA") has
concluded that radon gas, a naturally occurring substance, is linked to
increased risks of lung cancer. Although there are no current federal or state
requirements mandating radon gas testing, the EPA and the United States Surgeon
General recommend testing residences for the presence of radon and that
abatement measures be undertaken if radon concentrations in indoor air meet or
exceed four picocuries per liter. [The Originator required testing for radon gas
only in connection with the origination of certain of the Multifamily Loans.]
The Residential Lead-Based Paint Hazard Reduction Act of 1992 (the "Lead
Paint Act") requires federal agencies to promulgate regulations that will
require owners of residential housing constructed prior to 1978 to disclose to
potential residents or purchasers any known lead-paint hazards. The Lead Paint
Act creates a private right of action with treble damages available for any
failure to so notify. Federal agencies have issued regulations delineating the
scope of this disclosure obligation to take effect in September of 1996 for
owners of more than four residential dwellings and December of 1996 for owners
of one to four residential dwellings. In addition, the ingestion of lead-based
paint chips or dust particles by children can result in lead poisoning, and the
owner of a property where such circumstances exist may be held liable for such
injuries. Finally, federal law mandates that detailed worker safety standards
must be complied with where construction, alteration, repair or renovation of
structures that contain lead, or materials that contain lead, is contemplated.
[The Originator required testing for lead-based paint only in connection with
the origination of Multifamily Loans with respect to Mortgaged Properties with
improvements constructed prior to [ ]].
Underground storage tanks ("USTs") are, and in the past have been,
frequently located at properties used for industrial, retail and other business
purposes. Federal law, as well as the laws of most states, currently require
USTs used for the storage of fuel or hazardous substances and waste to meet
certain standards designed to prevent releases from the USTs into the
environment. USTs installed prior to the implementation of these standards, or
that otherwise do not meet these standards, are potential sources of
contamination to the soil and groundwater. Land owners may be liable for the
costs of investigating and remediating soil and groundwater contamination that
may emanate from leaking USTs.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its operation.
Such requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable under any environmental law.
However, there can be no assurance that the requirements of the Pooling and
Servicing Agreement will effectively insulate the Trust Fund from potential
liability under environmental laws. See "THE POOLING AND SERVICING
AGREEMENT--Realization Upon Mortgage Loans--Standards for Conduct Generally in
Effecting Foreclosure or the Sale of Defaulted Loans" herein and "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS--Environmental Risks" in the Prospectus.
[All] of the Mortgaged Properties have been subject to environmental site
assessments within [___] months preceding the Cut-off Date. Environmental site
assessments with respect to [each] Mortgaged Property were obtained by the
applicable Originator within [ ] months prior to the respective date of
origination of the related Mortgage Loan. Other than as described below, the
assessments did not reveal the existence of conditions or circumstances
respecting the Mortgaged Properties that would constitute or result in a
material
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violation of applicable environmental law, impose a material constraint on the
operation of such Mortgaged Properties, require any material change in the use
thereof, require clean-up, remedial action or other response with respect to
hazardous materials on or affecting such Mortgaged Properties under any
applicable environmental law, with the exception of conditions or circumstances
(a) that such assessments indicated could be cleaned up, remediated or brought
into compliance with applicable environmental law by the taking of certain
actions and (b) either for which (i) a hold-back or other escrow of funds in an
amount not less than the cost of taking such clean-up, remediation or compliance
actions as estimated in such assessments has been created, which funds will not
be released until such clean-up, remediation or compliance actions have been
taken, (ii) an environmental insurance policy in an amount satisfactory to the
Originator has been obtained by the related borrower or an indemnity for such
costs has been obtained from a potentially culpable party or (iii) such clean
up, remediation or compliance actions have been completed in compliance with
applicable environmental law prior to the closing of such Mortgage Loan.
Investors should understand that the results of the environmental site
assessments do not constitute an assurance or guarantee by the Depositor, the
Mortgage Loan Seller, the borrowers, the environmental consultants or any other
person as to the absence or extent of the existence of any environmental
condition on the Mortgaged Properties that could result in environmental
liability. Given the scope of the environmental site assessments, an
environmental condition that affects a Mortgaged Property may not be discovered
or its severity revealed during the course of the assessment. Further, no
assurance can be given that future changes in applicable environmental laws, the
development or discovery of presently unknown environmental conditions at the
Mortgaged Properties or the deterioration of existing conditions will not
require material expenses for remediation or other material liabilities.
[In the case of [ ] of the Mortgaged Properties, the environmental
assessments revealed the existing or potential environmental conditions
described below.] [Describe any known environmental conditions.]
Balloon Payments; Optional Acceleration. All but [ ] of the Mortgage Loans
are Balloon Loans that will have substantial payments (that is, Balloon
Payments) due at their stated maturities, unless previously prepaid. Balloon
Loans involve a greater risk of default to the lender than self-amortizing
loans, because the ability of a borrower to make a Balloon Payment typically
will depend upon its ability either to refinance the related Mortgaged Property
or to sell such Mortgaged Property at a price sufficient to permit the borrower
to make the Balloon Payment. The ability of a borrower to accomplish either of
these goals will be affected by a number of factors at the time of attempted
sale or refinancing, including the level of available mortgage rates, the fair
market value of the related Mortgaged Property, the borrower's equity in the
related Mortgaged Property, the financial condition of the borrower and
operating history of the related Mortgaged Property, tax laws, prevailing
economic conditions and the availability of credit for multifamily or commercial
properties (as the case may be) generally.
[The Mortgage Loan documents with respect to [ ] of the Mortgage Loans
grant the mortgagee an option to accelerate the maturity of such Mortgage Loans.
[Describe terms of such options.] Under the Pooling and Servicing Agreement, the
Master Servicer or the Special Servicer, as applicable, will be required to
exercise each such option to accelerate the maturity of each such Mortgage Loan
on the earliest date permitted under the related Mortgage Loan Documents. See
"THE POOLING AND SERVICING AGREEMENT--Servicing of the Mortgage Loans;
Collection of Payments" herein. Notwithstanding such exercise, there can be no
assurance that the related borrowers will repay such Mortgage Loans upon the
acceleration of the maturity dates thereunder. As noted above, the ability of a
borrower to make such a payment typically will depend upon its ability either to
refinance the related Mortgaged Property or to sell such Mortgaged Property at a
price sufficient to permit the borrower to make the payment. Furthermore, there
can be no assurance that a related borrower will not raise equitable or other
legal defenses to the
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enforcement by the Master Servicer of the maturity acceleration
provisions described above. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Enforceability of Certain Provisions" in the
Prospectus.]
Other Financing. [As of the origination date of [ ] of the Mortgage Loans,
representing approximately [ ]% of the Initial Pool Balance, the related
Mortgaged Properties were subject to subordinate mortgage liens in the principal
amount of $[ ] held by a third party unrelated to the related borrower, which
liens were fully subordinated to such Mortgage Loans. The related Mortgage Loan
documents for such Mortgage Loans prohibit any payments under such subordinate
financing during any period of a default under the related Mortgage Loan.] [As
of the respective origination dates of [ ] of the Mortgage Loans, the related
Mortgaged Properties were subject to subordinate wraparound mortgage liens held
by a prior owner of the related Mortgaged Properties, which liens were fully
subordinated to the related Mortgage Loans]. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Secondary Financing; Due-on-Encumbrance Provisions" in the
Prospectus.
In general, the borrowers are prohibited from encumbering the related
Mortgaged Property with additional secured debt or the mortgagee's approval is
required for such an encumbrance, except as set forth herein. However, a
violation of such prohibition may not become evident until the related Mortgage
Loan otherwise becomes defaulted. [The Mortgage Loan documents with respect to [
] of the Mortgage Loans permit the related borrower to grant a subordinate
mortgage in favor of a third party.] [Describe any limitations on such right.]
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Secondary Financing;
Due-on-Encumbrance" in the Prospectus.
In cases in which one or more junior liens are imposed on a Mortgaged
Property or the borrower incurs other indebtedness, the Trust Fund is subject to
additional risks, including, without limitation, the risks that the borrower may
have greater incentives to repay the junior or unsecured indebtedness first and
that it may be more difficult for the borrower to refinance the Mortgage Loan or
to sell the Mortgaged Property for purposes of making any Balloon Payment upon
the maturity of the Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Secondary Financing; Due-on-Encumbrance Provisions" in the Prospectus.
Delinquencies. As of the Cut-off Date, no Mortgage Loan was
more than [ ] days delinquent in respect of any Monthly Payment.
Bankruptcy of Borrowers. The borrowers have generally not been formed with
the intent that they be bankruptcy-remote entities and no assurance can be given
that a borrower will not file for bankruptcy protection or that creditors of a
borrower or a corporate or individual general partner or member will not
initiate a bankruptcy or similar proceeding against such borrower or corporate
or individual general partner or member. [Unlike the case in some other types of
securitized offerings, the borrowers are operating businesses that contract with
other entities to perform services or purchase goods for or related to the
Mortgaged Properties and may, because of these activities, be more susceptible
to suit by various claimants than the borrowers involved in such other
offerings. Investors should be aware that, particularly in view of the
operational nature of the Mortgaged Properties, the borrowers may become
insolvent or become the subject of a voluntary or involuntary bankruptcy case.]
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Bankruptcy Laws" in the
Prospectus.
Limitations of Appraisals and Engineering Reports. In general, appraisals
represent the analysis and opinion of qualified experts and are not guarantees
of present or future value. Moreover, appraisals seek to establish the amount a
typical motivated buyer would pay a typical motivated seller. Such amount could
be significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or
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liquidation sale. Information regarding the values of the Mortgaged Properties
as of the Cut-off Date is presented under "--Certain Characteristics of the
Mortgage Pool" above for illustrative purposes only.
The architectural and engineering reports represent the analysis of the
individual engineers or site inspectors at or before the origination of the
respective Mortgage Loans, have not been updated since they were originally
conducted and may not have revealed all necessary or desirable repairs,
maintenance or capital improvement items.
[Zoning Compliance. Due to changes in applicable building and zoning
ordinances and codes ("Zoning Laws") affecting certain of the Mortgaged
Properties that have come into effect since the construction of improvements on
such Mortgaged Properties and to other reasons, certain improvements may not
comply fully with current Zoning Laws, including, without limitation, density,
use, parking and set back requirements. In such cases, the Originator has
received assurances that such improvements qualify as permitted non-conforming
uses. Such changes may limit the ability of the related borrower to rebuild or
utilize the premises "as is" in the event of a substantial casualty loss with
respect thereto.]
[Describe generally any known non-conforming uses.]
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. To the extent the Mortgaged Properties do not comply with the
ADA, borrowers are likely to incur costs of complying with the ADA.
Noncompliance could result in the imposition of fines by the federal government
or an award of damages to private litigants. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Americans With Disabilities Act" in the Prospectus.
[Limitations on Enforceability of Cross-Collateralization. [ ] of the
Mortgage Loans, each of which was made to a borrower that is affiliated with the
borrower under another Mortgage Loan (the "Cross-Collateralized Loans"
identified in Annex A as Loan ##[ ]) are cross-collateralized and
cross-defaulted with one or more related Cross-Collateralized Loans. This
arrangement is designed to reduce the risk that the inability of an individual
Mortgaged Property securing a Cross-Collateralized Loan to generate net
operating income sufficient to pay debt service thereon will result in defaults
(and ultimately losses). The arrangement is based on the belief that the risk of
default is reduced by making the collateral pledged to secure each related
Cross-Collateralized Loan available to support debt service on, and principal
repayment of, the aggregate indebtedness evidenced by the related
Cross-Collateralized Loans.
Such arrangements, however, could be challenged as fraudulent conveyances
by creditors of any of the related borrowers or by the representative of the
bankruptcy estate of such borrowers if one or more of such borrowers were to
become a debtor in a bankruptcy case. With respect to the Cross-Collateralized
Loans, (a) Loan # and Loan # were both made to the same borrower and (b) Loan #
and Loan # were made to affiliated borrowers. Generally, under federal and most
state fraudulent conveyance statutes, the incurring of an obligation or the
transfer of property (including the granting of a mortgage lien) by a person
will be subject to avoidance under certain circumstances if the person did not
receive fair consideration or reasonably equivalent value in exchange for such
obligation or transfer and (i) was insolvent or was rendered insolvent by such
obligation or transfer, (ii) was engaged in a business or a transaction, or was
about to engage in a business or a transaction, for which properties remaining
with the person constitute an unreasonably small capital or (iii) intended to
incur, or believed that it would incur, debts that would be beyond the person's
ability to pay as such debts matured. Accordingly, a lien granted by any such
borrower could be avoided if a court were to determine that (x) such borrower
was insolvent at the time of granting the lien, was rendered insolvent by the
granting of the lien, was left with inadequate capital or was not able to
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pay its debts as they matured and (y) the borrower did not, when it allowed its
Mortgaged Property to be encumbered by the liens securing the indebtedness
represented by the other Cross-Collateralized Loans, receive fair consideration
or reasonably equivalent value for pledging such Mortgaged Property for the
equal benefit of the other related borrowers. No assurance can be given that a
lien granted by a borrower on a Cross-Collateralized Loan to secure the Mortgage
Loan of an affiliated borrower, or any payment thereon, would not be avoided as
a fraudulent conveyance.]
Tenant Matters. [ ] Retail Properties, which represent security for
approximately [ ]% of the Initial Pool Balance, are leased wholly or in large
part to a single tenant or are wholly or in large part owner-occupied (each such
retail tenant or owner-occupier, a "Major Tenant"). Generally, such Major
Tenants do not have investment-grade credit ratings, and there can be no
assurance that such Major Tenants will continue to perform their obligations
under their respective leases (or, in the case of owner-occupied Mortgaged
Properties, under the related Mortgage Loan documents). Any default by a Major
Tenant could adversely affect the related borrower's ability to make payments on
the related Mortgage Loan. The following chart contains certain information with
respect to such Major Tenants, including, if available, the credit rating and
trading symbol (to the extent applicable) of each such Major Tenant.
<TABLE>
<CAPTION>
=============================================================================
Cut-off
Lease Date
Type of Expiration Principal
Loan # Property Name Lease Date Comments Balance
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
=============================================================================
</TABLE>
[As used in the foregoing chart, the term "Triple Net" generally means a lease
under which the tenant is required to pay all real estate taxes and assessments,
liability and casualty insurance premiums and non- structural (and in certain
cases, structural) maintenance costs in respect of the related Mortgaged
Property.
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<PAGE>
The related borrower's obligation as landlord under each Triple Net lease may
vary significantly from lease to lease.]
Contracts for Deed and Purchase Options. [Describe terms of
any contracts for deeds or purchase options granted to borrowers.]
[Ground Leases. [ ] Mortgage Loans, representing approximately [ ]% of the
Initial Pool Balance, are secured, wholly or in part, by [first] mortgage liens
on the related borrower's leasehold interest in all or part of the related
Mortgaged Property. The related ground leases expire no earlier than [ ]. With
respect to [all] such ground leases, the related ground lessor has agreed to
afford [the mortgagee] certain notices and rights with respect to such ground
leases, including without limitation, cure rights with respect to breaches of
the related ground lease by the related borrower. See "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS--Leasehold Risks" in the Prospectus.]
[Borrower Escrows and Reserve Accounts. In a number of the Mortgage Loans,
the related borrower was required to establish one or more Reserve Accounts for
necessary repairs and replacements, tenant improvements and leasing commissions,
real estate taxes and assessments, insurance premiums, deferred maintenance
and/or scheduled capital improvements or as reserves against delinquencies in
Monthly Payments.]
Modifications. [None] of the Mortgage Loans have been modified in any
material manner since their origination in connection with any default or
threatened default on the part of the related borrower. [Describe any other
modifications that have been made.] Any future modifications would be subject to
the conditions and requirements contained in the Pooling and Servicing
Agreement.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the business
of, or arising out of the ordinary course of business of, the borrowers and
their affiliates. There can be no assurance that such litigation will not have a
material adverse effect on any borrower's ability to meet its obligations under
the related Mortgage Loan and, thus, on the distributions to Certificateholders.
THE MORTGAGE LOAN SELLER
The Mortgage Loan Seller is a [ ] corporation [and a special purpose
subsidiary of [ ], formed for the purpose of holding mortgage loans such as the
Mortgage Loans from the time of origination thereof through the time of
securitization or other disposition thereof.] [Describe activities of Mortgage
Loan Seller].
The information concerning the Mortgage Loan Seller set forth above has
been provided by the Mortgage Loan Seller, and none of the Depositor, the
Trustee or the Underwriter makes any representation or warranty as to the
accuracy thereof.
THE MASTER SERVICER
Midland Loan Services, L.P. ("Midland") was organized under
the laws of the state of Missouri in 1992 as a limited
partnership. Midland is a real estate financial services company
which provides loan servicing and asset management for large pools
of commercial and multifamily real estate assets and which
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<PAGE>
originates commercial real estate loans. Midland's address is
210 West 10th Street, 6th Floor, Kansas City, Missouri 64105.
As of [ ], Midland and its affiliates were responsible for the servicing
of approximately [ ] commercial and multifamily loans with an aggregate
principal balance of approximately $[ ] billion, the collateral for which is
located in all 50 states. With respect to such loans, approximately [ ] loans
with an aggregate principal balance of approximately $[ ] billion pertain to
commercial and multifamily mortgage-backed securities issued in [ ]
securitization transactions. Property type concentrations within the portfolio
include multifamily, office, retail, hotel/motel and other types of income
producing properties. Midland and its affiliates also provide commercial loan
servicing for newly-originated loans and loans acquired in the secondary market
on behalf of issuers of commercial and multifamily mortgage-backed securities,
financial institutions and private investors.
[Describe rating of Master Servicer by Rating Agencies]
The information concerning the Master Servicer set forth above has been
provided by Midland and none of the Depositor, the Trustee or the Underwriter
makes any representation or warranty as to the accuracy thereof.
THE SPECIAL SERVICER
It is anticipated that [ ] (the "Special Servicer"), a [ ] corporation and
a wholly owned subsidiary of [ ], will serve as the Special Servicer and in such
capacity will be responsible for servicing the Specially Serviced Mortgage
Loans. The principal executive offices of the Special Servicer are located at [
].
[Describe the Special Servicer]
The information concerning the Special Servicer set forth above has been
provided by the Special Servicer and none of the Depositor, the Trustee, the
Master Servicer or the Underwriter makes any representation or warranty as to
the accuracy thereof.
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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 A
Certificates, the Class B Certificates, the Class C Certificates, [the Class
[EC] Certificates,] [the Class [PO] Certificates,] [the Class [IO]
Certificates,] the Class R Certificates and the Class LR Certificates. Only the
Class A, Class B and Class [___] Certificates are offered hereby. The Pooling
and Servicing Agreement will be included as part of the Form 8-K to be filed
with the Commission within 15 days after the Closing Date. See "THE POOLING AND
SERVICING AGREEMENT" herein and "DESCRIPTION OF THE CERTIFICATES" and "SERVICING
OF THE MORTGAGE LOANS" in the Prospectus for more important additional
information regarding the terms of the Pooling and Servicing Agreement and the
Certificates.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting primarily of: (i) the Mortgage
Loans, all scheduled payments of interest and principal due after the Cut-off
Date (whether or not received) 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 Collection Account,
the Distribution Account and any account established in connection with REO
Properties (an "REO Account"); (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans; (v) the Depositor's
rights and remedies under the Mortgage Loan Purchase and Sale Agreement; and
(vi) all of the mortgagee's right, title and interest in the Reserve Accounts.
The Certificate Balance of any Class of Certificates outstanding at any
time represents the maximum amount that 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 Balance of each Class of Certificates will in each case be reduced
by amounts actually distributed on such Class that are allocable to principal
and by any Realized Losses allocated to such Class. [The Class [EC] and Class
[IO] Certificates are interest-only Certificates, have no Certificate Balances
and are not entitled to distributions in respect of principal.] [The Class [PO]
Certificates are principal-only certificates and are not entitled to
distributions in respect of interest.]
Distributions
Method, Timing and Amount. Distributions on the Regular Certificates will
be made on the [____] day of each month or, if such [_____] day is not a
Business Day, then on the next succeeding Business Day, commencing in
[_______________] (each, a "Distribution Date"). All distributions (other than
the final distribution on any Certificate) will be made by the Trustee 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 such
Distribution Date occurs (the "Record Date"). Such distributions will be made
(i) by wire transfer of immediately available funds to the account specified by
the Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder provides the Trustee with wiring
instructions no less than [five] Business Days prior to the related Record Date
and is the registered owner of Certificates the aggregate Certificate Balance
[or Notional Balance] of which is at least $[_______________] or otherwise (ii)
by check mailed to such Certificateholder. [The "Class [EC] Notional Balance" as
of any date is equal to the sum of the Certificate Balances of the Class [____],
Class [____] and Class [____] Certificates.] [The "Class [IO] Notional Balance"
as of any date is equal to the Certificate Balance of the Class [PO]
Certificates.] [The
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Class [EC] and Class [IO] Notional Balances are referred to herein generally as
"Notional Balances."] 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 Regular Certificate is equal to the
initial denomination thereof as of the Closing Date divided by the initial
Certificate Balance [(or, with respect to the Class [EC] and Class [IO]
Certificates, the initial Class [EC] Notional Balance or initial Class [IO]
Notional Balance)] of the related Class.
The aggregate distribution to be made on the Regular Certificates on any
Distribution Date will equal the Available Funds. The "Available Funds" for a
Distribution Date will be the sum of all previously undistributed Monthly
Payments or other receipts on account of principal and interest on or in respect
of the Mortgage Loans (including Unscheduled Payments and Net REO Proceeds, if
any) received by the Master Servicer in the related Collection Period, including
all P&I Advances made by the Master Servicer, the Trustee [or the Fiscal Agent,]
as applicable, in respect of such Distribution Date, plus all other amounts
required to be placed in the Collection Account by the Master Servicer pursuant
to the Pooling and Servicing Agreement allocable to the Mortgage Loans, but
excluding the following:
(a) amounts permitted to be used to reimburse the Master Servicer,
the Trustee [or the Fiscal Agent,] as applicable, for previously unreimbursed
Advances and interest thereon as described herein under "THE POOLING AND
SERVICING AGREEMENT--Advances;"
(b) those portions of each payment of interest which
represent the applicable servicing compensation;
(c) all amounts in the nature of late fees, late charges and similar
fees, loan modification fees, extension fees, loan service transaction fees,
demand fees, beneficiary statement charges, assumption fees and similar fees,
which the Master Servicer or the Special Servicer, as applicable, is entitled to
retain as additional servicing compensation;
(d) all amounts representing scheduled Monthly Payments due after the
Due Date in the related Collection Period (such amounts to be treated as
received on the Due Date when due);
(e) that portion of (i) amounts received in connection with the
liquidation of Specially Serviced Mortgage Loans, by foreclosure, trustee's sale
or otherwise, (ii) amounts received in connection with a sale of a Specially
Serviced Mortgage Loan or REO Property in accordance with the terms of the
Pooling and Servicing Agreement, (iii) amounts (other than Insurance Proceeds)
received in connection with the taking of a Mortgaged Property by exercise of
the power of eminent domain or condemnation ("Condemnation Proceeds"; clauses
(i), (ii) and (iii) are collectively referred to as "Liquidation Proceeds") or
(iv) proceeds of the insurance policies (to the extent such proceeds are not to
be applied to the restoration of the property or released to the borrower in
accordance with the normal servicing procedures of the Master Servicer or the
related sub-servicer, subject to the terms and conditions of the related
Mortgage and Mortgage Note) ("Insurance Proceeds") with respect to a Mortgage
Loan that represents any unpaid servicing compensation to which the Master
Servicer or Special Servicer is entitled;
(f) all amounts representing certain expenses reimbursable to the
Master Servicer, the Special Servicer, the Trustee [or the Fiscal Agent] and
other amounts permitted to be retained by the Master
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<PAGE>
Servicer or the Special Servicer or withdrawn by the Master Servicer from the
Collection Account pursuant to the terms of the Pooling and Servicing Agreement;
[(g) with respect to Distribution Dates after the EC Maturity Date,
Prepayment Premiums received in the related Collection Period;] and
(h) any interest or investment income on funds on deposit in the
Collection Account or in Permitted Investments in which such funds may be
invested.
The "Monthly Payment" with respect to any Mortgage Loan for any
Distribution Date (other than any REO Mortgage Loan) is the scheduled monthly
payment of principal and interest, excluding any Balloon Payment, which is
payable by the related borrower on the related Due Date. The Monthly Payment
with respect to an REO Mortgage Loan for any Distribution Date is the monthly
payment that would otherwise have been payable on the related Due Date had the
related Note not been discharged (after giving effect to any extension or other
modification), determined as set forth in the Pooling and Servicing Agreement.
"Unscheduled Payments" are all Liquidation Proceeds, Condemnation Proceeds
and Insurance Proceeds payable under the Mortgage Loans, the Repurchase Price of
any Mortgage Loans that are repurchased or purchased pursuant to the Pooling and
Servicing Agreement and any other payments under or with respect to the Mortgage
Loans not scheduled to be made, including Principal Prepayments, but excluding
Prepayment Premiums.
"Prepayment Premiums" are payments received on a Mortgage Loan as the
result of a Principal Prepayment thereon, not otherwise due thereon in respect
of principal or interest, which are intended to be a disincentive to prepayment.
"Net REO Proceeds" with respect to any REO Property and any related
Mortgage Loan are all revenues received by the Special Servicer with respect to
such REO Property or REO Mortgage Loan that do not constitute Liquidation
Proceeds, net of any insurance premiums, taxes, assessments and other costs and
expenses permitted to be paid from the related REO Account pursuant to the
Pooling and Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower on a
Mortgage Loan which are received in advance of the scheduled Due Date for such
payments and which are not accompanied by an amount of interest representing the
full amount of scheduled interest due on any date or dates in any month or
months subsequent to the month of prepayment.
The "Collection Period" with respect to a Distribution Date is the period
beginning on the day following the Determination Date in the month preceding the
month in which such Distribution Date occurs (or, in the case of the
Distribution Date occurring in [____________], on the day after the Cut-off
Date) and ending on the Determination Date in the month in which such
Distribution Date occurs.
"Determination Date" means the [____] day of any month, or if such [____]
day is not a Business Day, the Business Day immediately preceding such [____]
day, commencing on
[-------------].
"Default Interest" with respect to any Mortgage Loan is interest accrued
on such Mortgage Loan at the excess of the Default Rate over the Mortgage Rate.
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The "Default Rate" with respect to any Mortgage Loan is the annual rate at
which interest accrues on such Mortgage Loan following any event of default on
such Mortgage Loan including a default in the payment of a Monthly Payment or a
Balloon Payment.
Priorities. As used below in describing the priorities of distribution of
Available Funds for each Distribution Date, the terms set forth below will have
the following meanings.
"Class Interest Distribution Amount" with respect to any Distribution Date
and any of the Class A, Class B and Class C Certificates will equal interest for
the related Interest Accrual Period at the applicable Pass-Through Rate for such
Class of Certificates for such Interest Accrual Period on the Certificate
Balance of such Class. [With respect to any Distribution Date and the Class [EC]
Certificates, the "Class Interest Distribution Amount" will equal for any
Distribution Date occurring on or prior to the EC Maturity Date, the Class [EC]
Excess Interest. The Class [EC] Certificates are not entitled to distributions
(other than any Class Interest Shortfalls) following the EC Maturity Date.] [The
Class [PO] Certificates are principal only Certificates and have no Class
Interest Distribution Amount.] [With respect to any Distribution Date and the
Class [IO] Certificates, the "Class Interest Distribution Amount" will equal the
product of the Class [IO] Pass- Through Rate and the Class [IO] Notional
Balance.] For purposes of determining any Class Interest Distribution Amount,
any distributions in reduction of Certificate Balance [(and any resulting
reductions in Notional Balance)] as a result of allocations of Realized Losses
on the Distribution Date occurring in such Interest Accrual Period will be
deemed to have been made as of the first day of such Interest Accrual Period.
Notwithstanding the foregoing, the Class Interest Distribution Amount for each
Class of Certificates otherwise calculated as described above will be reduced by
such Class's pro rata share of any Prepayment Interest Shortfall not offset by a
Prepayment Interest Surplus or by Servicing Fees as described below for such
Distribution Date (pro rata according to each respective Class's Class Interest
Distribution Amount determined without regard to this sentence).
["Class [EC] Excess Interest": With respect to any
Distribution Date, an amount equal to the Class [EC] Pass-Through
Rate multiplied by the Class [EC] Notional Balance.]
["Class [EC] Notional Balance": As of any date of
determination, an amount equal to the sum of the Certificate
Balances of the Class [__] Certificates and the Class [__]
Certificates.]
["Class [EC] Pass-Through Rate": With respect to any Interest Accrual
Period, a per annum rate equal to the excess of the Weighted Average Net
Mortgage Rate over the weighted averages of the Pass-Through Rates of the P&I
Certificates (weighted in each case on the basis of a fraction equal to the
Certificate Balance of each such Class of Certificates divided by the sum of the
Certificate Balances of the P&I Certificates [and the Class [PO] Certificates]
as of the first day of such Interest Accrual Period) [and the Class [IO] Pass-
Through Rate (weighted on the basis of a fraction equal to the Class [IO]
Notional Balance divided by the sum of the Certificate Balances of the P&I
Certificates and the Class [PO] Certificates, each as of the first day of such
Interest Accrual Period)]. For purposes of this definition, the Pass-Through
Rates of the Class [___] and Class [___] Certificates will be equal to the
Weighted Average Net Mortgage Rate.]
"Prepayment Interest Shortfall" with respect to any Distribution Date and
any Mortgage Loan as to which a Principal Prepayment was made by the related
borrower during the related Collection Period, the amount by which (i) 30 full
days of interest at the related Net Mortgage Rate on the Scheduled Principal
Balance of such Mortgage Loan in respect of which interest would have been due
in the absence of such Principal Prepayment on the Due Date next succeeding the
date of such Principal Prepayment exceeds (ii) the amount of interest received
from the related borrower in respect of such Principal Prepayment. Such
shortfall may result because interest on a Principal Prepayment is paid by the
related borrower only to the date of
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prepayment or because no interest is paid on a Principal Prepayment, to the
extent that such Principal Prepayment is applied to reduce the principal balance
of the related Mortgage Loan as of the Due Date preceding the date of
prepayment. Prepayment Interest Shortfalls with respect to each Distribution
Date (to the extent not offset as provided in the following sentence) will be
allocated to each Class of Certificates pro rata based on such Class's Class
Interest Distribution Amount (without taking into account the amount of
Prepayment Interest Shortfalls to such Class on such Distribution Date) for such
Distribution Date. The amount of any Prepayment Interest Shortfall with respect
to any Distribution Date will be offset by the Master Servicer first by the
amount of any Prepayment Interest Surplus and then up to an amount equal to the
aggregate Servicing Fees to which the Master Servicer would otherwise be
entitled on such Distribution Date.
"Prepayment Interest Surplus" with respect to any Distribution Date and
any Mortgage Loan as to which a Principal Prepayment was made by the related
borrower during the related Collection Period, the amount by which (i) the
amount of interest received from the related borrower in respect of such
Principal Prepayment exceeds (ii) 30 full days of interest at the related Net
Mortgage Rate on the Scheduled Principal Balance of such Mortgage Loan in
respect of which interest would have been due in the absence of such Principal
Prepayment on the Due Date next succeeding the date of such Principal
Prepayment. The Master Servicer will be entitled to retain any Prepayment
Interest Surplus as additional servicing compensation to the extent not required
to offset Prepayment Interest Shortfalls as described in the preceding
paragraph.
The "Pass-Through Rate" for any Class of Regular Certificates is the per
annum rate at which interest accrues on the Certificates of such Class during
any Interest Accrual Period. The Pass-Through Rate on the Class A Certificates
during any Interest Accrual Period will be [______]%. The Pass-Through Rate on
the Class B Certificates during any Interest Accrual Period will be [_____]%.
The Pass-Through Rate on the Class C Certificates during any Interest Accrual
Period will be [_____]%. [The Pass-Through Rate on the Class [EC] Certificates
during any Interest Accrual Period will be the Class [EC] Pass-Through Rate.]
[The Pass- Through Rate on the Class [IO] Certificates during any Interest
Accrual Period will be equal to the Weighted Average Net Mortgage Rate.] [The
Pass-Through Rate on the Class [___] and Class [___] Certificates during any
Interest Accrual Period will be equal to the greater of (i) the Weighted Average
Net Mortgage Rate and (ii) [____]%. [The Class [PO] Certificates are
principal-only certificates and are not entitled to distributions in respect of
interest.]
The "Weighted Average Net Mortgage Rate" for any Interest Accrual Period
is a per annum rate equal to the weighted average of the Net Mortgage Rates as
of the first day of such Interest Accrual Period. The "Net Mortgage Rate" for
each Mortgage Loan, prior to any default thereunder, is the Mortgage Rate for
such Mortgage Loan minus the Servicing Fee Rate.
The "Interest Accrual Period" with respect to any Distribution Date is the
calendar month preceding the month in which such Distribution Date occurs.
Interest for each Interest Accrual Period is calculated based on a 360-day year
consisting of twelve 30-day months.
"Class Interest Shortfall" means on any Distribution Date for any Class of
Certificates, the excess, if any, of the amount of interest required to be
distributed to the holders of such Class of Certificates on such Distribution
Date over the amount of interest actually distributed to such holders. No
interest will accrue on unpaid Class Interest Shortfalls.
The "Pooled Principal Distribution Amount" for any Distribution Date will
be equal to the sum of (without duplication):
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(i) the principal component of all scheduled Monthly Payments (other
than Balloon Payments) that become due (regardless of whether received) on the
Mortgage Loans during the related Collection Period;
(ii) the principal component of all Assumed Scheduled Payments,
deemed to become due (regardless of whether received) during the related
Collection Period with respect to any Balloon Loan that is delinquent in respect
of its Balloon Payment;
(iii) the Scheduled Principal Balance of each Mortgage Loan that was,
during the related Collection Period, repurchased from the Trust Fund in
connection with the breach of a representation or warranty as described herein
under "THE POOLING AND SERVICING AGREEMENT--Representations and Warranties;
Repurchase" or purchased from the Trust Fund as described herein under "THE
POOLING AND SERVICING AGREEMENT--Optional Termination;"
(iv) the portion of Unscheduled Payments allocable to principal of
any Mortgage Loan that was liquidated during the related Collection Period;
(v) the principal component of all Balloon Payments
received during the related Collection Period;
(vi) all other Principal Prepayments received in the
related Collection Period; and
(vii) any other full or partial recoveries in respect of principal,
including Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds and
Net REO Proceeds.
The "Assumed Scheduled Payment" with respect to any Mortgage Loan that is
delinquent in respect of its Balloon Payment (including any REO Mortgage Loan as
to which the Balloon Payment would have been past due), is an amount equal to
the sum of (a) the principal portion of the Monthly Payment that would have been
due on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof, assuming such Balloon Payment had not become due,
after giving effect to any modification and (b) interest at the applicable Net
Mortgage Rate on the principal balance that would have remained after giving
effect to deemed principal payments pursuant to clause (a) hereof on prior Due
Dates.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date, holders of each Class of Certificates (other
than the Class LR Certificates) will receive distributions, up to the amount of
Available Funds, in the amounts and in the order of priority (the "Available
Funds Allocation") set forth below:
(i) First, to the Class A Certificates up to an amount equal to the
Class Interest Distribution Amount of such Class for such Distribution Date;
(ii) Second, to the Class A Certificates up to an amount equal to the
aggregate unpaid Class Interest Shortfalls previously allocated to such Class on
any previous Distribution Dates and not paid;
(iii) Third, to the Class A Certificates, in reduction of the
Certificate Balance thereof, the Pooled Principal Distribution Amount for such
Distribution Date, until the Certificate Balance thereof is reduced to zero;
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(iv) Fourth, to the Class A Certificates for the unreimbursed amounts
of Realized Losses, if any, together with simple interest thereon at a rate
equal to [_____]% per annum from the date on which such unreimbursed Realized
Loss was allocated (or the date on which interest was last paid) to, but not
including, the Distribution Date on which distributions in respect of such
unreimbursed Realized Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed Realized Losses previously
allocated to the Class A Certificates and interest thereon, provided that any
distribution pursuant to this subparagraph will be deemed to be distributed
first in respect of any such interest and then in respect of any such
unreimbursed Realized Loss;
(v) Fifth, to the Class B Certificates, up to an amount equal to the
Class Interest Distribution Amount of such Class for such Distribution Date;
(vi) Sixth, to the Class B Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls previously allocated to such Class on
any previous Distribution Dates and not paid;
(vii) Seventh, after the Certificate Balance of the Class A
Certificates has been reduced to zero, to the Class B Certificates, in reduction
of the Certificate Balance thereof, the Pooled Principal Distribution Amount for
such Distribution Date less the portion thereof distributed on such Distribution
Date pursuant to any preceding clause, until the Certificate Balance thereof is
reduced to zero;
(viii) Eighth, to the Class B Certificates, for the unreimbursed
amounts of Realized Losses, if any, together with simple interest thereon at a
rate equal to [____]% per annum from the date on which such unreimbursed
Realized Loss was allocated (or the date on which interest was last paid) to,
but not including, the Distribution Date on which distributions in respect of
such unreimbursed Realized Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed Realized Losses previously
allocated to the Class B Certificates and interest thereon, provided that any
distribution pursuant to this subparagraph will be deemed to be distributed
first in respect of any such interest and then in respect of any such
unreimbursed Realized Loss;
(ix) Ninth, to the Class C Certificates, up to an amount equal to the
Class Interest Distribution Amount of such Class for such Distribution Date;
(x) Tenth, to the Class C Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls previously allocated to such Class on
any previous Distribution Dates and not paid;
(xi) Eleventh, after the Certificate Balance of the Class B
Certificates has been reduced to zero, to the Class C Certificates, in reduction
of the Certificate Balance thereof, the Pooled Principal Distribution Amount for
such Distribution Date less the portion thereof distributed on such Distribution
Date pursuant to any preceding clause, until the Certificate Balance thereof is
reduced to zero;
(xii) Twelfth, to the Class C Certificates, for the unreimbursed
amounts of Realized Losses, if any, together with simple interest thereon at a
rate equal to [____]% per annum from the date on which such unreimbursed
Realized Loss was allocated (or the date on which interest was last paid) to,
but not including, the Distribution Date on which distributions in respect of
such unreimbursed Realized Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed Realized Losses previously
allocated to the Class C Certificates and interest thereon, provided that any
distribution pursuant to this subparagraph will be deemed to be distributed
first in respect of any such interest and then in respect of any such
unreimbursed Realized Loss;
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[If applicable, the following would be included in the above list
where appropriate based on such Classes' level of subordination.]
[[_____] [____________], to the Class [EC] Certificates, up to an
amount equal to the aggregate unpaid Class Interest Shortfalls previously
allocated to such class on any previous Distribution Dates and not paid;]
[[_____] [____________], to the Class [EC] Certificates up to an
amount equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;]
[[_____] [____________], to the Class [IO] Certificates, up to an
amount equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;]
[[_____] [____________], to the Class [IO] Certificates, up to an
amount equal to the aggregate unpaid Class Interest Shortfalls previously
allocated to such Class on any previous Distribution Dates and not paid;]
[[_____] [_____________], after the Certificate Balance of the Class
[____] Certificates has been reduced to zero, to the Class [PO] Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;]
[[______] [_____________], if such Distribution Date occurs after the
EC Maturity Date, to (i) the Class C Certificates, (ii) the Class B
Certificates, (iii) the Class A Certificates and (iv) the Class [PO]
Certificates, in that order, in reduction of the Certificate Balance of each
thereof, any remaining portion of Available Funds in the Distribution Account,
until the Certificate Balance of each has been reduced to zero;]
[[______] [_____________], to the Class [PO] Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to [_____]% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was last
paid) to, but not including, the Distribution Date on which distributions in
respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class [PO] Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph will be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss.]
On each Distribution Date, Available Funds remaining in the Distribution
Account following the distributions to the Certificates pursuant to the
Available Funds Allocation will be distributed to the Class R Certificates and
Available Funds remaining in the Collection Account will be distributed to the
Class LR Certificates.
[Distributions of Principal on the Class [__]-1 and Class [__]-2
Certificates. On each Distribution Date prior to the earlier of (i) the [Senior]
Principal Distribution Cross-Over Date and (ii) the final Distribution Date in
connection with the termination of the Trust Fund, all distributions of
principal to the Class [__]-1 Certificates and the Class [__]-2 Certificates
will be paid, first, to holders of the Class [__]-1 Certificates until the
Certificate Balance of such Certificates is reduced to zero, and thereafter, to
holders of
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the Class [__]-2 Certificates, until the Certificate Balance of such
Certificates is reduced to zero. On each Distribution Date on and after the
[Senior] Principal Distribution Cross-Over Date, and in any event on the final
Distribution Date in connection with the termination of the Trust Fund,
distributions of principal on the Class [__]-1 Certificates and the Class [__]-2
Certificates will be paid to holders of such two Classes of Certificates, pro
rata in accordance with their respective Certificate Balances outstanding
immediately prior to such Distribution Date, until the Certificate Balance of
each such Class of Certificates is reduced to zero.
The "[Senior] Principal Distribution Cross-Over Date" will be the first
Distribution Date as of which the aggregate Certificate Balance of the Class
[__]-1 Certificates and Class [__]-2 Certificates outstanding immediately prior
thereto exceeds the sum of (i) the aggregate Scheduled Principal Balance of the
Mortgage Loans that will be outstanding immediately following such Distribution
Date and (ii) the portion of the Available Distribution Amount for such
Distribution Date that will remain after the distribution of interest to be made
on the Class [__]-1 and Class [__]-2 Certificates on such Distribution Date has
been made.]
Prepayment Premiums. Each Mortgage Loan generally provides that a
prepayment be accompanied by the payment of a Prepayment Premium for all or a
portion of the period during which such prepayments are permitted. [On each
Distribution Date up to and including the EC Maturity Date, Prepayment Premiums
with respect to any Unscheduled Payments received on Yield Maintenance Loans in
the related Collection Period, if such Collection Period occurred during the
Yield Maintenance Period for such Yield Maintenance Loan, will be distributed to
the holders of the Certificates outstanding on such Distribution Date, in the
following amounts and order of priority:
(i) First, to the Class of Certificates which is entitled to
distributions in respect of principal on such Distribution Date (other than
pursuant to clause [______________] of the Available Funds Allocation), an
amount equal to the excess of (A) the present value (discounted at the Discount
Rate) of the principal and interest distributions that would have been paid in
respect of such Class of Certificates from the Distribution Date occurring in
the following month until the Certificate Balance of such Class of Certificates
would have been reduced to zero had the related prepayment not occurred (and
assuming no other prepayments were made and no delinquencies or defaults occur),
less (B) the present value (discounted at the Discount Rate) of the principal
and interest distributions that will be paid in respect of such Class of
Certificates from the Distribution Date occurring in the following month until
the Certificate Balance of such Class of Certificates is reduced to zero
following such prepayment (assuming no further prepayments are made and no
delinquencies or defaults occur) less (C) the amount of such prepayment;
provided that if more than one Class of Certificates is entitled to
distributions in respect of principal on such Distribution Date (other than
pursuant to clause [_____________] of the Available Funds Allocation), the
amount set forth herein will be calculated for each such Class, and the amount
of Prepayment Premiums will be allocated among such Classes, pro rata in
accordance with the amounts so calculated, up to an amount equal to the sum of
such amounts so calculated; and
(ii) Second, any remaining Prepayment Premiums following the
distribution in clause First above, to the Class [EC] Certificates.
With respect to each Distribution Date up to and including the EC Maturity
Date, any Prepayment Premiums received with respect to any of the Mortgage Loans
that are not Yield Maintenance Loans and any Prepayment Premiums received with
respect to the Yield Maintenance Loans after the related Yield Maintenance
Periods will be allocated solely to the Class [EC] Certificates.] The amount of
any Prepayment Premiums with respect to any Unscheduled Payments received in any
Collection Period [subsequent to the Collection Period related to the [EC]
Maturity Date] will be distributed as Available Funds pursuant to the Available
Funds Allocation.
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A "Yield Maintenance Loan" is any Mortgage Loan as to which the related
Note requires the payment of Prepayment Premiums calculated with reference to a
yield maintenance formula.
The "Yield Maintenance Period" with respect to each Yield Maintenance Loan
is the period following its origination during which the related Note requires
the payment of Prepayment Premiums calculated with reference to a yield
maintenance formula.
[The "Discount Rate" is the rate determined by the Trustee to be the rate
interpolated and rounded to the nearest one-thousandth of a percent, if
necessary, in the secondary market on the United States Treasury security with a
maturity equal to the then computed weighted average life of the related Class
of Certificates (rounded to the nearest month) (without taking into account the
related prepayment and assuming (i) no further prepayments on the Mortgage Loans
and (ii) no delinquencies or defaults with respect to payments on Mortgage
Loans) plus [_____]% per annum.]
Notwithstanding the foregoing, Prepayment Premiums will be distributed on
any Distribution Date only to the extent they are received in respect of the
Mortgage Loans in the related Collection Period.
Realized Losses. The Certificate Balance of the Certificates will be
reduced without distribution on any Distribution Date as a write-off to the
extent of any Realized Loss with respect to such Distribution Date. As referred
to herein, the "Realized Loss" with respect to any Distribution Date will mean
the amount, if any, by which (i) the Aggregate Certificate Balance of the
Certificates after giving effect to distributions made on such Distribution Date
exceeds (ii) the aggregate Scheduled Principal Balance of the Mortgage Loans as
of the Due Date in the month in which such Distribution Date occurs. Any such
write-offs will be applied to the Classes of Certificates in the following
order, until each is reduced to zero: first, to the Class C Certificates,
second, to the Class B Certificates and third, to the Class A Certificates.
[Insert Class [PO] Certificates where appropriate.] Any amounts recovered in
respect of any amounts previously written off as Realized Losses will be
distributed to the Classes of Certificates in reverse order of allocation of
Realized Losses thereto. [Realized Losses allocated to the Class [PO]
Certificates will reduce the Class [IO] Notional Balance.] [Realized Losses
allocated to any Class of Certificates will reduce the Class [EC] Notional
Balance.] Shortfalls in Available Funds resulting from additional servicing
compensation (including interest on Advances not covered by Default Interest,
extraordinary expenses of the Trust Fund or otherwise) will be allocated in the
same manner as Realized Losses.
The "Scheduled Principal Balance" of any Mortgage Loan as of any Due Date
will be the principal balance of such Mortgage Loan as of such Due Date, after
giving effect to (i) any Principal Prepayments, non- premium prepayments or
other unscheduled recoveries of principal and any Balloon Payments received
during the related Collection Period and (ii) any payment in respect of
principal, if any, due on or before such Due Date (other than a Balloon Payment,
but including the principal portion of any Assumed Scheduled Payment, if
applicable), irrespective of any delinquency in payment by the borrower. The
Scheduled Principal Balance of any REO Mortgage Loan is equal to the principal
balance thereof outstanding on the date that the related Mortgaged Property
became an REO Property minus any Net REO Proceeds allocated to principal on such
REO Mortgage Loan and reduced by Monthly Payments due thereon on or before such
Due Date. With respect to any Mortgage Loan, from and after the date on which
the Master Servicer makes a determination that it has recovered all amounts that
it reasonably expects to be finally recoverable (a "Final Recovery
Determination"), the Scheduled Principal Balance thereof will be zero.
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Subordination[; Credit Enhancement]
As a means of providing a certain amount of protection to the holders of
the Class A Certificates against losses associated with delinquent and defaulted
Mortgage Loans, the rights of the holders of the Class B Certificates to receive
distributions of interest and principal, as applicable, will be subordinated to
such rights of the holders of the Class A Certificates. Each Class of the
Regular Certificates with a lower class designation will likewise be protected
by the subordination of all Classes of Certificates with yet lower Class
designations. This subordination will be effected in two ways: (i) by the
preferential right of the holders of a Class of Certificates to receive on any
Distribution Date the amounts of interest and principal, as applicable,
distributable in respect of such Class of Certificates on such date prior to any
distribution being made on such Distribution Date in respect of any Classes of
Certificates subordinate thereto and (ii) by the allocation of Realized Losses,
first, to the Class C Certificates, second, to the Class B Certificates and,
finally, to the Class A Certificates, in each case in reduction of the
Certificate Balance of such Class until the Certificate Balance thereof is
reduced to zero. [Insert Class [EC] Certificates, [IO] Certificates and Class
[PO] Certificates where appropriate.]
[No other form of credit enhancement will be available for the benefit of
the holders of the Offered Certificates.] [Describe any other form of credit
enhancement.]
Additional Rights of the Residual Certificates
The Class R Certificates and Class LR Certificates will remain outstanding
for as long as the Trust Fund exists. Holders of the Class R Certificates and
Class LR Certificates are not entitled to distributions in respect of principal,
interest or Prepayment Premiums. Holders of the Class R Certificates and Class
LR Certificates are not expected to receive any distributions until after the
Class Balances of all other Classes of Certificates have been reduced to zero
and only to the extent of any Available Funds remaining in the Distribution
Account and Collection Account, respectively, on any Distribution Date and any
remaining assets of the Upper-Tier REMIC and the Lower-Tier REMIC, respectively,
if any, on the final Distribution Date for the Certificates, after distributions
in respect of any accrued but unpaid interest on the Certificates and after
distributions in reduction of principal balance have reduced the principal
balances of the Certificates to zero.
[A holder of a greater than [ ]% Percentage Interest of the Class LR
Certificates may, under certain circumstances, purchase the remaining assets of
the Trust Fund, thereby effecting the termination of the Trust REMICs. See "THE
POOLING AND SERVICING AGREEMENT-- Optional Termination" herein.]
Delivery, Form and Denomination
[Book-Entry Certificates. No Person acquiring a Class [ ] or Class [ ]
Certificate (each such Certificate, a "Book-Entry Certificate") will be entitled
to receive a physical certificate representing such Certificate, except under
the limited circumstances described below. Absent such circumstances, the Book-
Entry Certificates will be registered in the name of a nominee of DTC and
beneficial interests therein will be held by investors ("Beneficial Owners")
through the book-entry facilities of DTC, as described herein, in denominations
of [$100,000] initial Certificate Balance [or Notional Balance] and integral
multiples of [$1,000] in excess thereof, except one certificate of each such
Class may be issued that represents a different initial Certificate Balance [or
Notional Balance] to accommodate the remainder of the initial Certificate
Balance [or Notional Balance] of such Class. The Depositor has been informed by
DTC that its nominee will
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be Cede & Co. Accordingly, Cede & Co. is expected to be the holder
of record of the Book-Entry Certificates.
No Beneficial Owner of a Book-Entry Certificate will be entitled to
receive a definitive Certificate (a "Definitive Certificate") representing such
person's interest in the Book-Entry Certificates, except as set forth below.
Unless and until Definitive Certificates are issued to Beneficial Owners in
respect of the Book- Entry Certificates under the limited circumstances
described herein, all references to actions taken by Certificateholders or
holders will, in the case of the Book-Entry Certificates, refer to actions taken
by DTC upon instructions from its participants, and all references herein to
distributions, notices, reports and statements to Certificateholders or holders
will, in the case of the Book-Entry Certificates, refer to distributions,
notices, reports and statements to DTC or Cede & Co., as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures. The
Trustee, the Master Servicer, the Special Servicer, [the Fiscal Agent] and the
Certificate Registrar may for all purposes, including the making of payments due
on the Book-Entry Certificates, deal with DTC as the authorized representative
of the Beneficial Owners with respect to such Certificates for the purposes of
exercising the rights of Certificateholders under the Pooling and Servicing
Agreement.
The Depository Trust Company. 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 New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions among
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to banks,
brokers, dealers, trust companies and other institutions that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rights of Beneficial Owners with
respect to the Book-Entry Certificates will be limited to those established by
law and agreements between such Beneficial Owners and the Participants and
Indirect Participants representing such Beneficial Owners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among Participants on whose behalf it acts with respect
to 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.
Beneficial Owners 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. All transfers by Beneficial Owners of their respective ownership
interests in the Book-Entry Certificates will be made in accordance with the
procedures established by the Participant or brokerage firm representing each
such Beneficial Owner. Each Participant will only transfer the ownership
interests in the Book-Entry Certificates of Beneficial Owners it represents or
of brokerage firms for which it acts as agent in accordance with DTC's normal
procedures. Neither the Certificate Registrar nor the Trustee will have any
responsibility to monitor or restrict the transfer of ownership interests in
Book-Entry Certificates through the book-entry facilities of DTC.
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<PAGE>
In addition, Beneficial Owners will receive all distributions of
principal, interest and other sums through Participants. DTC will forward such
distributions to its Participants, which thereafter will forward them to
Indirect Participants or Beneficial Owners. Beneficial Owners will not be
recognized as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, by the Trustee or any paying agent (each, a "Paying Agent")
appointed by the Trustee. Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its Participants.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to lack of a definitive Certificate
for such Book-Entry Certificates. In addition, under a book-entry format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Trustee or a Paying Agent on behalf of the
Trustee to Cede & Co., as nominee for DTC.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the
Depositor that, in the case of actions requiring the direction of the holders of
specified Percentage Interests or Voting Rights of the Certificates, it will
take such actions only at the direction of and on behalf of Participants whose
holdings of Book-Entry Certificates evidence such specified Percentage Interests
or Voting Rights. DTC may take conflicting actions with respect to Percentage
Interests or Voting Rights to the extent that Participants whose holdings of
Book-Entry Certificates evidence such Percentage Interests or Voting Rights
authorize divergent action.
Neither the Depositor, the Trustee, the Master Servicer, the Special
Servicer, [the Fiscal Agent,] nor any Paying Agent will have any responsibility
for any aspect of the records relating to, or payments made on account of,
beneficial ownership interests of the Book-Entry Certificates registered in the
name of Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests. In the
event of the insolvency of DTC, a Participant or an Indirect Participant in
whose name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment may be impaired.
In addition, in such event, if the limits of applicable insurance coverage by
the Securities Investor Protection Corporation are exceeded or if such coverage
is otherwise unavailable, ultimate payment of amounts distributable with respect
to such Book-Entry Certificates may be impaired.]
[Physical Certificates.] The Class [ ], Class R and Class LR Certificates
will be issued in fully registered certificated form only. The Class [ ]
Certificates will be issued in denominations of [$100,000] initial Certificate
Balance [or Notional Balance, as applicable,] and integral multiples of [$1,000]
in excess thereof [(or [$1] in excess thereof with respect to the Class [ ]
Certificates)], except one Certificate of each such Class may be issued that
represents a different initial Certificate Balance [or Notional Balance] to
accommodate the remainder of the initial Certificate Balance [or Notional
Balance]. The Residual Certificates will be issued in definitive, physical,
registered form in Percentage Interests of [_____]% and integral multiples of a
[_____]% Percentage Interest in excess thereof.
[Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i)(A) the Depositor advises the Certificate Registrar in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to any Class of the Book-Entry
Certificates and (B) the Depositor is unable to locate
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<PAGE>
a qualified successor or (ii) the Depositor, at its option, advises the
Certificate Registrar that it elects to terminate the book-entry system through
DTC with respect to any Class of the Book-Entry Certificates.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Registrar will be required to notify all affected
Beneficial Owners through DTC of the availability of Definitive Certificates.
Upon surrender by DTC of the physical certificates representing the affected
Book-Entry Certificates and receipt of instructions for re-registration, the
Certificate Registrar will reissue the Book-Entry Certificates as Definitive
Certificates to the Beneficial Owners. Upon the issuance of Definitive
Certificates for purposes of evidencing ownership of the Class [_____], Class
[_____] or Class [_____] Certificates, the registered holders of such Definitive
Certificates will be recognized as Certificateholders under the Pooling and
Servicing Agreement and, accordingly, will be entitled directly to receive
payments on, and exercise Voting Rights with respect to, and to transfer and
exchange such Definitive Certificates.]
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar in accordance with the terms
of the Pooling and Servicing Agreement.
Registration and Transfer
Subject to the restrictions on transfer and exchange set forth in the
Pooling and Servicing Agreement, the holder of any Definitive Certificate may
transfer or exchange the same in whole or part (in a principal amount equal to
the minimum authorized denomination or any integral multiple thereof) by
surrendering such Definitive Certificate at the corporate trust office of the
certificate registrar appointed pursuant to the Pooling and Servicing Agreement
(the "Certificate Registrar") or at the office of any transfer agent, together
with an executed instrument of assignment and transfer in the case of transfer
and a written request for exchange in the case of exchange. In exchange for any
Definitive Certificate properly presented for transfer or exchange with all
necessary accompanying documentation, the Certificate Registrar will, within
[_____] Business Days of such request if made at the corporate trust office of
the Certificate Registrar, or within [_____] Business Days if made at the office
of a transfer agent (other than the Certificate Registrar), execute and deliver
at such corporate trust office or the office of the transfer agent, as the case
may be, to the transferee (in the case of transfer) or holder (in the case of
exchange) or send by first class mail at the risk of the transferee (in the case
of transfer) or holder (in the case of exchange) to such address as the
transferee or holder, as applicable, may request, a Definitive Certificate or
Definitive Certificates, as the case may require, for a like aggregate
Certificate Balance [or Notional Balance, as applicable,] and in such authorized
denomination or denominations as may be requested. The presentation for transfer
or exchange of any Definitive Certificate will not be valid unless made at the
corporate trust office of the Certificate Registrar or at the office of a
transfer agent by the registered holder in person, or by a duly authorized
attorney-in-fact. The Certificate Registrar may decline to accept any request
for an exchange or registration of transfer of any Definitive Certificate during
the period of [15] days preceding any Distribution Date.
No fee or service charge will be imposed by the Certificate Registrar for
its services in respect of any registration of transfer or exchange referred to
herein [; provided, however, that in connection with the transfer of Private
Certificates to certain institutional accredited investors, the Certificate
Registrar will be entitled to be reimbursed by the transferor for any costs
incurred in connection with such transfer]. The Certificate Registrar may
require payment by each transferor of a sum sufficient to pay any tax, expense
or other governmental charge payable in connection with any such transfer.
For a discussion of certain transfer restrictions, see "ERISA
CONSIDERATIONS" herein.
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<PAGE>
YIELD CONSIDERATIONS
Regular Certificates
General. The yield on any Regular Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Regular Certificate will in turn depend on, among other
things, (i) the rate and timing of principal payments (including voluntary
prepayments, involuntary prepayments resulting from defaults and liquidations or
other dispositions of the Mortgage Loans and Mortgaged Properties or the
application of insurance or condemnation proceeds and/or the purchase of the
Mortgage Loans as described under "THE POOLING AND SERVICING
AGREEMENT--Representations and Warranties; Repurchase," "--Optional Termination"
[and "--Auction"]) and the extent to which such amounts are to be applied in
reduction of the Certificate Balance [(or Notional Balance)] of the Class of
Certificates to which such Certificate belongs, (ii) the rate, timing and
severity of Realized Losses on the Mortgage Loans and the extent to which such
losses are allocable in reduction of the Certificate Balances [(or Notional
Balance)] of the Class of Certificates to which such Certificate belongs [and
(iii) with respect to the Class [EC], Class [ ] and Class [IO] Certificates, the
Weighted Average Net Mortgage Rate as in effect from time to time].
[Disproportionate principal payments (whether resulting from differences in
amortization schedules, prepayments or otherwise) on Mortgage Loans having Net
Mortgage Rates that are higher or lower than the current Weighted Average Net
Mortgage Rate will affect the yield on the Class [EC] Certificates. Such
disproportionate principal payments will also affect the Pass-Through Rates of
the Class [ ] and Class [IO] Certificates and therefore the yield on each such
Class.] [Furthermore, following the EC Maturity Date, increases or decreases in
the Weighted Average Net Mortgage Rate will increase or decrease the rate of
distributions in reduction of Certificate Balances of certain Classes of
Certificates entitled to receive distributions pursuant to priority [ ] of the
Available Funds Allocation.]
Rate and Timing of Principal Payments. The yield to holders of the Regular
Certificates purchased at a discount or premium will be affected by the rate and
timing of principal payments made in reduction of the Certificate Balance of
such Certificates. As described herein, the Pooled Principal Distribution Amount
for each Distribution Date will be distributable in its entirety in respect of
the Class A Certificates until the Certificate Balance thereof is reduced to
zero, and will thereafter be distributable in its entirety to each remaining
Class of Regular Certificates, sequentially in order of Class designation, in
each case until the Certificate Balance of each such Class of Certificates is,
in turn, reduced to zero. Consequently, the rate and timing of principal
payments made in reduction of the Certificate Balance of the Regular
Certificates will be directly related to the rate and timing of principal
payments on or in respect of the Mortgage Loans, which will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including, for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties or purchases of Mortgage Loans out of the
Trust Fund in the manner described under "THE POOLING AND SERVICING
AGREEMENT--Representations and Warranties; Repurchase," "--Optional Termination"
[and "--Auction"] herein. Prepayments and, assuming the respective stated
maturity dates therefor have not occurred, liquidations and purchases of the
Mortgage Loans will result in distributions on the Regular Certificates [(other
than the Class [EC] and Class [IO] Certificates)] of amounts that would
otherwise have been distributed over the remaining terms of the Mortgage Loans.
Defaults on the Mortgage Loans, particularly at or near their stated maturity
dates, may result in significant delays in payments of principal on the Mortgage
Loans and, accordingly, on the Regular Certificates while work-outs are
negotiated, foreclosures are completed or bankruptcy proceedings are resolved.
In addition, the Special Servicer has the option to extend the maturity of
Mortgage Loans following a default in the payment of a Balloon Payment. See "THE
POOLING AND SERVICING
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<PAGE>
AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments" and
"--Realization Upon Mortgage Loans" herein and "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Regular
Certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed in reduction
of the Certificate Balance of such Certificates. An investor should consider, in
the case of any Regular Certificate purchased at a discount, [especially the
Class [PO] Certificates,] the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
Regular Certificate purchased at a premium [(or the Class [EC] and Class [IO]
Certificates, which have no Certificate Balances)], the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. In general, the earlier a
payment of principal on the Mortgage Loans is distributed in reduction of the
Certificate Balance of any Regular Certificate purchased at a discount or
premium [(or, in the case of the Class [EC] and Class [IO] Certificates, applied
in reduction of the Notional Balance)], the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments on the Mortgage Loans occurring at a rate higher (or lower)
than the rate anticipated by the investor during any particular period would not
be fully offset by a subsequent like reduction (or increase) in the rate of such
principal prepayments. Because the rate of principal payments on the Mortgage
Loans will depend on future events and a variety of factors (as described more
fully below), no assurance can be given as to such rate or the rate of Principal
Prepayments in particular. The Depositor is not aware of any relevant publicly
available or authoritative statistics with respect to the historical prepayment
experience of a large group of commercial and/or multifamily loans comparable to
the Mortgage Loans.
[The amounts payable with respect to the Class [PO] Certificates derive
only from principal payments on the Mortgage Loans. As a result, the yield on
the Class [PO] Certificates will be adversely affected by slower than expected
payments of principal (including prepayments, defaults and liquidations) on the
Mortgage Loans.]
Balloon Payments. [Most] of the Mortgage Loans are Balloon Loans that will
have substantial payments (that is, Balloon Payments) due at their stated
maturities, unless previously prepaid. If any borrower with respect to any of
such Balloon Loans is unable to make the applicable Balloon Payment when due,
the average life of the Certificates will be longer than expected. With
particular reference to the Class A Certificates, the [ ] Mortgage Loans listed
below have a maturity date within the next [ ] years, with a Balloon Payment
required on each such maturity date. If the Balloon Payments with respect to
each of these Mortgage Loans are not paid by each of the related borrowers as
scheduled, the average life of the Class A Certificates could be especially
affected.
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<PAGE>
<TABLE>
<CAPTION>
Cut-off
Date Appraisal
Principal Balloon Property Appraised Balloon Original
Loan # Property Balance Balance Type LTV LTV Maturity
Name
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Losses and Shortfalls. The yield to holders of the Regular Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Shortfalls in
collections of amounts payable on the Mortgage Loans (to the extent not
advanced) will generally be borne: first, by the holders of the Class C
Certificates, to the extent of amounts otherwise distributable thereto; second,
by the holders of the Class B Certificates, to the extent of amounts otherwise
distributable thereto; and, last, by the holders of the Class A Certificates.
[Insert Class [PO] Certificates in the appropriate place, if applicable.]
Realized Losses will be allocated, as and to the extent described herein, to the
Classes of Certificates (in reduction of the Certificate Balance of each such
Class) in reverse order of their class designation.
Certain Relevant Factors. The Mortgage Loans are not insured or guaranteed
in whole or in part by any governmental agency or any other person or entity. In
addition, [ ] of the Mortgage Loans are non- recourse loans. If the markets for
commercial and multifamily real estate should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans exceed
the value of the respective Mortgaged Properties, actual losses may be higher
than those originally anticipated by investors. As otherwise described herein,
most of the Mortgage Loans, by number and by Cut-off Date Principal Balance, are
Balloon Loans. The ability of the borrowers to pay the Balloon Payment at the
maturity of the Balloon Loans will depend on their ability to sell or refinance
the Mortgaged Properties, which, in turn, depends on a number of factors, many
of which are beyond the control of such borrowers. Such factors include the
level of interest rates and general economic conditions at the time of sale or
refinancing and changes in federal, state or local laws, including tax laws,
environmental laws and safety standards. The Certificates are subject to the
risk of default by the borrowers in making the required Balloon Payments.
The rate and timing of principal payments and defaults and the severity of
losses on the Mortgage Loans may be affected by a number of factors, including,
without limitation, prevailing interest rates, the terms of the Mortgage Loans
(for example, the provisions requiring the payment of Prepayment Premiums and
amortization terms that require Balloon Payments), the demographics and relative
economic vitality of the areas in which the Mortgaged Properties are located,
the general supply and demand for such facilities (and their uses) in such
areas, the quality of management of Mortgaged Properties, the servicing of the
Mortgage Loans, possible changes in tax laws and other opportunities for
investment.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When prevailing market interest rates are below a mortgage note
rate, a borrower may have an increased incentive to refinance its Mortgage Loan.
In addition, as prevailing market interest rates decline, the related borrowers
may have an increased incentive to refinance for purposes of either (i)
converting to another fixed rate loan with a lower interest rate and thereby
"locking in" such rate or (ii) taking advantage of an initial "teaser rate" on
an adjustable rate mortgage loan (that is, a mortgage interest rate below that
which would otherwise apply if the applicable index and gross margin were
applied). [ All] of the Mortgage Loans require that prepayments be accompanied
by the payment
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<PAGE>
of a Prepayment Premium, at least for a specified period following the
origination thereof. See Annex B and "DESCRIPTION OF THE MORTGAGE POOL--Certain
Terms and Conditions of the Mortgage Loans" herein. A requirement that a
prepayment be accompanied by a Prepayment Premium may not provide a sufficient
economic disincentive to a borrower seeking to refinance at a more favorable
interest rate. In addition, in certain jurisdictions such a requirement may be
unenforceable. See "RISK FACTORS--Prepayment and Yield Considerations" herein
and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Enforceability of Certain
Provisions" in the Prospectus.
Depending on prevailing market rates of interest, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
Neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the particular factors that will affect the rate and timing
of prepayments and defaults on the Mortgage Loans, as to the relative importance
of such factors, as to the percentage of the principal balance of the Mortgage
Loans that will be prepaid or as to which a default will have occurred as of any
date or as to the overall rate of prepayment, default or principal payment on
the Mortgage Loans.
[Pass-Through Rate. The Pass-Through Rates on the Class [ ] and Class [ ]
Certificates are related to the Weighted Average Net Mortgage Rate, the
Pass-Through Rate on the Class [IO] Certificates is equal to the Weighted
Average Net Mortgage Rate and the Class [EC] Pass-Through Rate, used to
calculate interest distributable on the Class [EC] Certificates prior to the EC
Maturity Date, is derived with reference to the Weighted Average Net Mortgage
Rate. The Weighted Average Net Mortgage Rate will fluctuate over the lives of
the Certificates as a result of scheduled amortization, voluntary prepayments
and liquidations of Mortgage Loans and modifications to the Mortgage Rate
applicable to any Mortgage Loan. If principal payments, including voluntary and
involuntary principal prepayments, are made on a Mortgage Loan with a relatively
high Net Mortgage Rate at a rate faster than the rate of principal payments on
the Mortgage Pool as a whole, the Pass-Through Rates applicable to the Class
[EC], Class [ ], Class [ ] and Class [IO] Certificates will be adversely
affected. Accordingly, the yield on each such Class of Certificates will be
sensitive to changes in the outstanding principal balances of the Mortgage Loans
as a result of scheduled amortization, voluntary prepayments and liquidations of
Mortgage Loans. The Pass-Through Rate on each of the Class [ ], Class [ ] and
Class [IO] Certificates is equal to the greater of (i) the Weighted Average Net
Mortgage Rate and (ii) [ ]%. If the Weighted Average Net Mortgage Rate were to
fall below [ ]%, the Pass-Through Rate on the Class [ ] and Class [ ]
Certificates would be [ ]%, and there will not be sufficient cash flow to make
all interest payments due on each of such Classes and the Class [IO]
Certificates. Any such interest shortfall would affect the Class [IO]
Certificates prior to affecting the Class [ ] Certificates and would affect the
Class [ ] Certificates prior to affecting the Class [ ] Certificates. See
"DESCRIPTION OF THE CERTIFICATES --Distributions" herein. For a description of
the interest rates applicable to the Mortgage Loans see "DESCRIPTION OF THE
MORTGAGE POOL--Certain Characteristics of the Mortgage Pool--Range of Mortgage
Rates" herein.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until, at the earliest, the [ ] day of the month
following the month in which interest accrued on the Certificates, the effective
yield to the holders of the Regular Certificates will be lower than the yield
that would otherwise be produced by the applicable Pass-Through Rate and
purchase prices (assuming such prices did not account for such delay).
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<PAGE>
Interest Shortfalls. As described under "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein, if the portion of the Available Funds
distributable in respect of interest on any Class of Regular Certificates on any
Distribution Date is less than the amount of interest required to be paid to the
holders of such Class, the shortfall will be distributable to holders of such
Class of Certificates on subsequent Distribution Dates, to the extent of
Available Funds on such Distribution Dates. Any such shortfall will not bear
interest, however, and will therefore negatively affect the yield to maturity of
such Class of Certificates for so long as it is outstanding.
Weighted Average Life of the Regular Certificates
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution to the
investor of each dollar distributed in reduction of principal balance [or
notional balance] of such security. The weighted average life of the Regular
Certificates will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, Balloon Payments, prepayments or liquidations.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant rate of
prepayment each month, expressed as an annual rate, relative to the then
outstanding principal balance of a pool of mortgage loans for the life of such
mortgage loans. CPR of "O%" assumes that none of the Mortgage Loans is prepaid
by a borrower before maturity, while CPRs "0.5%," "1.5%," "4.2%," "5.0%" and
"15.0%" assume that prepayments on the relevant Mortgage Loans are made by
borrowers at those CPRs. CPR does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any mortgage loans,
including the Mortgage Loans to be included in the Trust Fund.
The tables set forth below have been prepared on the basis of certain
assumptions as described below regarding the characteristics of the Mortgage
Loans that are expected to be included in the Mortgage Pool as described under
"DESCRIPTION OF THE MORTGAGE POOL" herein and the performance thereof. The
tables assume, among other things, that: (i) as of the date of issuance of the
Regular Certificates, the Mortgage Loans provide for a Monthly Payment of
principal and interest that would fully amortize the remaining principal balance
of such Mortgage Loan using the Monthly Payments in the amounts set forth in
Annex A hereto, commencing on the first day of the month immediately following
the month in which such issuance occurs, with, if such Mortgage Loan is a
Balloon Loan, the Monthly Payments in the amounts set forth in Annex A hereto
and a principal payment in the amount that would reduce the principal balance of
such Balloon Loan to zero on the maturity date set forth in Annex A; (ii) the
Mortgage Loan Seller will not repurchase any Mortgage Loan and none of the
[Master Servicer,] [the Special Servicer,] [the Depositor] or [the holders of
the Class LR Certificates] exercises its option to purchase Mortgage Loans and
thereby cause a termination of the Trust Fund; (iii) there are no delinquencies
or Realized Losses on the Mortgage Loans; (iv) no Prepayment Premiums are paid
with respect to any Mortgage Loan; (v) payments on the Certificates will be made
on the [ ] day of each month, commencing on [ ] (notwithstanding that any such
day is not a Business Day); (vi) there are no additional ongoing Trust Fund
expenses payable out of the Trust Fund other than the Servicing Fee; and (vii)
the Regular Certificates will be purchased on [_____________].
The actual performance of the Mortgage Loans will differ from the
assumptions used in calculating the tables set forth below, which are
hypothetical in nature and are provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. Any
difference between such assumptions and the actual performance of the Mortgage
Loans, or actual prepayment or loss experience, will
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<PAGE>
affect the percentages of initial Certificate Balance outstanding over time and
the weighted average lives of the Classes of Regular Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each Class of Regular Certificates, and
set forth the percentages of the initial Certificate Balance [or Notional
Balance] of each such Class of Regular Certificates that would be outstanding
after each of the Distribution Dates shown based on the assumptions described
above and the following additional assumptions for each of the designated
scenarios (the "Scenarios"). In the case of Scenario 1, it was assumed that none
of the Mortgage Loans prepay prior to their maturity date. In the case of
Scenario 2, it was assumed that all the Mortgage Loans prepay at a rate equal to
0% CPR for the [ ] months beginning on the Due Date in [____________________],
then at a rate equal to 0.5% CPR for the [ ] months beginning on the Due Date in
[ ], then at a rate equal to 1.5% CPR for the [ ] months beginning on the Due
Date in [ ], then at a rate equal to 4.2% CPR for the [ ] months beginning on
the Due Date in [ ], then at a rate equal to 5.0% CPR for the [ ] months
beginning on the Due Date in [ ] and finally at a rate equal to 15.0% CPR for
the period beginning on the Due Date in [ ]. [In the case of Scenario 3, the
prepayment assumptions set forth in Scenario 2 were assumed and it was further
assumed that the Trust Fund will be terminated pursuant to an auction on the
Distribution Date occurring in [ ]. See "THE POOLING AND SERVICING
AGREEMENT--Auction" herein.]
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<PAGE>
Percentage of Initial Certificate Balance
Outstanding for
Each Designated Scenario
CLASS A CLASS B CLASS C
SCENARIO SCENARIO SCENARIO
DISTRIBUTION 1 2 3 1 2 3 1 2 3
- ------------- - - - - - - - - -
DATE
Initial
Percentage
Weighted
Average Life 1
- -----------------------
1The weighted average life of each Class is determined by (i) multiplying the
amount of each distribution in reduction of the Certificate Balance of such
Class by the number of years from the date of purchase to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
aggregate distributions in reduction of Certificate Balance referred to in
clause (i).
[Based on the assumptions described in the third paragraph preceding the
above tables, (i) the weighted average life of the Class [EC] Certificates under
the assumptions described above as Scenario 1 would be [ ] years, (ii) the
weighted average life of the Class [EC] Certificates under the assumptions
described above as Scenario 2 would be [ ] years and (iii) the weighted average
life of the Class [EC] Certificates under the assumptions described above as
Scenario 3 would be [ ] years. The weighted average lives of each such Class set
forth above are determined by (a) multiplying the amount of each distribution
that reduces the Class [EC] Notional Balance by the number of years from the
date of purchase to the related Distribution Date, (b) adding the results and
(c) dividing the sum by the aggregate distributions in reduction of the Notional
Balance referred to in clause (a).]
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<PAGE>
Mortgage Defaults
Effect on Subordinate Certificates. The aggregate amount of distributions
on the Subordinate Certificates offered hereby, the yield to maturity of such
Subordinate Certificates, the rate of principal payments on such Subordinate
Certificates and the weighted average life of such Subordinate Certificates will
be affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. If a purchaser of a Subordinate Certificate of any Class
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 be negative. The timing of any loss on a
liquidated Mortgage Loan will also affect the actual yield to maturity of the
Subordinate 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.
The yield to investors in the Subordinate Certificates will be very
sensitive to the timing and magnitude of losses on the Mortgage Loans due to
liquidations following a default, and will also be very sensitive to
delinquencies in payment. MOREOVER, BECAUSE THE SUBORDINATE CERTIFICATES ARE
SUBORDINATED TO THE SENIOR CERTIFICATES, REALIZED LOSSES WILL BE ALLOCATED FIRST
TO THE CLASS C CERTIFICATES, UNTIL THE CERTIFICATE BALANCE THEREOF IS REDUCED TO
ZERO, SECOND TO THE CLASS B CERTIFICATES, UNTIL THE CERTIFICATE BALANCE THEREOF
IS REDUCED TO ZERO AND THIRD TO THE CLASS A CERTIFICATES, UNTIL THE CERTIFICATE
BALANCE THEREOF IS REDUCED TO ZERO. AS A RESULT, A LOSS ON ANY ONE OF THE
MORTGAGE LOANS COULD RESULT IN A SIGNIFICANT LOSS, OR IN SOME CASES A COMPLETE
LOSS, OF AN INVESTOR'S INVESTMENT IN ANY CLASS OF THE SUBORDINATE CERTIFICATES.
CONSEQUENTLY PROSPECTIVE INVESTORS SHOULD PERFORM THEIR OWN ANALYSIS OF THE
EXPECTED TIMING AND SEVERITY OF REALIZED LOSSES PRIOR TO INVESTING IN ANY
SUBORDINATE CERTIFICATE. [Describe subordination provisions of Class [EC], Class
[IO] and Class [PO] Certificates, if applicable.]
As described under "THE POOLING AND SERVICING AGREEMENT--Advances" herein,
(i) the Master Servicer, the Trustee [and the Fiscal Agent] will be entitled to
receive interest on unreimbursed Advances at the Advance Rate and (ii) and the
Special Servicer will be entitled to receive servicing compensation for
Specially Serviced Mortgage Loans and REO Mortgage Loans as described herein
under "THE POOLING AND SERVICING AGREEMENT--Special Servicing." The Master
Servicer's and the Special Servicer's rights to receive such payment of interest
and compensation are prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, may result in losses being
allocated to the Subordinate Certificates that would not otherwise have resulted
absent the accrual of such interest or such additional compensation.
Even if losses on the Mortgage Loans are not borne by an investor in any
Class, such losses may affect the weighted average life and yield to maturity of
such investor's Certificates.
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 Subordinate 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. With respect to any Distribution Date, P&I
Advances will only be made with respect
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to any Seriously Delinquent Loan if and to the extent that Available Funds for
such Distribution Date (exclusive of any P&I Advance with respect to any
Seriously Delinquent Loan) are not sufficient to make full distributions in
accordance with the Available Funds Allocation to each Class of Certificates
whose Certificate Balance would not be reduced by Anticipated Losses with
respect to all Seriously Delinquent Loans. Therefore, neither (i) the most
subordinate Class (or Classes) of Certificates outstanding at any time nor (ii)
any other Class of Certificates whose Certificate Balance would be reduced if
Realized Losses occurred in the amount of Anticipated Losses with respect to all
Seriously Delinquent Loans will receive distributions on any Distribution Date
on which one or more Mortgage Loans is a Seriously Delinquent Loan unless
Available Funds for such Distribution Date (exclusive of any P&I Advances with
respect to any Seriously Delinquent Loans) exceed the amount necessary to make
full distributions in accordance with the Available Funds Allocation to each
Class of Certificates that is senior to such Class. See "THE POOLING AND
SERVICING AGREEMENT--Advances" herein.
Residual Certificates
As indicated under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein, the
Class R and Class LR Certificates are not entitled to regular distributions. The
Class R and Class LR Certificates are not expected to receive any distributions
until after the Certificate Balances of all other Classes of Certificates have
been reduced to zero and only to the extent of any Available Funds remaining in
the Distribution Account and Collection Account, respectively, on any
Distribution Date. In the case of the Class LR Certificates, the existence of
any Available Funds remaining in the Collection Account may result from the
allocation of Available Funds to the Lower-Tier Regular Interests as described
in the Available Funds Allocation. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein. No assurance can be given that any
Available Funds will remain in the Collection Account for distribution to the
Class LR Certificates. In the case of the Class R Certificates, no Available
Funds are expected to remain in the Distribution Account for distribution
thereto. Therefore, the Class R and Class LR Certificateholders' REMIC taxable
income and the tax liability thereon will substantially exceed cash
distributions to such holders during certain periods. There can be no assurance
as to the amount by which such taxable income or such tax liability will exceed
cash distributions in respect of the Class R Certificates and Class LR
Certificates during any such period and no representation is made with respect
thereto. Due to the special tax treatment of residual interests, the after-tax
return of the Class R Certificates and Class LR Certificates may be
significantly lower than would be the case if the Class R Certificates and Class
LR Certificates were taxed as debt instruments, or may be negative.
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of [ ] (the "Pooling and Servicing Agreement"), by and
among the Depositor, the Master Servicer, the Special Servicer, the Trustee [and
the Fiscal Agent].
The Depositor will provide to a prospective or actual holder of a
Certificate without charge, upon written request, a copy (without exhibits) of
the Pooling and Servicing Agreement. Requests should be addressed to Midland
Realty Acceptance Corp., 210 West 10th Street, 6th Floor, Kansas City, Missouri
64105, attention: _________________________ at telephone number
.
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Assignment of the Mortgage Loans
On or before the Closing Date, the Depositor will assign or cause the
assignment of the Mortgage Loans without recourse, to the Trustee for the
benefit of the holders of Certificates. On or prior to the Closing Date, the
Depositor will deliver to the Trustee, with a copy to the Master Servicer, with
respect to each Mortgage Loan the following set of documents (the "Trustee
Mortgage File"):
[Describe documents to be included in Trustee Mortgage File.]
If the Depositor cannot deliver any original or certified recorded document
described above on the Closing Date, the Depositor will use its best efforts to
deliver (or cause to be delivered) such original or certified recorded documents
within [ ] days from the Closing Date (subject to delays attributable to the
failure of the appropriate recording office to return such documents, in which
case the Depositor will deliver such documents promptly upon receipt thereof).
The Trustee is obligated to review the Trustee Mortgage File for each Mortgage
Loan within [ ] days after the later of delivery or the Cut-off Date and report
any missing documents or certain types of defects therein to the Depositor.
The Master Servicer will hold all remaining Mortgage Loan Documents and
all other documents related to each Mortgage Loan, including copies of any
management agreements, ground leases, appraisals, surveys, environmental reports
and similar documents and any other written agreements relating to each Mortgage
Loan (collectively, the "Master Servicer Mortgage File" and together with the
Trustee Mortgage File, the "Mortgage File") in trust for the benefit of the
Trustee on behalf of Certificateholders. The legal ownership of all records and
documents with respect to each Mortgage Loan prepared by or that come into the
possession of the Master Servicer will immediately vest in the Trustee, in trust
for the benefit of Certificateholders.
Representations and Warranties; Repurchase
In the Pooling and Servicing Agreement, the Depositor will assign certain
representations and warranties made by the Mortgage Loan Seller in the Mortgage
Loan Purchase and Sale Agreement to the Trustee for the benefit of
Certificateholders.
In the Mortgage Loan Purchase and Sale Agreement, the Mortgage Loan Seller
(with respect to each of the Mortgage Loans) will represent and warrant, among
other things, that (subject to certain exceptions specified in the Mortgage Loan
Purchase and Sale Agreement), as of the date of the Mortgage Loan Purchase and
Sale Agreement (unless another date is specified):
[Describe material representations and warranties.]
The Pooling and Servicing Agreement requires that the Custodian, the
Master Servicer, the Special Servicer or the Trustee notify the Mortgage Loan
Seller upon its becoming aware of any breach of certain representations or
warranties of the Mortgage Loan Seller in the Mortgage Loan Purchase and Sale
Agreement, or that any document required to be included in the Mortgage File
does not conform to the requirements of the Pooling and Servicing Agreement. The
Mortgage Loan Purchase and Sale Agreement provides that, with respect to any
such Mortgage Loan, within [ ] days after notice of such breach from the
Custodian, the Master Servicer, the Special Servicer or the Trustee, the
Mortgage Loan Seller will either (a) repurchase such Mortgage Loan at its
outstanding principal balance, plus accrued interest from the Due Date as to
which interest was last paid or was advanced up to the Due Date in the month
following the month in which such repurchase occurs, the amount of any
unreimbursed Advances, together with interest thereon at
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the Advance Rate, relating to such Mortgage Loan, the amount of any unpaid
servicing compensation relating to such Mortgage Loan and the amount of any
expenses reasonably incurred by the Master Servicer, the Special Servicer or the
Trustee in respect of such repurchase obligation (such price, the "Repurchase
Price") or (b) promptly cure such breach in all material respects, provided,
however, if such defect or breach cannot be cured within such [ ] day period, so
long as the Mortgage Loan Seller has commenced and is diligently proceeding with
the cure of such breach, such [ ] day period will be extended for an additional
[ ] days; provided, further, that no such extension will be applicable unless
the Mortgage Loan Seller delivers to the Depositor (or its successor in
interest) an officer's certificate (i) describing the measures being taken to
cure such breach and (ii) stating that the Mortgage Loan Seller believes such
breach will be cured within such [ ] days. Without limiting the generality of
the provisions described above, if a Mortgage Loan fails to constitute a
"qualified mortgage" within the meaning of the REMIC provisions of the Code by
reason of the breach of a representation, warranty or covenant or by reason of
missing or defective documentation, then no extension of the [ ] day period in
the preceding sentence will apply.
The obligation of the Mortgage Loan Seller to repurchase or cure
constitutes the sole remedy available to holders of Certificates or the Trustee
for a breach of a representation or warranty by the Mortgage Loan Seller.
Neither the Depositor nor the Master Servicer or Special Servicer will be
obligated to purchase a Mortgage Loan if the Mortgage Loan Seller defaults on
its obligation to repurchase or cure and no assurance can be given that the
Mortgage Loan Seller will fulfill its obligation. If such obligation is not met,
as to a Mortgage Loan that is not a "qualified mortgage," the Upper-Tier REMIC
and Lower-Tier REMIC may be disqualified.
Servicing of the Mortgage Loans; Collection of Payments
The Pooling and Servicing Agreement requires the Master Servicer and the
Special Servicer to service and administer the Mortgage Loans (or in the case of
the Special Servicer, the Specially Serviced Mortgage Loans and REO Mortgage
Loans) on behalf of the Trust Fund solely in the best interests of and for the
benefit of all of the Certificateholders and the Trustee in accordance with the
terms of the Pooling and Servicing Agreement and the Mortgage Loans. In
furtherance of and to the extent consistent with the foregoing, except to the
extent that the Pooling and Servicing Agreement provides for a contrary specific
course of action, each of the Master Servicer and the Special Servicer are
required to service and administer the Mortgage Loans in the same manner as it
services and administers similar mortgage assets in other third-party
portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage loan servicers used with
respect to loans comparable to the Mortgage Loans, and with a view to the
maximization of timely and complete recovery of principal and interest on the
Mortgage Loans but without regard to (i) any other relationship that the Master
Servicer, the Special Servicer, any sub-servicer or any affiliate of the Master
Servicer, the Special Servicer or any sub-servicer may have with the borrowers
or any affiliate of such borrowers; (ii) the ownership of any Certificate by the
Master Servicer, the Special Servicer or any affiliate of either; (iii) the
Master Servicer's, the Trustee's [or the Fiscal Agent's] obligations, as
applicable, to make Advances or to incur servicing expenses with respect to the
Mortgage Loans; (iv) the Master Servicer's, the Special Servicer's or any
sub-servicer's right to receive compensation for its services under the Pooling
and Servicing Agreement or with respect to any particular transaction; or (v)
the ownership, servicing or management for others, by the Master Servicer, the
Special Servicer or any sub-servicer of any other mortgage loans or property.
Each of the Master Servicer and the Special Servicer is permitted, at its own
expense, to employ sub-servicers, agents or attorneys in performing any of its
obligations under the Pooling and Servicing Agreement, but will not thereby be
relieved of any such obligation, and will be responsible for the acts and
omissions of any such sub-servicers, agents or attorneys. The Pooling and
Servicing Agreement provides, however, that neither the Master Servicer (or its
general partner) nor the Special Servicer, nor any of their directors, officers,
employees or agents, will have any liability to the Trust
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Fund or the Certificateholders for taking any action or refraining from taking
an action in good faith or for errors in judgment. The foregoing provision would
not protect the Master Servicer, the Special Servicer or such person for the
breach of any of the Master Servicer's or Special Servicer's respective
representations or warranties in the Pooling and Servicing Agreement, any
liability by reason of willful misfeasance, bad faith, fraud or negligence or
against any specific liability imposed on the Master Servicer or the Special
Servicer for a breach of the servicing standards set forth in the Pooling and
Servicing Agreement in the performance of its duties or by reason of its
reckless disregard of obligations or duties under the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement requires the Master Servicer and the
Special Servicer to make reasonable efforts to collect all payments called for
under the terms and provisions of the Mortgage Loans, and to the extent such
procedures are consistent with the Pooling and Servicing Agreement, to follow
collection procedures as would be consistent with the servicing standard under
the Pooling and Servicing Agreement. Consistent with the above, the Master
Servicer or the Special Servicer, as applicable, may, in its discretion, waive
any late payment charge or penalty fee in connection with any delinquent Monthly
Payment or Balloon Payment with respect to any Mortgage Loan.
With respect to each Mortgage Loan that provides for prepayment at the
option of the mortgagee, the Master Servicer or the Special Servicer, as
applicable, will exercise such option at the earliest possible date as provided
in the related Note and Mortgage Loan documents.
Advances
Subject to the limitations described below, the Master Servicer will be
obligated to advance (each such amount, a "P&I Advance"), on the Business Day
preceding each Distribution Date (the "Remittance Date"), an amount equal to the
total or any portion of the Monthly Payment on a Mortgage Loan that was
delinquent as of the close of business on the Business Day preceding such
Remittance Date or, in the event of a default in the payment of a Balloon
Payment, the Assumed Scheduled Payment with respect to the related Balloon Loan,
unless the Master Servicer determines that any such advance would be a
nonrecoverable Advance and delivers to the Trustee an officer's certificate and
accompanying documentation related to a determination of nonrecoverability as
required by the Pooling and Servicing Agreement. With respect to any
Distribution Date and any Seriously Delinquent Loan, P&I Advances will only be
made if and to the extent that Available Funds for such Distribution Date
(exclusive of any P&I Advance with respect to any Seriously Delinquent Loan) are
not sufficient to make full distributions in accordance with the Available Funds
Allocation to each Class of Certificates whose Certificate Balance would not be
reduced by the Anticipated Loss with respect to all Seriously Delinquent Loans.
A "Seriously Delinquent Loan" is any Mortgage Loan that (i) is [_____] days or
more delinquent (without regard to any grace period) or (ii) was [_____] days or
more delinquent (without regard to any grace period) and as to which the related
borrower has not made, since the most recent date on which such Mortgage Loan
was so delinquent, [____] consecutive Monthly Payments. On each Remittance Date
the Master Servicer is obligated to determine the excess, if any, of (x) an
amount equal to the sum of the following amounts with respect to such Seriously
Delinquent Loan: (i) the outstanding principal balance thereof that is due and
payable; (ii) the interest portion of any unreimbursed P&I Advances with respect
thereto; (iii) any unreimbursed Property Advances with respect thereto; and (iv)
any currently payable or delinquent property taxes with respect thereto over (y)
the appraised value of each Seriously Delinquent Loan (based on an appraisal
obtained upon such Mortgage Loan becoming 90 days delinquent or as otherwise
required pursuant to the Pooling and Servicing Agreement) (the aggregate of such
amounts for all Seriously Delinquent Loans, the "Anticipated Loss"). Therefore,
neither (i) the most subordinate Class (or Classes) of Certificates outstanding
at any time nor (ii) any other Class of Certificates whose Certificate Balance
would be reduced if Realized Losses occurred in the amount of the Anticipated
Loss with respect to all Seriously
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Delinquent Loans will receive distributions on any Distribution Date on which
one or more Mortgage Loans is a Seriously Delinquent Loan unless Available Funds
for such Distribution Date (exclusive of any P&I Advances with respect to any
Seriously Delinquent Loans) exceed the amount necessary to make full
distributions in accordance with the Available Funds Allocation to each Class of
Certificates that is senior to such Class. In the event that more than one
Mortgage Loan is a Seriously Delinquent Loan, any such P&I Advances will be
designated by the Master Servicer to have been made, first, with respect to
Seriously Delinquent Loans (excluding any REO Mortgage Loans) as to which the
related borrower is delinquent only in the payment of Monthly Payments; second,
with respect to Seriously Delinquent Loans (excluding any REO Mortgage Loans) as
to which the related Borrower is delinquent in the payment of a Balloon Payment;
and third, with respect to Seriously Delinquent Loans that are REO Mortgage
Loans; provided however, that any such designation will be made first to those
Seriously Delinquent Loans in respect of which the Master Servicer reasonably
determines that such P&I Advance is most likely to be recoverable.
In addition to P&I Advances, the Master Servicer will also be obligated
(subject to the limitations described herein) to make cash advances ("Property
Advances," and together with P&I Advances, "Advances") to pay Property
Protection Expenses and delinquent real estate taxes, assessments and hazard
insurance premiums and to cover other similar costs and expenses necessary to
protect and preserve the security of the related Mortgage. "Property Protection
Expenses" comprise certain costs and expenses incurred in connection with
defaulted Mortgage Loans, acquiring title to, or management of, REO Property or
the sale of defaulted Mortgage Loans or REO Properties. The Master Servicer will
not, however, be obligated to advance from its own funds any amounts required to
cure any failure of any Mortgaged Property to comply with the Americans with
Disabilities Act of 1990, and all rules and regulations promulgated pursuant
thereto, or any applicable environmental law or to contain, clean up or remedy
any environmental condition present at any Mortgaged Property.
If the Master Servicer fails to fulfill its obligation to make any
required Advance, the Trustee, acting in accordance with the servicing standard,
will be required to make the Advance subject to its determination of
recoverability. [If the Trustee fails to make any such required Advance, the
Fiscal Agent will be required to make the Advance, subject to its determination
of recoverability.] Both the Trustee [and the Fiscal Agent] will be entitled to
rely conclusively on any non-recoverability determination of the Master
Servicer. See "--The Trustee" [and "--The Fiscal Agent"] below.
The obligation of the Master Servicer, the Trustee [or the Fiscal Agent],
as applicable, to make Advances with respect to any Mortgage Loan pursuant to
the Pooling and Servicing Agreement continues through the foreclosure of such
Mortgage Loan and until the liquidation of the Mortgage Loan or related
Mortgaged Properties. Advances are intended to provide a limited amount of
liquidity, not to guarantee or insure against losses. None of the Master
Servicer, the Trustee [or the Fiscal Agent] will be required to make any Advance
that it determines will not be recoverable by the Master Servicer, the Trustee
[or the Fiscal Agent], as applicable, out of related late payments, Insurance
Proceeds, Liquidation Proceeds and certain other collections with respect to the
Mortgage Loan as to which such Advances were made. To the extent that any
borrower is not obligated under its Mortgage Loan documents to pay or reimburse
any portion of any Advances that are outstanding with respect to the related
Mortgage Loan as a result of a modification of such Mortgage Loan by the Special
Servicer that forgives loan payments or other expenses that the Master Servicer
previously advanced, and the Master Servicer determines that no other source of
payment or reimbursement for such Advances is available to it, such Advances
will be deemed to be nonrecoverable; provided, however, in connection with the
foregoing, the Master Servicer will provide an officer's certificate as
described below. In addition, if the Master Servicer, the Trustee [or the Fiscal
Agent], as applicable, determines that any Advance previously made will not be
recoverable from the foregoing sources, then the Master Servicer, the Trustee
[or the Fiscal Agent], as applicable, will be entitled to reimburse itself for
such Advance, plus interest
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thereon, out of amounts on deposit in the Collection Account prior to
distributions on the Certificates. Any such judgment or determination must be
evidenced by an officer's certificate delivered to the Trustee (or, in the case
of the Trustee [or the Fiscal Agent], the Depositor) setting forth such judgment
or determination of nonrecoverability and the procedure and considerations of
the Master Servicer, the Trustee [or the Fiscal Agent], as applicable, forming
the basis of such determination.
The Master Servicer, the Trustee [or the Fiscal Agent], as applicable,
will be entitled to reimbursement for any Advance equal to the amount of such
Advance from (i) any collections on or in respect of the particular Mortgage
Loan or REO Property with respect to which each such Advance was made or (ii)
upon determining that such Advance is not recoverable in the manner described in
the preceding clause, from any other amounts from time to time on deposit in the
Collection Account.
The Master Servicer, the Trustee [or the Fiscal Agent], as applicable,
will be entitled to receive interest at a rate equal to the Prime Rate (as
published in The Wall Street Journal from time to time), plus [ ]% (the "Advance
Rate") on its outstanding Advances and will be authorized to pay itself such
interest monthly from general collections with respect to all of the Mortgage
Loans prior to any payment to holders of Certificates. If the interest on such
Advance is not offset by Default Interest a shortfall will result which will
have the same effect as a Realized Loss.
Accounts
Collection Account. The Master Servicer will, pursuant to the Pooling and
Servicing Agreement, establish and maintain an account or accounts (the
"Collection Account") into which it will be required to deposit, within one
Business Day of receipt the following payments and collections received or made
by it on or with respect to the Mortgage Loans: (i) all payments on account of
principal on the Mortgage Loans, including the principal component of
Unscheduled Payments on the Mortgage Loans; (ii) all payments on account of
interest and Default Interest on the Mortgage Loans and the interest portion of
all Unscheduled Payments and all Prepayment Premiums; (iii) any amounts required
to be deposited by the Master Servicer in connection with losses realized on
Permitted Investments with respect to funds held in the Collection Account; (iv)
(x) all Net REO Proceeds transferred from an REO Account and (y) all
Condemnation Proceeds, Insurance Proceeds and net Liquidation Proceeds not
required to be applied to the restoration or repair of the related Mortgaged
Property; (v) any amounts received from borrowers that represent recoveries of
Property Protection Expenses or Property Advances; and (vi) any other amounts
required by the provisions of the Pooling and Servicing Agreement to be
deposited into the Collection Account by the Master Servicer or the Special
Servicer, including, without limitation, proceeds of any purchase or repurchase
of a Mortgage Loan as described under "--Representations and Warranties;
Repurchase," "--Realization Upon Mortgage Loans," "--Optional Termination" [and
"--Auction."]
The foregoing requirements for deposits in the Collection Account will be
exclusive, and any payments in the nature of late payment charges, late fees,
assumption fees, loan modification fees, loan service transaction fees,
extension fees, demand fees, beneficiary statement charges and similar fees need
not be deposited in the Collection Account by the Master Servicer and, to the
extent permitted by applicable law, the Master Servicer or the Special Servicer,
as applicable, will be entitled to retain any such charges and fees received
with respect to the Mortgage Loans. In the event that the Master Servicer
deposits into the Collection Account any amount not required to be deposited
therein, the Master Servicer may at any time withdraw such amount from the
Collection Account.
Distribution Account. The Trustee will, pursuant to the
Pooling and Servicing Agreement, establish and maintain an account
or accounts (the "Distribution Account") in the name of the
Trustee for the benefit
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of the holders of Certificates. With respect to each Distribution Date, the
Master Servicer will deposit in the Distribution Account, to the extent of funds
on deposit in the Collection Account, on or before the Remittance Date an
aggregate amount of immediately available funds equal to the Available Funds. To
the extent not included in Available Funds, the Master Servicer will remit to
the Trustee all P&I Advances for deposit into the Distribution Account on the
related Remittance Date. See "DESCRIPTION OF THE CERTIFICATES--Distributions"
herein.
The Collection Account and the Distribution Account will be held in the
name of the Trustee (or, in the case of the Collection Account, the Master
Servicer on behalf of the Trustee) on behalf of the holders of Certificates and
the Trustee (and, in the case of the Collection Account, the Master Servicer)
will be authorized to make withdrawals therefrom. Each of the Collection Account
and the Distribution Account will be either (i) an account or accounts
maintained with either a federally or state-chartered depository institution or
trust company the long term unsecured debt obligations of which (or of such
institution's parent holding company) are rated by each of the Rating Agencies
in the rating category equal to or greater than the highest then-current rating
assigned to a Class of Certificates then outstanding at the time of any deposit
therein or (ii) a trust account or accounts maintained with a federally or
state--chartered depository institution or trust company acting in its fiduciary
capacity, having, in either case, a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority, or otherwise confirmed in writing by each of the Rating Agencies that
the maintenance of such account, will not, in and of itself, result in a
downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of Certificates (an "Eligible Bank"). Amounts on
deposit in such accounts may be invested in certain United States government
securities and other investments specified in the Pooling and Servicing
Agreement ("Permitted Investments"). See "DESCRIPTION OF THE
CERTIFICATES--Accounts" in the Prospectus for a listing of Permitted
Investments.
Withdrawals from the Collection Account
The Master Servicer may make withdrawals from the Collection Account for
the following purposes: (i) to remit on or before each Remittance Date to the
Distribution Account an amount equal to Available Funds and any Prepayment
Premiums for such Distribution Date; (ii) to pay or reimburse the Master
Servicer, the Trustee [or the Fiscal Agent], as applicable, for Advances made by
it and interest on Advances, the Master Servicer's right to reimburse itself for
items described in this clause (ii) being limited as described herein under
"--Advances"; (iii) to pay on or before each Remittance Date to the Master
Servicer and Special Servicer the fee portion of the servicing compensation in
respect of the related Distribution Date to be paid, in the case of the
Servicing Fee, from interest received on the related Mortgage Loan, and to pay
from time to time, to the Master Servicer, any interest or investment income
earned on funds deposited in the Collection Account, and pay the Master Servicer
as additional servicing compensation any Prepayment Interest Surplus received in
the preceding Collection Period and to pay the Master Servicer or the Special
Servicer, as applicable, any other amounts constituting additional servicing
compensation; (iv) to pay on or before each Distribution Date to the Depositor,
the Mortgage Loan Seller or other purchaser with respect to each Mortgage Loan
or REO Property that has previously been purchased or repurchased by it pursuant
to the Pooling and Servicing Agreement, all amounts received thereon during the
related Collection Period and subsequent to the date as of which the amount
required to effect such purchase or repurchase was determined; (v) to the extent
not reimbursed or paid pursuant to any of the above clauses, to reimburse or the
pay Master Servicer, the Special Servicer, the Trustee, the Depositor [and/or
the Fiscal Agent], as applicable, for certain other unreimbursed expenses
incurred by or on behalf of such person pursuant to and to the extent
reimbursable under the Pooling and Servicing Agreement and to satisfy any
indemnification obligations of the Trust Fund under the Pooling and Servicing
Agreement; (vi) to pay to the Trustee amounts requested by it to pay taxes on
certain net income with respect to REO Properties; (vii) to withdraw any amount
deposited
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into the Collection Account that was not required to be deposited therein; and
(viii) to clear and terminate the Collection Account pursuant to a plan for
termination and liquidation of the Trust Fund.
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses
The Master Servicer or the Special Servicer, as applicable, will be
obligated to enforce the Trustee's rights under the "due-on-sale" clause in the
related Mortgage Loan documents to accelerate the maturity of the related
Mortgage Loan, unless such provision is not enforceable under applicable law or
enforcement thereof would result in a loss of insurance coverage under any
related insurance policy or such enforcement is reasonably likely to result in
meritorious legal action by the related borrower or to the extent the Master
Servicer or the Special Servicer, as applicable, acting in accordance with the
servicing standard described herein, determines that such enforcement is not in
the best interests of the Trust Fund. A "due-on-sale" or "due-on-encumbrance"
clause may, under certain circumstances, be unenforceable against a borrower
that is a debtor in a case under the Bankruptcy Code.
If applicable law prohibits the enforcement of a "due-on-sale" clause or
the Master Servicer or Special Servicer is (i) otherwise prohibited from taking
such action as described in the preceding paragraph or (ii) determines that such
enforcement is not in the best interests of the Trust Fund and, as a
consequence, a Mortgage Loan is assumed, (x) the original borrower may be
released from liability for the unpaid principal balance of the related Mortgage
Loan and interest thereon at the applicable Mortgage Rate during the remaining
term of such Mortgage Loan, (y) the Master Servicer may accept payments in
respect of the Mortgage Loan from the new owner of the Mortgaged Property and
(z) the Master Servicer or the Special Servicer, as applicable, may enter into
an assumption agreement with a new purchaser whereby the new owner of the
Mortgaged Property will be substituted as the borrower and the original borrower
released, so long as (to the extent permitted by law) the new owner satisfies
the underwriting requirements customarily imposed by the Master Servicer or the
Special Servicer, as applicable, as a condition to its approval of a borrower on
a new mortgage loan substantially similar to such Mortgage Loan. In the event a
Mortgage Loan is assumed as described in the preceding sentences, the Trustee,
the Master Servicer and the Special Servicer, will not permit any modification
of such Mortgage Loan other than as described below under "--Amendments,
Modifications and Waivers." The Master Servicer or Special Servicer, as
applicable, will be entitled to retain as additional servicing compensation any
assumption fees paid by the original borrower or the new owner in connection
with such assumption. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Enforceability of Certain Provisions--Due-on-Sale Provisions" in the
Prospectus. A new owner of the Mortgaged Property may be substituted or a junior
or senior lien allowed on the Mortgaged Property, without the consent of the
Master Servicer, the Special Servicer or the Trustee in a bankruptcy proceeding
involving the Mortgaged Property.
If any Mortgage Loan contains a provision in the nature of a
"due-on-encumbrance" clause, which by its terms (i) provides that such Mortgage
Loan will (or may at the related mortgagee's option) become due and payable upon
the creation of any lien or other encumbrance on such Mortgaged Property or (ii)
requires the consent of the related mortgagee to the creation of any such lien
or other encumbrance on such Mortgaged Property, then, for so long as such
Mortgage Loan is included in the Trust Fund, the Master Servicer or the Special
Servicer, as applicable, on behalf of the Trust Fund, will enforce such
provision and in connection therewith will (x) accelerate the payments due on
such Mortgage Loan or (y) withhold its consent to the creation of any such lien
or other encumbrance, as applicable, except, in each case, to the extent that
the Master Servicer or the Special Servicer, as applicable, acting in accordance
with the applicable servicing standard, determines that such enforcement would
not be in the best interests of the Trust Fund and receives written confirmation
from [S&P] that forbearance to enforce such provision will not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by [S&P] to any Class of
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Certificates. Notwithstanding the foregoing, the Master Servicer or the Special
Servicer, as applicable, may forbear from enforcing any "due-on-encumbrance"
provision in connection with any junior or senior lien on the Mortgaged Property
imposed in connection with any bankruptcy proceeding involving the Mortgaged
Property.
Inspections; Appraisals
The Master Servicer (or the Special Servicer with respect to Specially
Serviced Mortgage Loans or REO Property) is required (at its own expense) to
inspect each Mortgaged Property at such times and in such manner as are
consistent with the servicing standards described herein, but will in any event
(i) inspect each Mortgaged Property at least once every 12 months commencing in
[__________] unless each of the Rating Agencies has confirmed in writing that a
longer period between inspections will not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of the Certificates [(ii) if the Master Servicer or
the Special Servicer, as applicable, retains any Financial and Lease Reporting
Fees pursuant to the related Mortgage Loan, inspect the related Mortgaged
Property as soon as practicable thereafter (except to the extent such property
has been inspected by the Master Servicer or the Special Servicer within the
preceding 120 days)], and (ii) if any Monthly Payment becomes more than 60 days
delinquent on any Mortgage Loan and if to do so is in the best interest of
Certificateholders, inspect each related Mortgaged Property as soon as
practicable thereafter.
Realization Upon Mortgage Loans
Appraisals for Specially Serviced Mortgage Loans. Contemporaneously with
the earliest of (i) the effective date of any modification of the stated
maturity, Mortgage Rate, principal balance or amortization terms of any
Specially Serviced Mortgage Loan or other "significant" modification (as defined
in Section 1001 of the Code) of any Mortgage Loan, as to which a default has
occurred or is reasonably foreseeable, (ii) the date [___] days after the
occurrence of any uncured payment delinquency, (iii) the date [___] days after a
receiver is appointed in respect of a Mortgaged Property or (iv) the date a
Mortgaged Property becomes an REO Property, the Special Servicer will obtain an
appraisal of the Mortgaged Property or REO Property, as the case may be, from an
independent appraiser who is a member of the Appraisal Institute (an "Updated
Appraisal").
Following a default in the payment of a Balloon Payment, the Special
Servicer may grant successive extensions of up to [___] months each of the
defaulted Mortgage Loan; provided that the Special Servicer may not grant any
such successive extensions if, during the previous [___]-month period, such
borrower was [___] days delinquent in payment of any principal or interest; [and
provided further that if any extension is granted after the third successive
extension has been granted, such further extension will only be granted with the
approval of the entity appointed to advise upon extensions, initially, [ ] (the
"Extension Advisor")]. The Special Servicer may not grant any extension that
permits such borrower to make payments of interest only for a period, in the
aggregate, of greater than [___] months.
[The Extension Advisor may be replaced at any time by the holders of
[___]% of the Voting Rights allocated to each Class of Regular Certificates,
other than the most subordinate such Class of Regular Certificates, but may not
be the Special Servicer. The Extension Advisor [(if other than _______________)]
will be paid a fee of [ ]% of the Scheduled Principal Balance of any Mortgage
Loan as to which an extension is requested that requires the Extension Advisor's
approval. Such fee is payable first from loan modification fees from the
borrower under the related Mortgage Loan and, to the extent such amounts are
insufficient, from fees otherwise payable to the Master Servicer and the Special
Servicer.]
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Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans. In connection with any foreclosure or other acquisition, any
costs and expenses incurred in any such proceedings will be advanced by the
Master Servicer as a Property Advance, unless the Master Servicer determines
that such Advance would constitute a nonrecoverable Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state in which the Mortgaged Property is
located, the Special Servicer will not be required to pursue a deficiency
judgment against the related borrower, or any other liable party if the laws of
the state do not permit such a deficiency judgment after a non-judicial
foreclosure or if the Special Servicer determines, in its best judgment, that
the likely recovery if a deficiency judgment is obtained will not be sufficient
to warrant the cost, time, expense and/or exposure of pursuing the deficiency
judgment and such determination is evidenced by an officer's certificate
delivered to the Trustee.
Notwithstanding any provision to the contrary, the Special Servicer will
not, on behalf of the Trust Fund, obtain title to a Mortgaged Property as a
result of or in lieu of foreclosure or otherwise, and will not otherwise acquire
possession of, or take any other action with respect to, any Mortgaged Property
if, as a result of any such action, the Trustee, for the Trust Fund or the
holders of Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an updated
environmental assessment report prepared by an independent person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws or, if not, after consultation
with an environmental consultant, that it would be in the best economic interest
of the Trust Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith and (ii) there are no circumstances present at
such 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 currently effective federal,
state or local law or regulation, or that, if any such hazardous materials are
present for which such action could be required, after consultation with an
environmental consultant, it would be in the best economic interest of the Trust
Fund to take such actions with respect to the affected Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed-in-lieu of foreclosure, the deed or certificate of sale
will be issued to the Trustee or to its nominee on behalf of the Trustee as the
holder of the Lower-Tier Regular Interests and the holders of Certificates.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgage Loan will be considered to be a Mortgage Loan held
in the Trust Fund until such time as the related REO Property is sold by the
Trust Fund and will be reduced only by collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement provides that the Special Servicer must administer such
Mortgaged Property so that it qualifies at all times as "foreclosure property"
within the meaning of Code Section 860G(a)(8). The Pooling and Servicing
Agreement also requires that any such Mortgaged Property be managed and operated
by an "independent contractor," within the meaning of applicable Treasury
regulations, who furnishes or renders services to the tenants of such Mortgaged
Property. Generally, the Lower-Tier REMIC will not be taxable on income received
with respect to the Mortgaged Property to the extent that it constitutes "rents
from real property," within the meaning of Code Section 856(c)(3)(A) and
Treasury regulations thereunder. "Rents from real property" do not include the
portion of any rental based on the net income or gain of any tenant or
sub-tenant. No determination has been made whether rent on any of the Mortgaged
Properties meets this requirement. "Rents from real property" include charges
for services customarily furnished or rendered in connection with the rental of
real property,
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whether the charges are separately stated. Services furnished to the tenants of
a particular building will be considered as customary if, in the geographic
market in which the building is located, tenants in buildings that are of a
similar class are customarily provided with the service. No determination has
been made whether the services furnished to the tenants of the Mortgaged
Properties are "customary" within the meaning of applicable regulations. It is
therefore possible that a portion of the rental income with respect to a
Mortgaged Property owned by the Trust Fund, presumably allocated based on the
value of any non-qualifying services, would not constitute "rents from real
property." In addition to the foregoing, any net income from a trade or business
operated or managed by an independent contractor on a Mortgaged Property owned
by the Lower-Tier REMIC, [including but not limited to a skilled nursing care
business], will not constitute "rents from real property." Any of the foregoing
types of income may instead constitute "net income from foreclosure property,"
which would be taxable to the Lower-Tier REMIC at the highest marginal federal
corporate rate (currently 35%) and may also be subject to state or local taxes.
Any such taxes would be chargeable against the related income for purposes of
determining the Net REO Proceeds available for distribution to holders of
Certificates. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxa-tion of the
REMIC and its Holders," "--Taxation of Regular Interests," "--Taxation of the
REMIC" and "--Taxation of Holders of Residual Certificates" in the Prospectus.
The Special Servicer may offer to sell to any person any Specially
Serviced Mortgage Loan or any REO Property, if and when the Special Servicer
determines, consistent with the servicing standards set forth in the Pooling and
Servicing Agreement, that no satisfactory arrangements can be made for
collection of delinquent payments thereon and such a sale would be in the best
economic interests of the Trust Fund, but will, in any event, so offer to sell
any REO Property no later than the time determined by the Special Servicer to be
sufficient to result in the sale of such REO Property within the period
specified in the Pooling and Servicing Agreement, including extensions thereof.
The Special Servicer will give the Trustee not less than [ ] Business Days'
prior written notice of its intention to sell any Specially Serviced Mortgage
Loan or REO Property, in which case the Special Servicer will accept any offer
received from any person that is determined by the Special Servicer to be a fair
price for such Specially Serviced Mortgage Loan or REO Property, if the highest
offeror is a person not affiliated with the Special Servicer, or is determined
to be such a price by the Trustee (which may be based upon updated independent
appraisals received by the Trustee or the Special Servicer, as applicable), if
the highest offeror is affiliated with the Special Servicer. Notwithstanding
anything to the contrary herein, neither the Trustee, in its individual
capacity, nor any of its affiliates may offer for or purchase any Specially
Serviced Mortgage Loan or any REO Property. In addition, the Special Servicer
may accept an offer that is not the highest offer if it determines, in
accordance with the servicing standard stated in the Pooling and Servicing
Agreement, that acceptance of such offer would be in the best interests of the
holders of Certificates (for example, if the prospective buyer making the lower
offer is more likely to perform its obligations, or the terms offered by the
prospective buyer making the lower offer are more favorable).
Amendments, Modifications and Waivers
Neither the Master Servicer nor the Special Servicer may modify, amend,
waive or otherwise consent to the change of the stated maturity date of any
Mortgage Loan, the payment of principal of, or interest or Default Interest on,
any Mortgage Loan, or any other term of a Mortgage Loan, unless (i) such
modification, amendment, waiver or consent is not a "significant modification"
under Section 1001 of the Code, (ii) to the extent such modification, amendment,
waiver or consent would constitute a "significant modification" under Section
1001 of the Code, such Mortgage Loan is in default or a default with respect
thereto is reasonably foreseeable or (iii) such modification, amendment, waiver
or consent is permitted under "--Realization Upon Mortgage Loans--Appraisals for
Specially Serviced Mortgage Loans" herein. Neither Master Servicer nor the
Special Servicer may agree to any retroactive modification, amendment, waiver or
consent.
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Optional Termination
[The Special Servicer, and, if the Special Servicer does not exercise its
option,] [the holder of the Class LR Certificates representing greater than a [
]% Percentage Interest of the Class LR Certificates,] [the Master Servicer] and
[the Depositor], will have the option to purchase all of the Mortgage Loans and
all property acquired in respect of any Mortgage Loan remaining in the Trust
Fund, and thereby effect termination of the Trust Fund and early retirement of
the then outstanding Certificates, on any Distribution Date on which the
aggregate Scheduled 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. The purchase price payable upon the exercise of
such option on such a Distribution Date will be an amount equal to not less than
the greater of (i) the sum of (A) 100% of the outstanding principal balance of
each Mortgage Loan included in the Trust Fund as of the last day of the month
preceding such Distribution Date; (B) the fair market value of all other
property included in the Trust Fund as of the last day of the month preceding
such Distribution Date, as determined by an independent appraiser as of a date
not more than 30 days prior to the last day of the month preceding such
Distribution Date; (C) all unpaid interest accrued on such principal balance of
each such Mortgage Loan (including any Mortgage Loan as to which title to the
related Mortgaged Property has been acquired) at the Mortgage Rate to the last
day of the month preceding such Distribution Date; and (D) unreimbursed Advances
with interest thereon at the Advance Rate and unpaid Trust Fund expenses; or
(ii) the aggregate fair market value of the Mortgage Loans, and all other
property acquired in respect of any Mortgage Loan in the Trust Fund, on the last
day of the month preceding such Distribution Date, as determined by an
independent appraiser as of a date not more than 30 days prior to the last day
of the month preceding such Distribution Date, together with one month's
interest thereon at the Mortgage Rate. See "DESCRIPTION OF THE
CERTIFICATES--Additional Rights of the Residual Certificates" herein.
[Auction]
[On each of (i) the Distribution Date occurring in [ ] of each year from
and including [ ] and (ii) any date after the Distribution Date occurring in [ ]
on which the Trustee receives an unsolicited bona fide offer to purchase all
(but not less than all) of the Mortgage Loans (each, an "Auction Valuation
Date"), the Trustee will request that [ ] independent financial advisory or
investment banking or investment brokerage firms nationally recognized in the
field of real estate analysis and reasonably acceptable to the Master Servicer
provide the Trustee with an estimated value at which the Mortgage Loans and
all other property acquired in respect of any Mortgage Loan in the Trust Fund
could be sold pursuant to an auction. If the average of the [ ] highest such
estimates received equals or exceeds the aggregate amount of the Certificate
Balance of all Certificates outstanding on the Auction Valuation Date (the
"Aggregate Certificate Balance") plus estimated Auction Fees and other
expenses, the Trustee will conduct an auction of the Mortgage Loans. The
Trustee will, in such case, appoint an auction agent to solicit offers from
prospective purchasers, who must meet certain requirements described in the
Pooling and Servicing Agreement, to purchase all (but not less than all) of the
Mortgage Loans and such property, for a price not less than the Aggregate
Certificate Balance plus estimated Auction Fees and other expenses. In
determining the Aggregate Certificate Balance, all Certificates owned by or on
behalf of the Depositor, a property manager, the Master Servicer, the Special
Servicer, the Trustee, a borrower or any affiliate thereof will be included.
If the Trustee receives no bids that are qualified pursuant to the terms
of the Pooling and Servicing Agreement, the Trust Fund will not be terminated
pursuant to these auction procedures. If the Trustee receives qualified bids,
the Trustee will accept the highest of such bids and will sell the Mortgage
Loans and such property to the successful bidder on or before the Remittance
Date immediately preceding the third
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Distribution Date following the Auction Valuation Date (or such later
Distribution Date determined by the auction agent appointed in accordance with
the immediately preceding paragraph). Such sale will effect a termination of the
Trust Fund and an early retirement of the then outstanding Certificates. The
Trustee will be entitled to be reimbursed from the Collection Account for
expenses that it or any auction agent incurs in connection with an auction,
including all fees and reasonable expenses of legal counsel and other
professionals ("Auction Fees").
Any auction will be conducted in accordance with auction procedures to be
developed by the auction agent in connection with such auction, provided that
such procedures will include at a minimum provisions substantially to the effect
that: (i) no due diligence of the Master Servicer's, the Special Servicer's or
the Trustee's records with respect to the Mortgage Loans may be conducted by any
bidder prior to being notified that it has submitted the highest bid; (ii) the
auction agent is entitled to require that the highest bidder provide a
non-refundable good faith deposit sufficient to reimburse the Trustee and the
auction agent for all expenses in connection with the evaluation of such bid and
in connection with such highest bidder's due diligence; (iii) each bidder may be
required to enter into a confidentiality agreement with the Master Servicer, the
Special Servicer, the auction agent and the Trustee prior to being permitted to
conduct due diligence; (iv) borrowers on any of the Mortgage Loans will be
prohibited from submitting bids; and (v) in the event that the highest bidder
withdraws, the next highest bidder will be permitted to conduct due diligence of
the Master Servicer's, the Special Servicer's or the Trustee's records with
respect to the Mortgage Loans as if it were the highest bidder.]
Loan Portfolio Analysis System
The Master Servicer will collect and maintain information regarding the
Mortgage Loans in a computerized database, which the Master Servicer currently
commonly refers to as the "Loan Portfolio Analysis System" or "LPAS". The Master
Servicer currently intends to provide access to LPAS via on-line telephonic
communication to Certificateholders, persons identified by a Certificateholder
as a prospective transferee and such other persons deemed appropriate by the
Master Servicer. Information contained in LPAS regarding the composition of the
Mortgage Pool and certain other information about the Mortgage Pool deemed
appropriate by the Master Servicer will be updated periodically.
The Trustee
[ ], a [ ] with its principal offices in [ ] will act as Trustee pursuant
to the Pooling and Servicing Agreement. The Trustee's corporate trust office is
located at [ ].
The Trustee may resign at any time by giving written notice to the
Depositor, the Master Servicer, the Special Servicer and the Rating Agencies.
Upon such notice of the Trustee's resignation, [the Fiscal Agent will also be
deemed removed and, accordingly], the Master Servicer will appoint a successor
trustee, which appointment of successor trustee will not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by the Rating Agencies to any Class of the Certificates as confirmed in
writing by each of the Rating Agencies, [and a successor fiscal agent, which, if
the successor trustee is not rated at least "AA" by each Rating Agency, will be
confirmed in writing by each of the Rating Agencies that such appointment of
such successor fiscal agent will not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of the Certificates.] If no successor trustee [and successor fiscal
agent] is appointed within one month after the giving of such notice of
resignation, the resigning Trustee [and departing Fiscal Agent] may petition any
court of competent jurisdiction for appointment of a successor trustee [and
successor fiscal agent].
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The Depositor or the Master Servicer may remove the Trustee [and the
Fiscal Agent] if, among other things, the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if at any time the
Trustee [or the Fiscal Agent] becomes incapable of acting, or is adjudged
bankrupt or insolvent, or a receiver of the Trustee [or the Fiscal Agent] or its
property is appointed or any public officer takes charge or control of the
Trustee [or the Fiscal Agent] or of its property. The holders of Certificates
evidencing aggregate Voting Rights of at least 51% may remove the Trustee [and
the Fiscal Agent] upon written notice to the Master Servicer, the Special
Servicer, the Depositor and the Trustee. Any resignation or removal of the
Trustee [and the Fiscal Agent] and appointment of a successor trustee [and, if
such trustee is not rated at least "AA" by each Rating Agency, fiscal agent]
will not become effective until acceptance of the appointment by the successor
trustee [and, if necessary, fiscal agent].
The "Voting Rights" assigned to each Class shall be [describe voting
rights of each Class].
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to receive a monthly fee from the Master Servicer.
The Trust Fund will indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses (including reasonable attorneys' fees)
arising in respect of the Pooling and Servicing Agreement or the Certificates
(but only to the extent that they are expressly reimbursable under the Pooling
and Servicing Agreement or are unanticipated expenses incurred by the REMIC)
other than those resulting from the negligence, fraud, bad faith or intentional
misconduct of the Trustee and those for which it is indemnified pursuant to the
last sentence of this paragraph. The Trustee will not be required to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties under the Pooling and Servicing Agreement, or in the exercise
of any of its rights or powers, if in the Trustee's opinion the repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Each of the Master Servicer and the Special Servicer
will indemnify the Trustee and certain related parties for similar losses
incurred related to the willful misconduct, fraud, bad faith and/or negligence
in the performance of the Master Servicer's or the Special Servicer's respective
duties under the Pooling and Servicing Agreement or by reason of reckless
disregard of the Master Servicer's or the Special Servicer's respective
obligations and duties under the Pooling and Servicing Agreement.
Duties of the Trustee
The Trustee, [the Fiscal Agent,] the Special Servicer and Master Servicer
will make no representation as to the validity or sufficiency of the Pooling and
Servicing Agreement, the Certificates, this Prospectus Supplement or the
validity, enforceability or sufficiency of the Mortgage Loans or related
documents. The Trustee [and the Fiscal Agent] will not be accountable for the
use or application by the Depositor of any Certificates or of the proceeds of
such Certificates, or for the use of or application of any funds paid to the
Depositor in respect of the assignment of the Mortgage Loans to the Trust Fund,
or any funds deposited in or withdrawn from the Collection Account or any other
account maintained by or on behalf of the Master Servicer, other than with
respect to any funds held by the Trustee.
If no Event of Default has occurred and after the curing of all Events of
Default that may have occurred, the Trustee is required to perform only those
duties specifically required under the Pooling and Servicing Agreement. 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 on their face to the requirements of the Pooling
and Servicing Agreement.
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If the Master Servicer falls to make any required Advance, the Trustee, as
acting or successor Master Servicer, will be required to make such Advance to
the extent that such Advance is not deemed to be nonrecoverable. The Trustee
will be entitled to rely conclusively on any determination by the Master
Servicer that an Advance, if made, would be nonrecoverable. The Trustee will be
entitled to reimbursement for each Advance made by it in the same manner and to
the same extent as the Master Servicer. See "--Advances" herein.
[The Fiscal Agent
[ ], a [ ] will act as Fiscal Agent for the Trustee and will be obligated
to make any Advance required to be made, and not made, by the Trustee under the
Pooling and Servicing Agreement, provided that the Fiscal Agent will not be
obligated to make any Advance that it deems to be nonrecoverable. The Fiscal
Agent will be entitled to rely conclusively on any determination by the Master
Servicer that an Advance, if made, would not be recoverable. The Fiscal Agent
will be entitled to reimbursement for each Advance made by it in the same manner
and to the same extent as the Trustee and the Master Servicer. See "--Advances"
herein.
The Fiscal Agent may not resign except in the event of the resignation or
removal of the Trustee or upon determination that it may no longer perform such
obligations and duties under applicable law. Any such determination is required
to be evidenced by an opinion of counsel to such effect delivered to the
Depositor and the Trustee. No resignation or removal of the Fiscal Agent will
become effective until a successor fiscal agent has assumed the Fiscal Agent's
obligations and duties under the Pooling and Servicing Agreement and it is
confirmed in writing by each of the Rating Agencies that the appointment of such
successor fiscal agent will not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of the Certificates.]
Servicing Compensation and Payment of Expenses
Pursuant to the Pooling and Servicing Agreement, the Master Servicer will
be entitled to receive a monthly servicing fee (the "Servicing Fee") for each
Mortgage Loan equal to a per annum rate of [ ]% (the "Servicing Fee Rate") on
the then outstanding principal balance of such Mortgage Loan calculated on the
basis of a 360 day year consisting of twelve 30-day months. The Servicing Fee
relating to each Mortgage Loan will be retained by the Master Servicer from
payments and collections (including Insurance Proceeds and Liquidation Proceeds)
in respect of such Mortgage Loan. The Master Servicer will also be entitled to
retain as additional servicing compensation (i) all investment income earned on
amounts on deposit in the Reserve Accounts (to the extent consistent with
applicable law and the related Mortgage Loan documents), the Collection Account
and the Distribution Account, (ii) all amounts collected with respect to the
Mortgage Loans (that are not Specially Serviced Mortgage Loans) in the nature of
late payment charges, late fees, loan service transaction fees, extension fees,
demand fees, modification fees, assumption fees, beneficiary statement charges
and similar fees and charges and (iii) [Financial and Lease Reporting Fees (with
respect to any Mortgage Loan that is not a Specially Serviced Mortgage Loan and
to the extent permitted under the related Mortgage Loan) and] any Prepayment
Interest Surplus (to the extent not offset against any Prepayment Interest
Shortfall in accordance with the provisions of the Pooling and Servicing
Agreement).
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any sub-servicers
retained by it, all fees payable to the Trustee and the various expenses of the
Master Servicer specifically described herein.
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Special Servicing
It is anticipated that [ ] will initially be appointed as special servicer
(the "Special Servicer") to, among other things, oversee the resolution of
non-performing Mortgage Loans and act as disposition manager of REO Properties.
However, the holders of a [majority] of the Voting Rights of the most
subordinate Class of outstanding Regular Certificates will be entitled to remove
the Special Servicer without cause and appoint a successor Special Servicer. Any
termination fee payable to the Special Servicer upon termination without cause
will be paid by such holders, and will not be an expense of the Trust Fund. Each
of the Rating Agencies must confirm in writing to the Trustee and the Master
Servicer that the appointment of such successor Special Servicer will not cause
any qualification, withdrawal or downgrading of the initial ratings assigned to
any Class of rated Certificates.
The duties of the Special Servicer relate primarily to Specially Serviced
Mortgage Loans and to any REO Property. The Pooling and Servicing Agreement will
define a "Specially Serviced Mortgage Loan" to include any Mortgage Loan with
respect to which: (i) the related borrower is 60 or more days delinquent in the
payment of principal and interest (regardless of whether in respect thereof P&I
Advances have been reimbursed); (ii) the borrower under which has expressed to
the Master Servicer an inability to pay or a hardship in paying the Mortgage
Loan in accordance with its terms; (iii) the Master Servicer has received notice
that the borrower has become the subject of any bankruptcy, insolvency or
similar proceeding, admitted in writing the inability to pay its debts as they
come due or made an assignment for the benefit of creditors; (iv) the Master
Servicer has received notice of a foreclosure or threatened foreclosure of any
lien on the Mortgaged Property securing the Mortgage Loan; (v) a default of
which the Master Servicer has notice (other than a failure by the borrower to
pay principal or interest) and which materially and adversely affects the
interests of the Certificateholders has occurred and remained unremedied for the
applicable grace period specified in the Mortgage Loan (or, if no grace period
is specified, 60 days); provided, that a default requiring a Property Advance
will be deemed to materially and adversely affect the interests of
Certificateholders; (vi) the borrower has failed to make a Balloon Payment
(except in the case where the Master Servicer and the Special Servicer agree in
writing that such Mortgage Loan is likely to be paid in full within 30 days
after such default); or (vii) the Master Servicer proposes to commence
foreclosure or other workout arrangements; provided, however, that a Mortgage
Loan will cease to be a Specially Serviced Mortgage Loan (a) with respect to the
circumstances described in clauses (i) and (vi) above, when the borrower
thereunder has brought the Mortgage Loan current (with respect to the
circumstances described in clause (vi), pursuant to any workout recommended by
the Special Servicer) and thereafter made three consecutive full and timely
monthly payments, (b) with respect to the circumstances described in clauses
(ii), (iii), (iv) and (vii) above, when such circumstances cease to exist or (c)
with respect to the circumstances described in clause (v) above, when such
default is cured; provided, in either case, that at that time no circumstance
exists (as described above) that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer will
be entitled to certain fees, including a special servicing fee (the "Special
Servicing Fee") equal to 1/12th of [ ]% on a monthly basis of the Scheduled
Principal Balance of each related Specially Serviced Mortgage Loan. [The Special
Servicer will also receive, in addition to the Special Servicing Fee, a
disposition fee (the "Disposition Fee") equal to the product of (A) (x) the
proceeds of the sale of any Specially Serviced Mortgage Loan or REO Property
minus (y) any broker's commission and related brokerage referral fees and (B)
(x) [ ]%, if such sale occurs within [ ] months following the date on which the
Mortgage Loan initially became a Specially Serviced Mortgage Loan or (y) [ ]%,
if such sale occurs after such [ ]-month period.] Each of the foregoing fees,
along with certain expenses related to special servicing of a Mortgage Loan,
will be payable out of funds otherwise available to pay principal on the
Certificates. The Special Servicer will also be entitled to retain as additional
servicing compensation (i) all investment income earned on amounts on deposit in
any REO
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Account and (ii) to the extent permitted under the related Mortgage Loan, all
amounts collected with respect to the Specially Serviced Mortgage Loans in the
nature of late payment charges, late fees, assumption fees, loan modification
fees, extension fees, [Financial and Lease Reporting Fees (to the extent such
fees are not required to be remitted to the related borrower pursuant to the
related Note)], loan service transaction fees, beneficiary statement charges or
similar items (but not including any Default Interest or Prepayment Premiums),
in each case to the extent received with respect to any Specially Serviced
Mortgage Loan and not required to be deposited or retained in the Collection
Account pursuant to the Pooling and Servicing Agreement.
Reports to Certificateholders
On each Distribution Date, the Trustee will forward by mail to each
Certificateholder, with copies to the Depositor, the Paying Agent, the Master
Servicer and each Rating Agency, a statement as to such distribution setting
forth for each class:
[Describe reports to be delivered to Certificateholders.]
On each Distribution Date, the Trustee will forward to each holder of a
Class R or Class LR Certificate a copy of the reports forwarded to the other
Certificateholders on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to the Class R or Class LR
Certificates on such Distribution Date.
Within a reasonable period of time after the end of each calendar year,
the Trustee will furnish to each person who at any time during the calendar year
was a holder of a Certificate a statement setting forth the amounts, if any,
actually distributed to such Certificateholder aggregated for such calendar year
or applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Trustee will be deemed to have been satisfied to the
extent that it provided substantially comparable information pursuant to any
requirements of the Code as from time to time in force.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, one or more separate "real estate
mortgage investment conduit" ("REMIC") elections will be made with respect to
the Trust Fund, creating one or more REMICs. Upon the issuance of the Offered
Certificates, Morrison & Hecker L.L.P. will deliver its opinion, generally to
the effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, (i) each pool of assets with respect to which a REMIC
election is made will qualify as a REMIC under the Internal Revenue Code of 1986
(the "Code") and (ii) (a) the Class A, Class B, Class C, [Class [EC], Class [IO]
and Class [PO]] Certificates will be, or will represent ownership of, REMIC
"regular interests" and (b) each residual interest will be the sole "residual
interest" in the related REMIC. Holders of the Offered Certificates will be
required to include in income all interest on such Certificates in accordance
with the accrual method of accounting regardless of such Certificateholders'
usual methods of accounting.
Except as discussed below, the Offered Certificates are not expected to be
treated for federal income tax reporting purposes as having been issued with
original issue discount. There is a possibility of interest being deferred on,
and to the extent deferred added to the Certificate Balance of, the Offered
Certificates as a result of negative principal amortization on the Mortgage
Loans. Therefore, it is possible that none of the interest on the Offered
Certificates will qualify as "qualified stated interest" under the Treasury
regulations relating to the taxation of instruments with original issue discount
(the "OID Regulations") and only original issue discount will be treated as
accruing on the Offered Certificates. For the purposes of determining the
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rate of accrual of market discount, original issue discount and premium for
federal income tax purposes, it has been assumed that the Mortgage Loans will
prepay at the rate of [4%] CPR. No representation is made as to whether the
Mortgage Loans will prepay at that rate or any other rate. [Although it is
unclear whether the Class [ ] and Class [ ] Certificates will qualify as
"variable rate instruments" under the OID Regulations, it will be assumed for
purposes of determining the original issue discount thereon that such
Certificates so qualify.] See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation
of Regular Interests--Interest and Acquisition Discount" in the Prospectus.
Certain Classes of the Offered 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.
Holders of such Classes of Certificates should consult their own tax advisors
regarding the possibility of making an election to amortize any such premium.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Regular Interests" in
the Prospectus.
Offered Certificates held by a mutual savings bank or domestic building
and loan association will represent interests in "qualifying real property
loans" within the meaning of Section 593(d) of the Code. Offered Certificates
held by a real estate investment trust will constitute "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code, and income with respect
to Offered Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in property" within the meaning of
Section 856(c)(3)(B) of the Code. Offered Certificates held by a domestic
building and loan association will generally constitute "a regular or a residual
interest in a REMIC" with the meaning of Section 7701(a)(19)(C)(xi) of the Code
only in the proportion that the Mortgage Loans are secured by multifamily
apartment buildings. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of
the REMIC and its Holders" in the Prospectus.
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS TO THE
MANNER OF THEIR APPLICATION TO THE TRUST FUND AND CERTIFICATEHOLDERS, IT IS
PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX TREATMENT OF THEIR ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE CERTIFICATES.
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ERISA CONSIDERATIONS
General
The Class B, Class C, [Class [EC], Class [PO] and Class [IO]] Certificates
may not be purchased by or transferred to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or Section 4975 of the Code, or a governmental plan subject
to any federal, state or local law ("Similar Law") that is, to a material
extent, similar to the foregoing provisions of ERISA or the Code ("Plans"), or a
collective investment fund in which such Plans are invested, other persons
acting on behalf of any such Plan or using the assets of any such Plan or any
entity whose underlying assets include plan assets by reason of a Plan's
investment in the entity (within the meaning of Department of Labor Regulations
Section 2510.3-101) other than an insurance company using the assets of its
general account under circumstances whereby such purchase and the subsequent
holding of such Certificates would not constitute or result in a prohibited
transaction within the meaning of Section 406 or 407 of ERISA, Section 4975 of
the Code or a materially similar characterization under any Similar Law. Neither
the Class R Certificates nor the Class LR Certificates may be purchased by or
transferred to a Plan. Accordingly, the following discussion does not purport to
discuss the considerations under ERISA or Code Section 4975 with respect to the
purchase, holding or disposition of the Class B, Class C, [Class [EC], Class
[PO], Class [IO]], Class R and Class LR Certificates.
ERISA and the Code impose certain duties and restrictions on Plans and
certain persons who perform services for Plans. For example, unless exempted,
investment by a Plan in the Certificates may constitute or give rise to a
prohibited transaction under ERISA or the Code. There are certain exemptions
issued by the United States Department of Labor (the "Department") that may be
applicable to an investment by a Plan in the Offered Certificates, including the
individual administrative exemption described below.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition to
such purchase under the requirements of ERISA, whether the individual
administrative exemption (as described below) applies, including whether the
appropriate conditions set forth therein would be met, or whether any statutory
prohibited transaction exemption is applicable.
Certain Requirements Under ERISA
General. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a Plan fiduciary should determine whether to do so is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including voluntary
prepayments by the borrowers and involuntary liquidations) on the Mortgage
Loans, as discussed in "YIELD CONSIDERATIONS" herein.
Parties in Interest/Disqualified Persons. Other provisions of ERISA (and
corresponding provisions of the Code) prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to the
Plan (so-called "parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of the Code). The Depositor, the
Master Servicer, the Special Servicer or the Trustee or certain affiliates
thereof might be considered or might become "parties in interest" or
"disqualified persons" with respect to a Plan. If so, the acquisition or holding
of Certificates by or on behalf of such Plan could be
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considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an administrative exemption described below or some
other exemption is available. Special caution should be exercised before the
assets of a Plan are used to purchase a Certificate if, with respect to such
assets, the Depositor, the Master Servicer, the Special Servicer or the Trustee
or an affiliate thereof either: (i) has investment discretion with respect to
the investment of such assets of such Plan or (ii) has authority or
responsibility to give or regularly gives investment advice with respect to such
assets for a fee and pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect to such
assets and that such advice will be based on the particular investment needs of
the Plan.
Delegation of Fiduciary Duty. Further, if the assets included in the Trust
Fund were deemed to constitute Plan assets, it is possible that a Plan's
investment in the Certificates might be deemed to constitute a delegation under
ERISA of the duty to manage Plan assets by the fiduciary deciding to invest in
the Certificates, and certain transactions involved in the operation of the
Trust Fund might be deemed to constitute prohibited transactions under ERISA and
the Code. Neither ERISA nor the Code define the term "plan assets."
The Department has published final regulations (the "Regulations")
concerning whether a Plan's assets would be deemed to include an interest in the
underlying assets of an entity (such as the Trust Fund) for purposes of the
reporting and disclosure and general fiduciary responsibility provisions of
ERISA, as well as for the prohibited transaction provisions of ERISA and the
Code, if the Plan acquires an "equity interest" (such as a Certificate) in such
an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an interest in the underlying assets of a
Trust Fund. However, the Depositor cannot predict in advance, nor can there be
any continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of the
value of any class of equity interests is held by "benefit plan investors,"
which are defined as Plans, IRAs and employee benefit plans not subject to ERISA
(for example, governmental plans), but this exception is tested immediately
after each acquisition of an equity interest in the entity whether upon initial
issuance or in the secondary market.
Administrative Exemptions
Individual Administrative Exemptions. The Department has granted to the
Underwriter an individual administrative exemption (Prohibited Transaction
Exemption 90-32, 55 Fed. Reg. 23147 (June 6, 1990)) referred to herein as the
"Exemption," for certain mortgage-backed and asset backed certificates
underwritten in whole or in part by the Underwriter. The Exemption might be
applicable to the initial purchase, the holding and the subsequent resale by a
Plan of certain certificates, such as the Class A Certificates, underwritten by
the Underwriter, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied. The loans described in the
Exemption include mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
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(2) The rights and interests evidenced by 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 one of the three highest
generic rating categories from any of S&P, Moody's, Duff & Phelps or
Fitch;
(4) The trustee must not be an affiliate of any
other member of the Restricted Group;
(5) The sum of all payments made to and retained by the
Underwriter in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
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 represents not more than the fair market value of such
mortgage loans. The sum of all payments made to and retained by the
master servicer and any other servicer represents not more than
reasonable compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the 1933 Act.
The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets
of the type that have been included in other investment pools;
(b) certificates in such other investment pools must have been
rated in one of the three highest rating categories of S&P, Moody's,
Fitch or Duff & Phelps for at least one year prior to the Plan's
acquisition of the certificates pursuant to the Exemption; and
(c) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of the certificates
pursuant to the Exemption.
If the conditions of the Exemption are met, the acquisition, holding and
resale of the Class A Certificates by Plans would be exempt from the prohibited
transaction provisions of ERISA and the Code (regardless of whether a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans in
the Mortgage Pool).
Moreover, the Exemption can provide relief from certain self-dealing
conflict of interest prohibited transactions that may occur if a Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables, loans or obligations held in the
trust provided that, among other requirements, (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least 50% of each
class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least 50% of the aggregate interest
in the trust is acquired by persons independent of the Restricted Group; (ii)
such fiduciary (or its affiliate) is an obligor with respect to 5% or less of
the fair market value of the obligations contained in the trust; (iii) the
Plan's investment in
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certificates of any class does not exceed 25% of all of the certificates of that
class outstanding at the time of the acquisitions; and (iv) immediately after
the acquisition no more than 25% of the assets of the Plan with respect to which
such person is a fiduciary are invested in certificates representing an interest
in one or more trusts containing assets sold or served by the same entity.
The Exemption does not apply to the purchasing or holding of Class A
Certificates by Plans sponsored by the Depositor, the Underwriter, the Trustee,
the Master Servicer, the Special Servicer, any obligor with respect to Mortgage
Loans included in the Trust Fund constituting more than 5% of the aggregate
unamortized principal balance of the assets in the Trust Fund or any affiliate
of such parties (the "Restricted Group").
THE CHARACTERISTICS OF THE CLASS B, CLASS C, [CLASS [EC], CLASS [IO],
CLASS [PO]], CLASS R AND CLASS LR CERTIFICATES DO NOT MEET THE REQUIREMENTS OF
THE EXEMPTION. ACCORDINGLY, THE CLASS B, CLASS C, CLASS [EC], CLASS [PO] AND
CLASS [IO]], CERTIFICATES MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR
PERSON ACTING ON BEHALF OF ANY PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OTHER
THAN AN INSURANCE COMPANY USING ASSETS OF ITS GENERAL ACCOUNT UNDER
CIRCUMSTANCES IN WHICH SUCH PURCHASE OR TRANSFER WOULD NOT CONSTITUTE OR RESULT
IN A PROHIBITED TRANSACTION. NEITHER THE CLASS R CERTIFICATES NOR THE CLASS LR
CERTIFICATES MAY BE PURCHASED BY OR TRANSFERRED TO A PLAN.
Before purchasing a Class A Certificate, a fiduciary of a Plan should make
its own determination as to the availability of the exemptive relief provided by
the Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will be applicable
to the Class A Certificates.
Any fiduciary of a Plan (including an entity that is deemed to hold Plan
assets for purposes of ERISA and the Code) considering whether to purchase a
Class A Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Code Section 4975. However, such a governmental plan may be subject to
a Similar Law. A fiduciary of a governmental plan should make its own
determination as to the need for and the availability of any exemptive relief
under any Similar Law.
The sale of Class A Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan or that this investment is appropriate for Plans
generally or any particular Plan.
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Unrelated Business Taxable Income; Residual Certificates
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 including certain governmental plans, as
discussed above under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in
the Prospectus.
LEGAL INVESTMENT
The Certificates will [not] constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). The
appropriate characterization of the Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase the Certificates, may be subject to significant interpretive
uncertainties.
The Depositor makes no representations as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes or other purposes or as to the ability of particular
investors to purchase the Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
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 Certificates
constitute a legal investment or are subject to investment, capital or other
restrictions.
PLAN OF DISTRIBUTION
Prudential Securities Incorporated (the "Underwriter") has agreed,
pursuant to an Underwriting Agreement dated [ ] (the "Underwriting Agreement")
to purchase the Certificates from the Depositor. The Certificates will be
offered by the Underwriter in negotiated transactions or otherwise, on varying
terms (which may include the sale of separate financial instruments by the
Underwriter or an affiliate) and at varying prices, in each case to be
determined at the time of sale. The Underwriter may effect such transactions by
selling such Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter or purchasers of the Certificates for whom they may act as
agent. Any dealers that participate with the Underwriter in the distribution of
the Certificates purchased by the Underwriter may be deemed to be underwriters,
and any discounts or commissions received by them or the Underwriter and any
profit on the resale of Certificates by them or the Underwriter may be deemed to
be underwriting discounts or commissions under the 1933 Act.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and the Underwriter will
be obligated to purchase all of the Certificates if any are purchased. The
Depositor has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the 1933 Act, or contribute to payments that the
Underwriter may be required to make in respect thereof.
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The Depositor also has been advised by the Underwriter that it currently
expects to make a market in the Certificates, 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 Certificates will develop. For
further information regarding any offer or sale of the Certificates pursuant to
this Prospectus Supplement and the Prospectus, see "PLAN OF DISTRIBUTION" in the
Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans to repay indebtedness
that has been incurred to obtain funds to acquire the Mortgage Loans and to pay
costs of structuring, issuing and underwriting the Certificates.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor
by Morrison & Hecker L.L.P. and for the Underwriter by
[ ].
RATINGS
It is a condition to issuance of the Certificates that the Class A
Certificates, the Class B Certificates [and the Class [ ] Certificates] be rated
[ ] by each of the Rating Agencies.
The Rating Agencies' ratings on mortgage pass-through certificates address
the likelihood of the receipt by holders of payments to which they are entitled
by the Rated Final Distribution Date. The Rating Agencies' 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. Ratings on mortgage pass-through certificates do not, however,
represent an assessment of the likelihood, timing or frequency of principal
prepayments by borrowers or the degree to which such prepayments (both voluntary
and involuntary) might differ from those originally anticipated. The security
ratings do not address the possibility that Certificateholders might suffer a
lower than anticipated yield. In addition, ratings on mortgage pass-through
certificates do not address the likelihood of receipt of Prepayment Premiums or
the timing of the receipt thereof or the likelihood of collection by the Master
Servicer of Default Interest. In general, the ratings thus address credit risk
and not prepayment risk. [As described herein, the amounts payable with respect
to the Class [EC] Certificates consist only of interest. If the entire pool of
Mortgage Loans were to prepay in the initial month, with the result that the
Class [EC] Certificateholders receive only a single month's interest and thus
suffer a nearly complete loss of their investment, all amounts "due" to such
holders will nevertheless have been paid, and such result is consistent with the
[ ] rating received on the Class [EC] Certificates.]
There can be no assurance as to whether any rating agency not requested to
rate the Certificates will nonetheless issue a rating and, if so, what such
rating would be. A rating assigned to the Certificates by a rating agency that
has not been requested by the Depositor to do so may be lower than the rating
assigned by the Rating Agencies pursuant to the Depositor's request.
The rating of the 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. PJRES07F.KCM/cston
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INDEX OF SIGNIFICANT DEFINITIONS
Definitions Page
1933 Act.........................................................S-4
[199__] Net Operating Income..............................S-27, S-28
ACMs............................................................S-40
ADA.............................................................S-44
Advance Rate....................................................S-75
Advances........................................................S-74
Aggregate Certificate Balance...................................S-81
Anticipated Loss................................................S-73
Appraised Value.................................................S-28
Assumed Maturity Date.......................................S-1, S-7
Assumed Scheduled Payment.......................................S-53
Auction Fees....................................................S-82
Auction Valuation Date....................................S-16, S-81
Available Funds.................................................S-49
Available Funds Allocation......................................S-53
Balloon Amount..................................................S-28
Balloon Loans...................................................S-10
Balloon LTV.....................................................S-28
Balloon Payment.................................................S-10
Beneficial Owners...............................................S-58
Book-Entry Certificate..........................................S-58
Business Day.....................................................S-6
Certificate Balance..............................................S-5
Certificate Registrar...........................................S-61
Certificates................................................S-1, S-5
Class A-EC Excess Interest......................................S-51
Class A-EC Notional Balance...............................S-48, S-51
Class A-EC Pass-Through Rate....................................S-51
Class Interest Distribution Amount..................S-11, S-12, S-51
Class Interest Shortfall........................................S-52
Class [EC] Excess Interest.......................................S-2
Class [IO] Notional Balance.....................................S-48
Closing Date.....................................................S-6
Code............................................................S-86
Collection Account..............................................S-75
Collection Period..........................................S-7, S-50
Commission.......................................................S-4
Condemnation Proceeds...........................................S-49
Congregate Care Loan.......................................S-8, S-24
Congregate Care Property...................................S-8, S-24
Constant Prepayment Rate........................................S-66
CPR.............................................................S-66
Cross-Collateralized Loans......................................S-44
Cut-off Date.....................................................S-6
Cut-off Date Principal Balance.............................S-8, S-24
Default Interest................................................S-50
Default Rate....................................................S-51
Definitive Certificate..........................................S-59
Delivery Date....................................................S-1
Department......................................................S-88
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Depositor...................................................S-2, S-5
Depository.......................................................S-7
Determination Date.........................................S-7, S-50
Discount Rate...................................................S-57
Disposition Fee.................................................S-85
Disqualified Organization..................................S-3, S-92
Distribution Account............................................S-75
Distribution Date.....................................S-2, S-6, S-48
DTC.........................................................S-1, S-7
Due Date.........................................................S-7
EC Maturity Date...........................................S-2, S-10
Eligible Bank...................................................S-76
EPA.............................................................S-41
ERISA.....................................................S-18, S-88
Extension Advisor...............................................S-78
Final Recovery Determination....................................S-57
Fiscal Agent................................................S-3, S-6
Form 8-K........................................................S-33
Hotel Loan.................................................S-9, S-24
Hotel Property.............................................S-9, S-24
Indirect Participants...........................................S-59
Initial Pool Balance.......................................S-8, S-24
Insurance Proceeds..............................................S-49
Interest Accrual Period....................................S-6, S-52
Lead Paint Act..................................................S-41
Light Industrial/Industrial Loan...........................S-9, S-24
Light Industrial/Industrial Property.......................S-9, S-24
Liquidation Proceeds............................................S-49
Loan Portfolio Analysis System..................................S-82
Loan Purchase Closing Date......................................S-25
Loan-to-Value Ratio.............................................S-28
Lower-Tier Regular Interests....................................S-16
Lower-Tier REMIC...........................................S-3, S-16
LPAS............................................................S-82
LTV.......................................................S-27, S-28
Major Tenant....................................................S-45
Master Servicer.............................................S-3, S-5
Midland.........................................................S-46
Mobile Home Park Loan......................................S-9, S-24
Mobile Home Park Property..................................S-9, S-24
Monthly Payment............................................S-9, S-50
Mortgage........................................................S-24
Mortgage File...................................................S-71
Mortgage Loan Purchase and Sale Agreement.......................S-25
Mortgage Loans........................................S-2, S-8, S-24
Mortgage Pool....................................................S-2
Mortgage Rate...................................................S-10
Mortgaged Property....................................S-2, S-8, S-24
Multifamily Loan...........................................S-8, S-24
Multifamily Property.......................................S-8, S-24
Net Mortgage Rate...............................................S-52
Net REO Proceeds................................................S-50
Note............................................................S-24
Notional Balances...............................................S-49
Nursing Home Loan..........................................S-8, S-24
S-95
<PAGE>
Nursing Home Property......................................S-8, S-24
Offered Certificates.............................................S-1
Office Building Loan.......................................S-8, S-24
Office Building Property...................................S-8, S-24
Office/Multifamily/Retail Loan.............................S-9, S-24
Office/Multifamily/Retail Property.........................S-9, S-24
Office/Warehouse Loan......................................S-9, S-24
Office/Warehouse Property..................................S-9, S-24
OID Regulations.................................................S-86
Originators.....................................................S-25
P&I Advance...............................................S-14, S-73
P&I Certificates.................................................S-2
Participants....................................................S-59
Pass-Through Rate.........................................S-10, S-52
Paying Agent....................................................S-60
Percentage Interest.............................................S-49
Permitted Investments...........................................S-76
Plan......................................................S-18, S-88
Pooled Principal Distribution Amount......................S-13, S-52
Pooling and Servicing Agreement.......................S-3, S-5, S-70
Prepayment Interest Shortfall...................................S-51
Prepayment Interest Surplus.....................................S-52
Prepayment Premiums.............................................S-50
Principal Prepayments...........................................S-50
Private Certificates.............................................S-5
Property Advances...............................................S-74
Property Protection Expenses....................................S-74
Rating Agencies..................................................S-3
Realized Loss...................................................S-57
Record Date......................................................S-6
Regular Certificates.......................................S-1, S-16
Regulations.....................................................S-89
REMIC................................................S-3, S-16, S-86
Remittance Date.................................................S-73
REO Account.....................................................S-48
REO Mortgage Loan...............................................S-53
REO Property....................................................S-48
Repurchase Price................................................S-72
Reserve Accounts................................................S-26
Residual Certificates............................................S-1
Restricted Group................................................S-91
Retail Loan................................................S-8, S-24
Retail Property............................................S-8, S-24
Retail/Multifamily Loan....................................S-9, S-24
Retail/Multifamily Property................................S-9, S-24
Retail/Office Loan.........................................S-9, S-24
Retail/Office Property.....................................S-9, S-24
Rules...........................................................S-59
Scenarios.......................................................S-67
Scheduled Principal Balance.....................................S-57
Self-Storage Loan..........................................S-9, S-24
Self-Storage Property......................................S-9, S-24
Senior Certificates..............................................S-2
Senior Principal Distribution Cross-Over Date...................S-56
Seriously Delinquent Loan.......................................S-73
S-96
<PAGE>
Servicer Mortgage File..........................................S-71
Servicing Fee...................................................S-84
Servicing Fee Rate..............................................S-84
Similar Law.....................................................S-88
SMMEA...........................................................S-92
Special Servicer................................S-3, S-6, S-47, S-85
Special Servicing Fee...........................................S-85
Specially Serviced Mortgage Loan................................S-85
Subordinate Certificates.........................................S-2
Trust Fund.......................................................S-2
Trust REMICs.....................................................S-3
Trustee.....................................................S-3, S-6
Trustee Mortgage File...........................................S-71
U.S. Person......................................................S-3
Underwriter................................................S-1, S-92
Underwriting Agreement..........................................S-92
Underwritten Cash Flow..........................................S-27
Unscheduled Payments............................................S-50
Updated Appraisal...............................................S-78
Upper-Tier REMIC...........................................S-3, S-16
USTs............................................................S-41
Voting Rights...................................................S-83
Weighted Average Net Mortgage Rate..............................S-52
Yield Maintenance Loan..........................................S-57
Yield Maintenance Period........................................S-57
Zoning Laws.....................................................S-44
S-97
<PAGE>
<TABLE>
Annex A
Table A: Collateral Properties
<CAPTION>
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Net Most
Loan Property Property Year Year Rentable Current Recent Rent
# Name Type Built Renovated Sq.Ft. Units Occup. Roll
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</TABLE>
A-1
<PAGE>
<TABLE>
Annex A
Table B: Property Locations and LTVs
<CAPTION>
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Apprais.
Loan Property Property State Cut-Off Date Appraised Appraised Appraised Balloon Balloon
# Name City Balance Value Date Balance LTV
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</TABLE>
A-2
<PAGE>
<TABLE>
Annex A
Table C: Collateral Debt Service and YTD or Trailing NOI
<CAPTION>
===================================================================================================================================
PropertyAnn Debt Underwrit.Underwrit.Underwrit.Underwrit. Trailing Trail. 12Annual'dAnnual'd YTD YTD 9_
Loan Name Service Value NOI Cash Flow DSC 199_NOI 199_CF 12 NOI NOI as ofYTD NOI CF NOI Mths
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
A-3
<PAGE>
<TABLE>
Annex A
Table C: Collateral Debt Service and YTD or Trailing NOI
<CAPTION>
======================================================================================
Adjust 95
Adjusted Ann Annual'd Cash
Loan YTD NOI Flow Financial Comments
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<S> <C> <C> <C>
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</TABLE>
A-4
<PAGE>
<TABLE>
Annex A
Table D: Mortgage Loan Terms
<CAPTION>
===================================================================================================
Original
Loan Property Original Cut-Off-Date Interest Amort Term Mat. Remain. Remain. Balloon
# Balance Balance Rate Term to Mat. Date Amort. Term Balance
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
A-5
<PAGE>
<TABLE>
Annex A
Table E: Retail Subcategories
<CAPTION>
=================================================================================
Cut-Off-Date
Loan # Property Name Retail Sub Categories Balance
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<S> <C> <C> <C>
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</TABLE>
<TABLE>
<CAPTION>
============================================================
Type of Retail % of Cut-Off Date Balance
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<S> <C>
============================================================
</TABLE>
A-6
<PAGE>
<TABLE>
Annex B
Prepayment Provisions
<CAPTION>
===============================================================================================
Penalty
Yield Prepayment Premium
Property Cut-Off Date Lockout Maint. Premium During following YM % Premium
Loan # Name Balance Period Period YM (in years) After YM
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
<PAGE>
Midland Realty Acceptance Corp.
Depositor
Commercial/Multifamily Mortgage Pass-Through Certificates
(Issuable in Series)
Midland Realty Acceptance Corp. (the "Depositor") from time to time will
offer Commercial/Multifamily Mortgage Pass-Through Certificates (the "Offered
Certificates") in "Series" by means of this Prospectus and a separate Prospectus
Supplement for each Series. The Offered Certificates, together with any other
Commercial/Multifamily Mortgage Pass-Through Certificates of such Series, are
collectively referred to herein as the "Certificates." The Certificates of each
Series will evidence beneficial ownership interests in a trust fund (the "Trust
Fund") to be established by the Depositor. The Certificates of a Series may be
divided into two or more "Classes," which may have different interest rates and
which may receive principal payments in differing proportions and at different
times. In addition, rights of the holders of certain Classes to receive
principal and interest may be subordinated to those of other Classes. Each Trust
Fund will consist of a pool (the "Mortgage Pool") of one or more mortgage loans
secured by first or junior liens on fee simple or leasehold interests in
commercial real estate properties, multifamily residential properties and/or
mixed residential/commercial properties and related property and interests,
conveyed to such Trust Fund by the Depositor, and other assets, including any
Credit Enhancement described in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the Mortgage Pool may also
include participation interests in such types of mortgage loans, installment
contracts for the sale of such types of properties and/or mortgage pass-through
certificates (including private mortgage-pass-through certificates, Certificates
issued or guaranteed by FHLMC, FNMA or GNMA or mortgage pass-through
certificates previously created by the Depositor). Such mortgage loans,
participation interests, installment contracts and mortgage pass-through
certificates are hereinafter referred to as the "Mortgage Loans." The Mortgage
Loans will have fixed or adjustable interest rates. Some Mortgage Loans will
fully amortize over their remaining terms to maturity and others will provide
for balloon payments at maturity. The Mortgage Loans will provide for recourse
against only the Mortgaged Properties or provide for recourse against the other
assets of the obligors thereunder. The Mortgage Loans will be newly originated
or seasoned, and will be acquired by the Depositor either directly or through
one or more affiliates. Information regarding each Series of Certificates,
including interest and principal payment provisions for each Class, as well as
information regarding the size, composition and other characteristics of the
Mortgage Pool relating to such Series, will be furnished in the related
Prospectus Supplement. The Mortgage Loans will be serviced by a Master Servicer
identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER
"RISK FACTORS" AT PAGE 3 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE
CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING
ANY OF THE OFFERED CERTIFICATES.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will elect to treat either the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as a
"real estate mortgage investment conduit" (a "REMIC"). If such election is made,
each Class of Certificates of a Series will be either Regular Certificates or
Residual Certificates, as specified in the related Prospectus Supplement. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN OF
DISTRIBUTION" herein and in the related Prospectus Supplement. Certain offerings
of the Certificates, as specified in the related Prospectus Supplement, may be
made in one or more transactions exempt from the registration requirements of
the Securities Act of 1933, as amended. Such offerings are not being made
pursuant to the Registration Statement of which this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally recognized
statistical rating organizations. There will have been no public market for the
Certificates of any Series prior to the offering thereof. No assurance can be
given that such a secondary market will develop as a result of such offering or,
if it does develop, that it will continue.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Certificates offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is , 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will, among
other things, set forth with respect to such Series of Certificates: (i) the
identity of each Class within such Series; (ii) the initial aggregate principal
amount, the interest rate (the "Pass-Through Rate") (or the method for
determining it) and the authorized denominations of each Class of Certificates
of such Series; (iii) certain information concerning the Mortgage Loans relating
to such Series, including the principal amount, type and characteristics of such
Mortgage Loans on the date of issue of such Series of Certificates; (iv) the
circumstances, if any, under which the Certificates of such Series are subject
to redemption prior to maturity; (v) the final scheduled distribution date of
each Class of Certificates of such Series; (vi) the method used to calculate the
aggregate amount of principal available and required to be applied to the
Certificates of such Series on each Distribution Date; (vii) the order of the
application of principal and interest payments to each Class of Certificates of
such Series and the allocation of principal to be so applied; (viii) the extent
of subordination of any Subordinate Certificates; (ix) the principal amount of
each Class of Certificates of such Series that would be outstanding on specified
Distribution Dates, if the Mortgage Loans relating to such Series were prepaid
at various assumed rates; (x) the Distribution Dates for each Class of
Certificates of such Series; (xi) relevant financial information with respect to
the Mortgagor(s) and the Mortgaged Properties underlying the Mortgage Loans
relating to such Series, if applicable; (xii) information with respect to the
terms of the Subordinate Certificates or Residual Certificates, if any, of such
Series; (xiii) additional information with respect to the Credit Enhancement, if
any, relating to such Series; (xiv) additional information with respect to the
plan of distribution of such Series; and (xv) whether the Certificates of such
Series will be registered in the name of the nominee of The Depository Trust
Company or another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is a
part. For further information, reference is made to such Registration Statement
and the exhibits thereto which the Depositor has filed with the Securities and
Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "1933 Act"). Statements contained in this Prospectus and any
Prospectus Supplement as to the contents of any contract or other document
referred to are summaries and in each instance reference is made to the copy of
the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be examined free of
charge at the Commission's offices. Reports and other information filed with the
Commission can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Agreement pursuant to which a Series of Certificates is issued
will be provided to each person to whom a Prospectus and the related Prospectus
Supplement are delivered, upon written or oral request directed to: Midland
Realty Acceptance Corp., 201 West 10th Street, 6th Floor, Kansas City, Missouri
64105, Attention: ________________________, telephone number
________________________.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to the Trust Fund for each Series, there are incorporated herein
by reference all documents and reports filed or caused to be filed by the
Depositor with respect to such Trust Fund pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, after the date of this
Prospectus and prior to the termination of the offering of the Offered
Certificates evidencing an interest in such Trust Fund. 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 Certificates, upon request, a copy of any or all such 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 Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). The Depositor has determined that
its financial statements are not material to the offering of any of the Offered
Certificates. See "FINANCIAL INFORMATION." Requests to the Depositor should be
directed to: Midland Realty Acceptance Corp., 210 West 10th Street, 6th Floor,
Kansas City, Missouri 64105, Attention: ____________________, telephone number
- ----------------------------.
2
<PAGE>
REPORTS
In connection with each distribution and annually, Certificateholders will be
furnished with statements containing information with respect to principal and
interest payments and the related Trust Fund, as described herein and in the
applicable Prospectus Supplement for such Series. Any financial information
contained in such reports most likely will not have been examined or reported
upon by an independent public accountant. See "DESCRIPTION OF THE
CERTIFICATES--Reports to Certificateholders." The Master Servicer for each
Series relating to Mortgage Loans will furnish periodic statements setting forth
certain specified information to the related Trustee, and, in addition, annually
will furnish such Trustee with a statement from a firm of independent public
accountants with respect to the examination of certain documents and records
relating to the servicing of the Mortgage Loans in the related Trust Fund. See
"SERVICING OF THE MORTGAGE LOANS--Evidence of Compliance." Copies of the monthly
and annual statements provided by the Master Servicer to the Trustee will be
furnished to Certificateholders of each Series upon request addressed to the
Trustee for the related Trust Fund.
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. 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 Agreement as
described herein under the heading "DESCRIPTION OF THE CERTIFICATES--Reports to
Certificateholders" and "SERVICING OF THE MORTGAGE LOANS--Evidence of
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
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 Collection Account and any
accounts maintained as Credit Enhancement, 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 Mortgaged Properties have been realized, 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.
Average Life of Certificates; Prepayments; Yields
Prepayments on the Mortgage Loans 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 Loans were made as scheduled.
Thus, the prepayment experience on the Mortgage Loans 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
Loans in any Trust Fund or that the rate of payments will conform to any model
described in any Prospectus Supplement. If prevailing interest rates fall
significantly below the applicable rates borne by the Mortgage Loans included in
a Trust Fund, principal prepayments are likely to be higher than if prevailing
rates remain
3
<PAGE>
at or above the rates borne by those Mortgage Loans. As a result, the actual
maturity of any Class of Certificates could occur significantly earlier than
expected. Alternatively, the actual maturity of any Class of Certificates could
occur significantly later than expected as a result of prepayment premiums or
the existence of defaults on the Mortgage Loans, particularly at or near their
maturity dates. In addition, the Master Servicer or the Special Servicer, if
any, may have the option under the Agreement for such Series to extend the
maturity of the Mortgage Loans following a default in the payment of a balloon
payment, which would also have the effect of extending the average life of each
Class of related Certificates. 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 Loans. 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 Loans and, if the amount
of interest payable with respect to a Class is disproportionately high, as
compared to the amount of principal, a holder might, in some prepayment
scenarios, fail to recoup its original investment. See "YIELD CONSIDERATIONS" 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 on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the 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, or a Certificate that is entitled to disproportionately low, nominal or
no principal distributions, 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 Enhancement, 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 the Certificates 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 Enhancement
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 Loans. No assurance can be given
with respect to any Mortgage Loan that the appraised value of the related
Mortgaged Property has remained or will remain at its level as of the
origination date of such Mortgage Loan. Moreover, there is no assurance that
appreciation of real estate values generally will limit loss experiences on
commercial or multifamily 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 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 for similar
mortgage loans. 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 Credit
Enhancement, 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 "CREDIT
ENHANCEMENT" herein and "RATINGS" in the related Prospectus Supplement.
Risks Associated with Lending on Income Producing 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. For example, 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
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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.
Further, the concentration of default, foreclosure and loss risks for
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 Loans 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. The Trust Fund may consist of a single Mortgage Loan.
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. A number
of the Mortgage Loans may be secured by liens on owner- occupied Mortgaged
Properties or on Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the borrower 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. Furthermore, the value of any
Mortgaged Property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; natural
disasters; and other factors beyond the control of the Master Servicer or the
Special Servicer, if any.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals, nursing homes or convalescent homes may present special risks to
mortgagees due to the significant governmental regulation of the ownership,
operation, maintenance, control and financing of health care institutions.
Mortgages encumbering mortgaged properties that 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. Hotel and motel
properties are often operated pursuant to franchise, management or operating
agreements that may be terminable by the franchiser or operator. Moreover, the
transferability of a hotel's operating, liquor and other licenses upon a
transfer of the hotel, whether through purchase or foreclosure, is subject to
local law requirements. In addition, mortgaged properties that are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties. See "RISK FACTORS--RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND
MORTGAGED PROPERTIES." Any such risks will be more fully described in the
related Prospectus Supplement under the caption "DESCRIPTION OF THE MORTGAGE
POOL."
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."
Nonrecourse Mortgage Loans
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 multifamily or commercial property
and such other assets, if any, as have been pledged to secure the 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.
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. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by a Special Servicer. Credit
Enhancement, if provided with respect to a particular Series of Certificates,
may not cover all losses related to such delinquent or non-performing Mortgage
Loans, and investors should consider the risk that the
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inclusion of such Mortgage Loans in the Trust Fund may adversely affect the rate
of defaults and prepayments on Mortgaged Properties and the yield on the
Certificates of such Series.
Junior Mortgage Loans
Certain of the Mortgage Loans may be junior mortgage loans. The primary risk
to holders of Mortgage Loans secured by junior liens is the possibility that a
foreclosure of a related senior lien would extinguish the junior lien and that
adequate funds will not be received in connection with such foreclosure to pay
the debt held by the holder of such junior Mortgage Loan after satisfaction of
all related senior liens. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries" and
"--Foreclosure" for a discussion of additional risks to holders of Mortgage
Loans secured by junior liens.
Balloon Payments
Certain of the 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 refinance the loan or to sell the related Mortgaged Property in a
timely manner. 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 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 hospitals, nursing homes and congregate care
facilities), renewability of operating licenses, prevailing general economic
conditions and the availability of credit for commercial or multifamily, as the
case may be, real properties generally.
Obligor Default
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer or Special Servicer,
if any, will be permitted (within prescribed parameters) to extend and modify
Mortgage Loans that are in default or as to which a payment default is
reasonably foreseeable, including in particular with respect to balloon
payments. In addition, a Master Servicer or a Special Servicer, if any, may
receive workout fees, management fees, liquidation fees or other similar fees
based on receipts from or proceeds of such Mortgage Loans. Although a Master
Servicer or Special Servicer, if any, generally will be required to determine
that any such extension or modification is reasonably likely to produce a
greater recovery amount 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 amount of receipts from or proceeds of Mortgage Loans that
are in default or as to which a payment default is reasonably foreseeable.
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 Enhancement Limitations
The Prospectus Supplement for a Series of Certificates will describe any
Credit Enhancement in the related Trust Fund, which may include letters of
credit, insurance policies, cash collateral accounts, surety bonds, limited
guarantees, reserve funds or other types of credit support, or combinations
thereof. Use of Credit Enhancement will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement and is not
expected to cover all potential losses or risks or guarantee repayment of the
entire principal balance of the Certificates and interest thereon.
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 or be
reduced to zero under certain circumstances. In addition, if principal payments
on one or more Classes of Certificates of a Series are made in a specified order
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of priority, any limits with respect to the aggregate amount of claims under any
related Credit Enhancement 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 Mortgaged Properties may
fall primarily upon those Classes of Certificates having a lower priority of
payment. Moreover, if a form of Credit Enhancement covers more than one Series
of Certificates, holders of Certificates of one Series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of the holders
of Certificates of one or more other Series.
The amount of any applicable Credit Enhancement 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 Mortgaged
Properties will not exceed such assumed levels and result in losses to the
Certificateholders. See "--Limited Nature of Ratings," "DESCRIPTION OF THE
CERTIFICATES" and "CREDIT ENHANCEMENT."
Due-on-Sale Clauses and Assignments of Leases and Rents
Mortgages may contain a due-on-sale clause, which permits the mortgagee 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 mortgagee 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 mortgagee
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 mortgagee is entitled to collect rents.
Such assignments are typically not perfected as security interests prior to the
mortgagee's taking possession of the related Mortgaged Property and/or a
receiver is appointed. Some state laws may require that the mortgagee 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 mortgagee's ability to collect the rents may be adversely
affected, See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--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 mortgagee 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
mortgagee have become sufficiently involved in the operations of the mortgagor,
regardless of whether the environmental damage or threat was caused by a prior
owner. A mortgagee also risks such liability on foreclosure of the mortgage.
Unless otherwise specified in the related Prospectus Supplement, each Agreement
will provide that the Master Servicer or the Special Servicer, if any, acting on
behalf of the Trust Fund, may not acquire title to a Mortgaged Property securing
a Mortgage Loan or take over its operation unless the Master Servicer or Special
Servicer, as applicable, 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, 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 (ii) if the Mortgaged Property is not so in
compliance or such circumstances are so present, then it would be in the best
economic interest of the Trust Fund to acquire title to the Mortgaged Property
and further to take such actions as would be necessary and appropriate to effect
such compliance and/or respond to such circumstances, which may include
obtaining an environmental insurance policy. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Environmental Risks."
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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 that 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. See "ERISA CONSIDERATIONS."
Certain Federal Tax Considerations Regarding Residual Certificates
Holders of 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--Taxation of
Holders of Residual Certificates." Accordingly, under certain circumstances,
holders of Offered Certificates that constitute 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. The requirement that
holders of Residual Certificates report their pro rata share of the taxable
income and net loss of the REMIC will continue until the Certificate Balances of
all Classes of Certificates of the related Series have been reduced to zero,
even though holders of Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all) of
such Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder that (i) generally, will not be subject
to offset by losses from other activities, (ii) for a tax-exempt holder, will be
treated as unrelated business taxable income and (iii) for a foreign holder,
will not qualify for exemption from withholding tax. Individual holders of
Residual Certificates may be limited in their ability to deduct servicing fees
and other expenses of the REMIC. In addition, Residual Certificates are subject
to certain restrictions on transfer. In particular, the transfer of a Residual
Interest to certain "Disqualified Organizations" is prohibited. If transfer
occurs in violation of such prohibition, a tax is imposed on the transfer. In
addition, the transfer of a "noneconomic residuary interest" by a Residual
Certificateholder will be disregarded under certain circumstances with the
transferor remaining liable for any taxable income derived from the Residual
Interest by the transferee Residual Certificateholder. See "CERTAIN FEDERAL
INCOME TAX CONSE-QUENCES--Restrictions on Ownership and Transfer of Residual
Certificates." Because of the special tax treatment of Residual Certificates,
the taxable income arising in a given year on Residual Certificates 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 Residual Certificates may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics.
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, which will be specified in the related Prospectus
Supplement ("Voting Rights"), will be required to direct, and will be sufficient
to bind all Certificateholders of such Series to, certain actions, including
amending the related Agreement in certain circumstances. See "SERVICING OF THE
MORTGAGE LOANS--Events of Default," "--Rights Upon Event of Default" and
"DESCRIPTION OF THE CERTIFICATES--Amendment."
Book-Entry Registration
If so provided in the related Prospectus Supplement, one or more Classes of
the Certificates will be initially represented by one or more certificates
registered in the name of the nominee for The Depository Trust Company, and will
not be registered in the names of the Certificateholders or their nominees.
Because of this, unless and until definitive certificates are issued, beneficial
owners of the Certificates of such Class or Classes will not be recognized by
the Trustee as "Certificateholders" (as that term is to be used in the related
Agreement). Hence, until such time, the beneficial owners will be able to
exercise the rights of Certificateholders only indirectly through The Depository
Trust Company and its participating organizations. See "DESCRIPTION OF THE
CERTIFICATES--General."
THE DEPOSITOR
Midland Realty Acceptance Corp. was incorporated in the State
of Missouri on May 14, 1996 as a wholly owned, limited purpose
finance subsidiary of Midland Loan Services, L.P. The principal
executive offices
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of the Depositor are located at 210 West 10th Street, 6th Floor, Kansas City,
Missouri 64105. Its telephone number is (816) 435-5000.
Unless otherwise specified in the applicable Prospectus Supplement, the
Depositor will have no servicing obligations or responsibilities with respect to
any Series of Certificates, Mortgage Pool or Trust Fund. The Depositor does not
have, nor is it expected in the future to have, any significant assets.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will insure or guarantee distributions on the
Certificates of any Series.
The assets of the Trust Funds will be acquired by the Depositor directly or
through one or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Offered Certificates to purchase the Mortgage Loans
relating to such Series, to repay indebtedness that has been incurred to obtain
funds to acquire Mortgage Loans, to obtain Credit Enhancement, if any, for the
Series and to pay costs of structuring, issuing and underwriting the
Certificates. If so specified in the related Prospectus Supplement, Certificates
may be exchanged by the Depositor for Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to a separate Pooling
and Servicing Agreement (the "Agreement") to be entered into among the
Depositor, the Master Servicer, the Special Servicer, if any, and the Trustee
for that Series and any other parties described in the applicable Prospectus
Supplement, substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus is a part or in such other form as may be
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Series and the
Agreement with respect to the underlying Trust Fund. However, the Prospectus
Supplement for each Series will describe more fully the Certificates and the
provisions of the related Agreement, which may be different from the summaries
set forth below.
At the time of issuance, the Offered Certificates of each Series will be
rated "investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Offered Certificates of the related Series
is hereinafter referred to as a "Rating Agency." 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.
General
The Certificates of each Series will be issued in registered or book-entry
form and will represent beneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for such Series. The Trust Fund
for each Series will primarily comprise, to the extent provided in the
Agreement: (i) the Mortgage Loans conveyed to the Trustee pursuant to the
Agreement; (ii) all payments on or collections in respect of the Mortgage Loans
due after the Cut-off Date; (iii) any REO property; (iv) all revenue received in
respect of REO Property; (v) insurance policies with respect to such Mortgage
Loans; (vi) any assignments of leases, rents and profits and security
agreements; (vii) any indemnities or guaranties given as additional security for
such Mortgage Loans; (viii) the Trustee's right, title and interest in and to
any reserve or Escrow Accounts established pursuant to any of the Mortgage Loan
documents (each, a "Reserve Account"); (ix) the Collection Account; (x) the
Distribution Account and the REO Account; (xi) any environmental indemnity
agreements relating to such Mortgaged Properties; (xii) the rights and remedies
under the Mortgage Loan Purchase and Sale Agreement; (xiii) the proceeds of any
of the foregoing (excluding interest earned on deposits in any Reserve Account,
to the extent such interest belongs to the related Mortgagor); and (xiv) such
other assets or rights as are described in the related Prospectus Supplement. In
addition, the Trust Fund for a Series may include private mortgage pass-through
certificates, certificates issued or guaranteed by the
- --------
*Whenever in this Prospectus the terms "Certificates," "Trust Fund" and
"Mortgage Pool" are used, such terms will be deemed to apply, unless the context
indicates otherwise, to a specific Series of Certificates, the Trust Fund
underlying the related Series and the related Mortgage Pool.
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Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA") or the Governmental National Mortgage Association ("GNMA")
or mortgage pass-through certificates previously created by the Depositor, as
well as various forms of Credit Enhancement. See "CREDIT ENHANCEMENT." Such
other assets will be described more fully in the related Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes, which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
structured to receive principal payments in sequence. Each Class in a group of
sequential pay Classes would be entitled to be paid in full before the next
Class in the group is entitled to receive any principal payments. A Class of
Certificates may also provide for payments of principal only or interest only or
for disproportionate payments of principal and interest. Subordinate
Certificates of a given Series of Certificates may be offered in the same
Prospectus Supplement as the Senior Certificates of such Series or may be
offered in a separate offering document. Each Class of Certificates of a Series
will be issued in the minimum denominations specified in the related Prospectus
Supplement.
The Prospectus Supplement for any Series including Classes similar to any of
those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes; (ii) the
risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios; and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Offered Certificates of each Series will be freely transferable and
exchangeable at the office specified in the related Agreement and Prospectus
Supplement, provided, however, that certain Classes of Certificates may be
subject to transfer restrictions described in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, the Certificates may be
transferable only on the books of The Depository Trust Company or another
depository identified in such Prospectus Supplement.
Distributions on Certificates
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders") by the
Trustee (or such other paying agent as may be identified in the related
Prospectus Supplement) on the day (the "Distribution Date") specified in the
related Prospectus Supplement, beginning in the period specified in the related
Prospectus Supplement following the establishment of the related Trust Fund.
Distributions for each Series will be made by check mailed to the address of the
person entitled thereto as it appears on the certificate register for such
Series maintained by the Trustee, by wire transfer or by such other method as is
specified in the related Prospectus Supplement. Unless otherwise specified in
the applicable Prospectus Supplement, the final distribution in retirement of
the Certificates of each Series will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice to
the Certificateholders of such final distribution. In addition, the Prospectus
Supplement relating to each Series will set forth the applicable due period,
prepayment period, record date, Cut-off Date and determination date in respect
of each Series of Certificates.
With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on such
Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Master Servicer or the
Special Servicer, if any, after a date specified in the related Prospectus
Supplement (the "Cut-off Date") and prior to the day preceding each Distribution
Date specified in the related Prospectus Supplement.
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Accounts
It is expected that the Agreement for each Series of Certificates will
provide that the Trustee establish an account (the "Distribution Account") into
which the Master Servicer will deposit amounts held in the Collection Account
from which Certificateholder distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts on
deposit in the Distribution Account generally to make distributions of interest
and principal to the Certificateholders in the manner described in the related
Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates will
provide that the Master Servicer establish and maintain an account (the
"Collection Account") in the name of the Trustee for the benefit of
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will deposit into the Collection Account all
amounts received on or in respect of the Mortgage loans. Unless otherwise
specified in the related Prospectus Supplement and as set forth in the Agreement
for each Series, the Master Servicer will be entitled to make certain
withdrawals from the Collection Account to, among other things: (i) remit
certain amounts for the related Distribution Date into the Distribution Account;
(ii) pay Property Protection Expenses, taxes, assessments and insurance premiums
and certain third-party expenses in accordance with the Agreement; (iii) pay
accrued and unpaid servicing fees and other servicing compensation to the Master
Servicer and the Special Servicer, if any; and (iv) reimburse the Master
Servicer, the Special Servicer, if any, the Trustee and the Depositor for
certain expenses and provide indemnification to the Depositor, the Master
Servicer and the Special Servicer, if any, as described in the Agreement.
"Property Protection Expenses" comprise certain costs and expenses incurred in
connection with defaulted Mortgage Loans, acquiring title to, or management of,
REO Property or the sale of defaulted Mortgage Loans or REO Properties, as more
fully described in the related Agreement.
The amount at any time credited to the Collection Account or the Distribution
Account may be invested in Permitted Investments that are payable on demand or
in general mature or are subject to withdrawal or redemption on or before the
business day preceding the next succeeding Master Servicer Remittance Date, in
the case of the Collection Account, or the business day preceding the next
succeeding Distribution Date, in the case of the Distribution Account. The
Master Servicer will be required to remit amounts on deposit in the Collection
Account that are required for distribution to Certificateholders to the
Distribution Account on or before the business day preceding the related
Distribution Date (the "Master Servicer Remittance Date"). Unless otherwise
specified in the related Prospectus Supplement, the income from the investment
of funds in the Collection Account and the Distribution Account in Permitted
Investments will constitute additional servicing compensation for the Master
Servicer, and the risk of loss of funds in the Collection Account and the
Distribution Account resulting from such investments will be borne by the Master
Servicer. The amount of each such loss will be required to be deposited by the
Master Servicer in the Collection Account or the Distribution Account, as the
case may be, promptly as realized.
It is expected that the Agreement for each Series of Certificates will
provide that an account (the "REO Account") will be established and maintained
in order to be used in connection with REO Properties and, if specified in the
related Prospectus Supplement, certain other Mortgaged Properties. To the extent
set forth in the Agreement, certain withdrawals from the REO Account will be
made to, among other things, (i) make remittances to the Collection Account as
required by the Agreement; (ii) pay taxes, assessments, insurance premiums,
other amounts necessary for the proper operation, management and maintenance of
the REO Properties and such Mortgaged Properties and certain third-party
expenses in accordance with the Agreement; and (iii) provide for the
reimbursement of certain expenses in respect of the REO Properties and such
Mortgaged Properties.
The amount at any time credited to the REO Account may be invested in
Permitted Investments that are payable on demand or mature, or are subject to
withdrawal or redemption on or before the business day preceding the day on
which such amounts are required to be remitted to the Master Servicer for
deposit in the Collection Account. Unless otherwise specified in the related
Prospectus Supplement, the income from the investment of funds in the REO
Account in Permitted Investments will be for the benefit of the Master Servicer,
or the Special Servicer, if applicable, and the risk of loss of funds in the REO
Account resulting from such investments will be borne by the Master Servicer, or
the Special Servicer, if applicable.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" will consist of one or more of the following:
(i) direct obligations of, or guarantees as to timely payment of principal
and interest by, the United States or any agency or instrumentality thereof,
provided that such obligations are backed by the full faith and credit of the
United States of America;
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(ii) direct obligations of the FHLMC (debt obligations only), FNMA (debt
obligations only), the Federal Farm Credit System (consolidated systemwide
bonds and notes only), the Federal Home Loan Banks (consolidated debt
obligations only), the Student Loan Marketing Association, the Financing
Corp. (consolidated debt obligations only) and the Resolution Funding Corp.;
(iii) federal funds time deposits in, or certificates of deposit of, or
bankers' acceptances, or repurchase obligations, all having maturities of not
more than 365 days, issued by any bank or trust company, savings and loan
association or savings bank, depositing institution or trust company having a
short term debt obligation rating from Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc. ("S&P") of "A-1+" and the highest short-term
rating available from each of the other Rating Agencies, or such lower rating
as will not result in the downgrade or withdrawal of the rating or ratings
then assigned to the Certificates by any Rating Agency;
(iv) commercial paper having a maturity of 365 days or less (including
both non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one year
after the date of issuance thereof and demand notes that constitute vehicles
for investment in commercial paper) that is rated by each Rating Agency in
its highest short-term unsecured rating category;
(v) units of taxable money market funds rated "AAAm" or "AAAg" by S&P's or
mutual funds, which funds seek to maintain a constant asset value and have
been rated by each Rating Agency as Permitted Investments with respect to
this definition;
(vi) if previously confirmed in writing to the Trustee, any other demand,
money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency as a permitted
investment of funds backing securities having ratings equivalent to each
Rating Agency's highest initial rating of the Certificates; and
(vii) such other obligations as are acceptable as Permitted
Investments to each Rating Agency;
provided, however, that (a) none of such obligations or securities listed above
may have an "r" highlighter affixed to its rating if rated by S&P; (b) each such
obligation or security will have a fixed dollar amount of principal due at
maturity which cannot vary or change; (c) if any such obligation or security
provides for a variable rate of interest, interest will be tied to a single
interest rate index plus a single fixed spread (if any) and move proportionately
with that index; and (d) if any of the obligations or securities listed in
paragraphs (iii) - (vi) above are not rated by each Rating Agency, such
investment will nonetheless qualify as a Permitted Investment if it is rated by
S&P and one other nationally recognized statistical rating organization; and
provided, further, that such instrument continues to qualify as a "cash flow
investment" pursuant to Code Section 86OG(a)(6) earning a passive return in the
nature of interest and that no instrument or security will be a Permitted
Investment if (i) such instrument or security evidences a right to receive only
interest payments or (ii) the right to receive principal and interest payments
derived from the underlying investment provides a yield to maturity in excess of
120% of the yield to maturity at par of such underlying investment as of the
date of its acquisition.
Amendment
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will provide that it may be amended from time to time
by the parties thereto, without the consent of any of the Certificateholders,
(i) to cure any ambiguity, (ii) to correct or supplement any provisions therein
that may be inconsistent with any other provisions therein, (iii) to amend any
provision thereof to the extent necessary or desirable to maintain the rating or
ratings assigned to each of the Classes of Certificates by each Rating Agency or
(iv) to make any other provisions with respect to matters or questions arising
under the Agreement that will not (a) be inconsistent with the provisions of the
Agreement, (b) result in the downgrading, withdrawal or qualification of the
rating or ratings then assigned to any outstanding Class of Certificates and (c)
adversely affect in any material respect the interests of any Certificateholder,
as evidenced by an opinion of counsel.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will also provide that it may be amended from time to time by the
parties thereto with the consent of the holders of each of the Classes of
Regular Certificates representing not less than a percentage specified in the
related Agreement of each Class of Certificates affected by the amendment for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Agreement or of modifying in any manner the rights
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of the Certificateholders; provided, however, that no such amendment shall: (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans that are required to be distributed on any Certificate without
the consent of each affected Certificateholder; (ii) change the percentage of
Certificates the holders of which are required to consent to any action or
inaction under the Agreement, without the consent of the holders of all
Certificates then outstanding; or (iii) alter the obligations of the Master
Servicer or the Trustee to make an advance without the consent of the holders of
all Certificates representing all of the Voting Rights of the Class or Classes
affected thereby.
Further, the Agreement for each Series may provide that the parties thereto,
at any time and from time to time, without the consent of the
Certificateholders, may amend the Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of any REMIC related to such Series or to prevent the imposition
of any additional material state or local taxes, at all times that any of the
Certificates are outstanding, provided, however, that such action, as evidenced
by an opinion of counsel, is necessary or helpful to maintain such qualification
or to prevent the imposition of any such taxes, and would not adversely affect
in any material respect the interest of any Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the Voting
Rights of any Class of Certificates will be allocated among holders of
Certificates of such Class in proportion to their respective percentage
interests, except that any Certificate beneficially owned by the Depositor, the
Master Servicer, the Special Servicer (if any), any mortgagor, the Trustee, a
manager or any of their respective affiliates will be deemed not to be
outstanding; provided, however that, Certificates beneficially owned by the
Master Servicer, the Special Servicer (if any), or any affiliate thereof will be
deemed to be outstanding in connection with any required consent to an amendment
of the Agreement that relates to an action that would materially adversely
affect in any material respect the interests of the Certificateholders of any
Class while the Master Servicer, the Special Servicer (if any), or any such
affiliate owns not less than a percentage specified in the related Agreement of
such Class.
The Agreement relating to each Series may provide that no amendment to such
Agreement will be made unless there has been delivered in accordance with such
Agreement an opinion of counsel to the effect that such amendment will not cause
such Series to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement.
Termination
The obligations of the parties to the Agreement for each Series will
terminate upon: (i) the purchase of all of the assets of the related Trust Fund,
as described in the related Prospectus Supplement; (ii) the later of (a) the
distribution to Certificateholders of that Series of final payment with respect
to the last outstanding Mortgage Loan or (b) the disposition of all property
acquired upon foreclosure or deed-in-lieu of foreclosure with respect to the
last outstanding Mortgage Loan and the remittance to the Certificateholders of
all funds due under the Agreement; (iii) the sale of the assets of the related
Trust Fund after the principal amounts of all Certificates have been reduced to
zero under circumstances set forth in the Agreement; or (iv) mutual consent of
the parties and all Certificateholders. With respect to each Series, the Trustee
will give or cause to be given written notice of termination of the Agreement to
each Certificateholder and, unless otherwise specified in the applicable
Prospectus Supplement, the final distribution under the Agreement will be made
only upon surrender and cancellation of the related Certificates at an office or
agency specified in the notice of termination.
Reports to Certificateholders
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus Supplement)
will forward to each Certificateholder a statement setting forth such
information relating to such distribution as is specified in the Agreement and
described in the applicable Prospectus Supplement.
The Trustee
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in the
applicable Prospectus Supplement. See "SERVICING OF THE MORTGAGE LOANS--Certain
Matters with Respect to the Master Servicer, the Special Servicer, the Trustee
and the Depositor."
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THE MORTGAGE POOLS
General
Each Mortgage Pool will consist of mortgage loans secured by first or junior
mortgages, deeds of trust or similar security instruments (each, a "Mortgage")
on, or installment contracts ("Installment Contracts") for the sale of, fee
simple or leasehold interests in commercial real estate property, multifamily
residential property, and/or mixed residential/commercial property, and related
property and interests (each such interest or property, as the case may be, a
"Mortgaged Property"). A Mortgage Pool may also include any or all of the
participation interests in such types of mortgage loans, private mortgage
pass-through certificates, certificates issued or guaranteed by FHLMC, FNMA or
GNMA and mortgage pass-through certificates previously created by the Depositor.
Each such mortgage loan, Installment Contract, participation interest or
certificate is herein referred to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. mortgage loans with fixed interest rates;
2. mortgage loans with adjustable interest rates;
3. mortgage loans whose principal balances fully amortize
over their remaining terms to maturity;
4. mortgage loans whose principal balances do not fully
amortize, but instead provide for a substantial
principal payment at the stated maturity of the loan;
5. mortgage loans that provide for recourse against only
the Mortgaged Properties;
6. mortgage loans that provide for recourse against the
other assets of the related Mortgagors; and
7. any other types of mortgage loans described in the
applicable Prospectus Supplement.
Certain Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first to interest accrued
from the last date to which interest has been paid to the date such payment is
received and the balance thereof is applied to principal, and other Mortgage
Loans may provide for payment of interest in advance rather than in arrears.
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees or
both. Pursuant to an assignment of leases and rents, the obligor on the related
promissory note (the "Note") assigns its right, title and interest as landlord
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 obligor defaults, the license terminates and the related
mortgagee is entitled to collect the rents from tenants to be applied to the
monetary obligations of the obligor. State law may limit or restrict the
enforcement of the assignment of leases and rents by a mortgagee until the
mortgagee takes possession of the related Mortgaged Property and/or a receiver
is appointed. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Leases and
Rents."
A Trust Fund may consist of a single Mortgage Loan or a number of Mortgage
Loans with a single obligor or related obligors thereunder, or multiple Mortgage
Loans with multiple unrelated obligors thereunder, as specified in the related
Prospectus Supplement. The Mortgage Loans will be newly originated or seasoned,
and will be acquired by the Depositor either directly or through one or more
affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or entity.
The Prospectus Supplement relating to each Series will specify the originator
or originators relating to the Mortgage Loans, which may include, among others,
commercial banks, savings and loan associations, other financial institutions,
mortgage banks, credit companies, insurance companies, real estate developers or
other HUD approved lenders, and the underwriting criteria to the extent
available in connection with originating
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the Mortgage Loans. The criteria applied by the Depositor in selecting the
Mortgage Loans to be included in a Mortgage Pool will vary from Series to
Series. The Prospectus Supplement relating to each Series also will provide
specific information regarding the characteristics of the Mortgage Loans, as of
the Cut-off Date, including, among other things: (i) the aggregate principal
balance of the Mortgage Loans; (ii) the types of properties securing the
Mortgage Loans and the aggregate principal balance of the Mortgage Loans secured
by each type of property; (iii) the interest rate or range of interest rates of
the Mortgage Loans; (iv) the origination dates and the original and, with
respect to seasoned Mortgage Loans, remaining terms to stated maturity of the
Mortgage Loans; (v) the loan-to-value ratios at origination and, with respect to
seasoned Mortgage Loans, current loan balance-to-original value ratios of the
Mortgage Loans; (vi) the geographic distribution of the Mortgaged Properties
underlying the Mortgage Loans; (vii) the minimum interest rates, margins,
adjustment caps, adjustment frequencies, indices and other similar information
applicable to adjustable rate Mortgage Loans; (viii) the debt service coverage
ratios relating to the Mortgage Loans; and (ix) payment delinquencies, if any,
relating to the Mortgage Loans. The applicable Prospectus Supplement will also
specify any materially inadequate, incomplete or obsolete documentation relating
to the Mortgage Loans and other characteristics of the Mortgage Loans relating
to each Series. If specified in the applicable Prospectus Supplement, the
Depositor may segregate the Mortgage Loans in a Mortgage Pool into separate
"Mortgage Loan Groups" (as described in the related Prospectus Supplement) as
part of the structure of the payments of principal and interest on the
Certificates of a Series. In such case, the Depositor will disclose the
above-specified information by Mortgage Loan Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with
the Commission within 15 days after the initial issuance of each Series of
Certificates (each, a "Closing Date"), as specified in the related Prospectus
Supplement, which will set forth information with respect to the Mortgage Loans
included in the Trust Fund for a Series as of the related Closing Date. The Form
8-K will be available to the Certificateholders of the related Series promptly
after its filing.
Assignment of Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, at the time
of issuance of the Certificates of each Series, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee, together with all scheduled
payments of interest and principal due after the Cut-off Date (whether received)
and all payments of interest and principal received by the Depositor or the
Master Servicer on or with respect to the Mortgage Loans after the Cut-off Date.
The Trustee, concurrently with such assignment, will execute and deliver
Certificates evidencing the beneficial ownership interests in the related Trust
Fund to the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the Agreement for
the related Series (the "Mortgage Loan Schedule"). The Mortgage Loan Schedule
will include, among other things, as to each Mortgage Loan, information as to
its outstanding principal balance as of the close of business on the Cut-off
Date, as well as information respecting the interest rate, the scheduled monthly
(or other periodic) payment of principal and interest as of the Cut-off Date,
the maturity date of each Note and the address of the property securing the
Note.
In addition, except to the extent otherwise specified in the applicable
Prospectus Supplement, the Depositor will, as to each Mortgage Loan, deliver to
the Trustee: (i) the Note, endorsed to the order of the Trustee without
recourse; (ii) the Mortgage and an executed assignment thereof in favor of the
Trustee or otherwise as required by the Agreement; (iii) any assumption,
modification or substitution agreements relating to the Mortgage Loan; (iv) a
mortgagee's title insurance policy (or owner's policy in the case of an
Installment Contract), together with its endorsements, or an attorney's opinion
of title issued as of the date of origination of the Mortgage Loan; (v) if the
security agreement and/or assignment of leases, rents and profits is separate
from the Mortgage, an executed assignment of such security agreement and/or
re-assignment of such assignment of leases, rents and profits to the Trustee;
and (vi) such other documents as may be described in the Agreement (such
documents collectively, the "Mortgage Loan File"). Unless otherwise expressly
permitted by the Agreement, all documents included in the Mortgage Loan File are
to be original executed documents, provided, however, that in instances in which
the original recorded Mortgage, Mortgage assignment or any document necessary to
assign the Depositor's interest in Installment Contracts to the Trustee, as
described in the Agreement, has been retained by the applicable jurisdiction or
has not yet been returned from recordation, the Depositor may deliver a
photocopy thereof certified to be the true and complete copy of the original
thereof submitted for recording.
The Trustee will hold the Mortgage Loan File for each Mortgage Loan in trust
for the benefit of all Certificateholders. Pursuant to the Agreement, the
Trustee is obligated to review the Mortgage Loan File for each Mortgage Loan
within a specified number of days after the execution and delivery of the
Agreement. Unless otherwise specified in the related Prospectus Supplement, if
any document in the Mortgage Loan File
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is found to be defective in any material respect, the Trustee will promptly
notify the Depositor, the Master Servicer and the Mortgage Loan Seller.
Mortgage Underwriting Standards and Procedures
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage Loans
may be originated by an affiliate of the Depositor or third parties in
contemplation of the transactions contemplated by this Prospectus and the
related Prospectus Supplement or may have been originated by third-parties and
acquired by the Depositor directly or through its affiliates in negotiated
transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from the
Mortgaged Property, the capabilities of the management of the project, including
a review of management's past performance record, its management reporting and
control procedures (to determine its ability to recognize and respond to
problems) and its accounting procedures to determine cash management ability,
the obligor's credit standing and repayment ability and the value and adequacy
of the Mortgaged Property as collateral. Mortgage Loans insured by the Federal
Housing Administration ("FHA"), a division of the United States Department of
Housing and Urban Development ("HUD"), will have been originated by mortgage
lenders that were at the time origination approved by HUD as an FHA mortgagee in
the ordinary course of their real estate lending activities and will comply with
the underwriting policies of FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been determined
by appraisal by appraisers selected in accordance with preestablished guidelines
established by or acceptable to the loan originator for appraisers. If so
specified in the related Prospectus Supplement, the appraiser must have
personally inspected the property and verified that it was in good condition and
that construction, if new, has been completed. Unless otherwise stated in the
applicable Prospectus Supplement, the appraisal will have been based upon a cash
flow analysis and/or a market data analysis of recent sales of comparable
properties and, when deemed applicable, a replacement cost analysis based on the
current cost of constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of real
estate values generally will limit loss experiences on commercial properties or
multifamily residential properties. If the commercial real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any additional financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent that such losses are not covered by
the methods of Credit Enhancement or the insurance policies described herein
and/or in the related Prospectus Supplement, the ability of the Trust Fund to
pay principal of and interest on the Certificates may be adversely affected.
Even if credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Loans, thus shortening weighted average
life and affecting yield to maturity.
Representations and Warranties
Unless otherwise specified in the related Prospectus Supplement, the seller
of a Mortgage Loan to the Depositor (the "Mortgage Loan Seller"), which may be
an affiliate of the Depositor, will have made representations and warranties in
respect of the Mortgage Loans sold by such Mortgage Loan Seller to the
Depositor. Such representations and warranties (unless otherwise specified in
the related Prospectus Supplement) will generally include, among other things:
(i) with respect to each Mortgaged Property, that title insurance (or in the
case of Mortgaged Properties located in areas where such policies are generally
not available, an attorney's opinion of title) and any required hazard insurance
was effective at the origination of each Mortgage Loan, and that each policy (or
opinion of title) remained in effect on the date of purchase of the Mortgage
Loan from the Mortgage Loan Seller; (ii) that the Mortgage Loan Seller had good
and marketable (or indefeasible, in the case of real property located in Texas)
title to each such Mortgage Loan; (iii) with respect to each Mortgaged Property,
that each mortgage constituted a valid first lien on the Mortgaged Property
(subject only to permissible title insurance exceptions); (iv) that there were
no delinquent tax or assessment liens against the Mortgaged Property; and (v)
that each Mortgage Loan was current as to all required payments.
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Unless otherwise specified in the related Prospectus Supplement, all of the
representations and warranties of a Mortgage Loan Seller in respect of a
Mortgage Loan will have been made as of the date on which such Mortgage Loan
Seller sold the Mortgage Loan to the Depositor. A substantial period of time may
have elapsed between such date and the date of the initial issuance of the
Series of Certificates evidencing an interest in such Mortgage Loan. Since the
representations and warranties of the Mortgage Loan Seller do not address events
that may occur following the sale of a Mortgage Loan by the Mortgage Loan
Seller, the repurchase obligation of the Mortgage Loan Seller described below
will not arise if, on or after the date of the sale of a Mortgage Loan by the
Mortgage Loan Seller to the Depositor, the relevant event occurs that would have
given rise to such an obligation. However, the Depositor will not include any
Mortgage Loan in the Trust Fund for any Series of Certificates if anything has
come to the Depositor's attention that would cause it to believe that the
representations and warranties of the Mortgage Loan Seller will not be accurate
and complete in all material respects in respect of such Mortgage Loan as of the
related Cut-off Date. If so specified in the related Prospectus Supplement, the
Depositor will make certain representations and warranties for the benefit of
Certificateholder of a Series in respect of a Mortgage Loan that relate to the
period commencing on the date of sale of such Mortgage Loan to the Depositor.
Unless otherwise set forth or specified in the related Prospectus Supplement,
upon the discovery of the breach of any representation or warranty made by the
Mortgage Loan Seller in respect of a Mortgage Loan that materially and adversely
affects the interests of the Certificateholders of the related Series, such
Mortgage Loan Seller will be obligated to repurchase such Mortgage Loan at a
purchase price equal to 100% of the unpaid principal balance thereof at the date
of repurchase or, in the case of a Series of Certificates as to which the
Depositor has elected to treat the related Trust Fund as a REMIC, as defined in
the Code, at such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 86OF(a) of the Code, in each case together
with accrued interest at the interest rate for such Mortgage Loan, to the first
day of the month following such repurchase and the amount of any unreimbursed
advances made by the Master Servicer in respect of such Mortgage Loan, together
with interest thereon at the reimbursement rate. The Master Servicer will be
required to enforce such obligation of the Mortgage Loan Seller for the benefit
of the Trustee and the Certificateholders, following the practices it would
employ in its good faith business judgment were it the owner of such Mortgage
Loan. Unless otherwise specified in the applicable Prospectus Supplement, this
repurchase obligation constitutes the sole remedy available to the
Certificateholders of such Series for a breach of a representation or warranty
by a Mortgage Loan Seller and the Depositor and the Master Servicer will have no
liability to the Trust Fund for any such breach. No assurance can be given that
a Mortgage Loan Seller will carry out its repurchase obligation with respect to
the Mortgage Loans.
If specified in the related Prospectus Supplement, the Mortgage Loan Seller
may deliver to the Trustee within a specified number of days following the
issuance of a Series of Certificates Mortgage Loans in substitution for any one
or more of the Mortgage Loans initially included in the Trust Fund but which do
not conform in one or more respects to the description thereof contained in the
related Prospectus Supplement, as to which a breach of a representation or
warranty is discovered, which breach materially and adversely affects the
interests of the Certificateholders, or as to which a document in the related
Mortgage Loan File is defective in any material respect. The related Prospectus
Supplement will describe any required characteristics of any such substituted
Mortgage Loans.
SERVICING OF THE MORTGAGE LOANS
General
Unless otherwise specified in the related Prospectus Supplement, the servicer
of the Mortgage Loans (the "Master Servicer") will be Midland Loan Services,
L.P., the parent of the Depositor. The Prospectus Supplement for the related
series will set forth certain information concerning the Master Servicer. The
Master Servicer will be responsible for servicing the Mortgage Loans pursuant to
the Agreement for the related Series. To the extent so specified in the related
Prospectus Supplement, one or more Special Servicers may be a party to the
related Agreement or may be appointed by holders of certain Classes of Regular
Certificates representing a certain percentage specified in the related
Agreement of such Class or Classes of Certificates or by another specified
party. Certain information with respect to the Special Servicer will be set
forth in such Prospectus Supplement. A Special Servicer for any series of
Certificates may be an affiliate of the Depositor or the Master Servicer and may
hold, or be affiliated with the holder of, Subordinate Certificates of such
Series. A Special Servicer may be entitled to any of the rights, and subject to
any of the obligations, described herein in respect of a Master Servicer. In
general, a Special Servicer's duties will relate to defaulted Mortgage Loans or
those Mortgage Loans that otherwise require special servicing ("Specially
Serviced Mortgage Loans"), including instituting foreclosures and negotiating
work-outs and will also include asset management activities with respect to any
REO Property. The related Prospectus Supplement will
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describe the rights, obligations and compensation of any Special Servicer for a
particular Series of Certificates. Unless otherwise so specified in the related
Prospectus Supplement, the Master Servicer or Special Servicer may subcontract
the servicing of all or a portion of the Mortgage Loans to one or more
sub-servicers provided certain conditions are met. Such sub-servicer may be an
affiliate of the Depositor and may have other business relationships with
Depositor and its affiliates.
Collections and Other Servicing Procedures
The Master Servicer and the Special Servicer, if any, will make reasonable
efforts to collect all payments called for under the Mortgage Loans and will,
consistent with the related Agreement, follow such collection procedures as it
deems necessary or desirable. Consistent with the above and unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or the
Special Servicer, if applicable, may, in its discretion, waive any late payment
charge or penalty fees in connection with a late payment of a Mortgage Loan and,
if so specified in the related Prospectus Supplement, may extend the due dates
for payments due on a Note.
It is expected that the Agreement for each Series will provide that the
Master Servicer establish and maintain an escrow account (the "Escrow Account")
in which the Master Servicer will be required to deposit amounts received from
each Mortgagor, if required by the terms of the related Mortgage Loan documents,
for the payment of taxes, assessments, certain mortgage and hazard insurance
premiums and other comparable items ("Escrow Payments"). The Special Servicer,
if any, will be required to remit amounts received for such purposes on Mortgage
Loans serviced by it to the Master Servicer for deposit into the Escrow Account,
and will be entitled to direct the Master Servicer to make withdrawals from the
Escrow Account as may be required for servicing of such Mortgage Loans. Unless
otherwise specified in the related Prospectus Supplement, withdrawals from the
Escrow Account generally may be made to (i) effect timely payment of taxes,
assessments, mortgage and hazard insurance premiums and other comparable items,
(ii) to transfer funds to the Collection Account to reimburse the Master
Servicer or the Trustee, as applicable, for any advance with interest thereon
relating to Escrow Payments, (iii) to restore or repair the Mortgaged
Properties, (iv) to clear and terminate such account, (v) to pay interest to
Mortgagors on balances in the Escrow Account, if required by the terms of the
related Mortgage Loan documents or by applicable law, and (vi) to remove amounts
not required to be deposited therein. The Master Servicer will be entitled to
all income on the funds in the Escrow Account invested in Permitted Investments
not required to be paid to Mortgagors by the terms of the related Mortgage Loan
documents or by applicable law. The Master Servicer will be responsible for the
administration of the Escrow Account.
Insurance
The Agreement for each Series will require that the Master Servicer use its
reasonable efforts to or require each Mortgagor to maintain insurance in
accordance with the related Mortgage Loan documents, which generally will
include a standard fire and hazard insurance policy with extended coverage. To
the extent required by the related Mortgage Loan, the coverage of each such
standard hazard insurance policy will be in an amount that is at least equal to
the lesser of (i) the full replacement cost of the improvements and equipment
securing such Mortgage Loan or (ii) the outstanding principal balance owing on
such Mortgage Loan or such amount as is necessary to prevent any reduction in
such policy by reason of the application of co-insurance and to prevent the
Trustee thereunder from being deemed to be a co-insurer. The Master Servicer
will also use its reasonable efforts to require each Mortgagor to maintain (i)
insurance providing coverage against 12 months of rent interruptions and (ii)
such other insurance as provided in the related Mortgage Loan. If a Mortgaged
Property was located at the time of origination of the related Mortgage Loan in
a federally designated special flood hazard area, the Master Servicer will also
require the related Mortgagor to maintain flood insurance in an amount equal to
the lesser of the unpaid principal balance of the related Mortgage Loan and the
maximum amount obtainable with respect to the Mortgage Loan. The related
Agreement will provide that the Master Servicer will be required to maintain the
foregoing insurance if the related mortgagor fails to maintain such insurance to
the extent such insurance is available at commercially reasonable rates and to
the extent the Trustee, as mortgagee, has an insurable interest. The cost of any
such insurance maintained by the Master Servicer will be advanced by the Master
Servicer. The Master Servicer or the Special Servicer, if any, will cause to be
maintained fire and hazard insurance with extended coverage on each REO Property
in an amount that is at least equal to the full replacement cost of the
improvements and equipment. The cost of any such insurance with respect to an
REO Property will be payable out of amounts on deposit in the related REO
Account or will be advanced by the Master Servicer. The Master Servicer or the
Special Servicer, if any, will maintain flood insurance providing substantially
the same coverage as described above on any REO Property that was located in a
federally designated special flood hazard area at the time the related Mortgage
Loan was originated. The Master Servicer or the Special Servicer, if any, will
maintain with respect to each REO Property (i) public liability insurance, (ii)
loss of rent endorsements and
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(iii) such other insurance as provided in the related Mortgage Loan. Any such
insurance that is required to be maintained with respect to any REO Property
will only be so required to the extent such insurance is available at
commercially reasonable rates. The related Agreement will provide that the
Master Servicer or Special Servicer, if any, may satisfy its obligation to cause
hazard insurance policies to be maintained by maintaining a master force placed
insurance policy insuring against losses on the Mortgage Loans or REO
Properties, as the case may be. The incremental cost of such insurance allocable
to any particular Mortgage Loan or REO Property, if not borne by the related
Mortgagor, will be an expense of the Trust Fund. Alternatively, the Master
Servicer or Special Servicer, if any, may satisfy its obligation by maintaining,
at its expense, a blanket policy (i.e., not a master force placed policy)
insuring against losses on the Mortgage Loans or REO Properties, as the case may
be. If such a blanket or master force placed policy contains a deductible
clause, the Master Servicer or the Special Servicer, if any, will be obligated
to deposit in the Collection Account all sums that would have been deposited
therein but for such clause to the extent any such deductible exceeds the
deductible limitation that pertained to the related Mortgage Loan, or in the
absence of any such deductible limitation, the deductible limitation that is
consistent with the servicing standard under the related Agreement.
In general, the standard form of fire and hazard extended coverage insurance
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Since the standard hazard insurance policies
relating to the Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and conditions. Most such
policies typically will not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), nuclear reaction, wet
or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not intended to be all-inclusive. Any losses incurred
with respect to Mortgage Loans due to uninsured risks (including earthquakes,
mudflows and floods) or insufficient hazard insurance proceeds could affect
distributions to the Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties securing
Mortgage Loans typically will contain a "coinsurance" clause which, in effect,
will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
structures and other improvements damaged or destroyed and (ii) such proportion
of the loss, without deduction for depreciation, as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
dwellings, structures and other improvements.
The Prospectus Supplement may describe other different provisions concerning
the insurance policies required to be maintained under the related Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, no pool
insurance policy, special hazard insurance policy, bankruptcy bond, repurchase
bond or guarantee insurance will be maintained with respect to the Mortgage
Loans nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act of 1934, as
amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the Mortgage
Loans may be insured by the FHA. The Master Servicer will be required to take
such steps as are reasonably necessary to keep such insurance in full force and
effect.
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Fidelity Bonds and Errors and Omissions Insurance
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer and the Special
Servicer, if applicable, 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 and employees of the Master Servicer and
the Special Servicer, if applicable. The related Agreement will allow the Master
Servicer and the Special Servicer, if applicable, to self-insure against loss
occasioned by the errors and omissions of the officers and employees of the
Master Servicer and the Special Servicer, if applicable, so long as certain
criteria set forth in the Agreement are met.
Servicing Compensation and Payment of Expenses
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by it,
with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in the
related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement for
the related Series. Since the aggregate unpaid principal balance of the Mortgage
Loans will generally decline over time, the Master Servicer's servicing
compensation will ordinarily decrease as the Mortgage Loans amortize.
In addition, the Agreement for a Series may provide that the Master Servicer
be entitled to receive, as additional compensation, (i) Prepayment Premiums,
late fees and certain other fees collected from Mortgagors and (ii) any interest
or other income earned on funds deposited in the Collection Account and
Distribution Account (as described under "DESCRIPTION OF THE
CERTIFICATES--Accounts") and, except to the extent such income is required to be
paid to the related Mortgagors, the Escrow Account.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will pay the fees and expenses of the Trustee.
The amount and calculation of the fee for the servicing of Specially Serviced
Mortgage Loans (the "Special Servicing Fee") will be established in the
Prospectus Supplement and Agreement for the related Services.
In addition to the compensation described above, the Master Servicer and the
Special Servicer, if applicable, (or any other party specified in the applicable
Prospectus Supplement) may retain, or be entitled to the reimbursement of, such
other amounts and expenses as are described in the applicable Prospectus
Supplement.
Advances
The applicable Prospectus Supplement will set forth the obligations, if any,
of the Master Servicer and the Special Servicer, if applicable, to make any
advances with respect to delinquent payments on Mortgage Loans, payments of
taxes, assessments, insurance premiums and Property Protection Expenses or
otherwise. Any such advances will be made in the form and manner described in
the Prospectus Supplement and Agreement for the related Series.
Modifications, Waivers and Amendments
The Agreement for each Series will provide the Master Servicer or the Special
Servicer, if any, with the discretion, subject to certain conditions set forth
therein, to modify, waive or amend certain of the terms of any Mortgage Loan
without the consent of the Trustee or any Certificateholder.
Evidence of Compliance
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will provide that on or before a specified date in
each year, beginning the first such date that is at least a specified number of
months after the Cut-off Date, there will be furnished to the related Trustee a
report of a firm of independent certified public accountants stating that (i) it
has obtained a letter of representation regarding certain matters from the
management of the Master Servicer or Special Servicer, if any, which includes an
assertion that the Master Servicer or Special Servicer, if any, has complied
with certain minimum mortgage loan servicing standards (to the extent applicable
to commercial and multifamily mortgage loans), identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the Master Servicer's or, if applicable,
the Special Servicer's servicing of commercial and multifamily mortgage loans
during the most recently completed calendar year and (ii) on
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the basis of an examination conducted by such firm in accordance with standards
established by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
standards require it to report. In rendering its report such firm may rely, as
to the matters relating to the direct servicing of commercial and multifamily
mortgage loans by sub-services, upon comparable reports of firms of independent
public accountants rendered on the basis of examination conducted in accordance
with the same standards (rendered within one year of such report) with respect
to those sub-servicers. The Prospectus Supplement may provide that additional
reports of independent certified public accountants relating to the servicing of
mortgage loans may be required to be delivered to the Trustee.
In addition, the Agreement for each Series will provide, unless otherwise
specified in the related Prospectus Supplement, that the Master Servicer and the
Special Servicer, if any, will each deliver to the Trustee, the Depositor and
each Rating Agency, annually on or before a date specified in the Agreement, a
statement signed by an officer of the Master Servicer or the Special Servicer,
as applicable, to the effect that, based on a review of its activities during
the preceding calendar year, to the best of such officer's knowledge, the Master
Servicer or the Special Servicer, as applicable, has fulfilled in all material
respects its obligations under the Agreement throughout such year or, if there
has been a default in the fulfillment of any such obligation, specifying each
default known to such officer.
Certain Matters With Respect to the Master Servicer, the Special
Servicer, the Trustee and the Depositor
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will also provide that none of the Depositor, the
Master Servicer, the Special Servicer, if any, or any partner, director,
officer, employee or agent of the Depositor, the Master Servicer or the Special
Servicer, if any, (or any general partner thereof) will be under any liability
to the Trust Fund or the Certificateholders for any action taken, or for
refraining from the taking of any action, in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Depositor, the Master Servicer, the Special Servicer, if any, nor any such
person will be protected against any liability for a breach of any
representations or warranties under the Agreement or that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence (or, in the
case of the Master Servicer or Special Servicer, if any, a breach of the
servicing standards set forth in the Agreement) in the performance of its duties
or by reason of reckless disregard of its obligations and duties thereunder.
Unless otherwise specified in the related Prospectus Supplement, the Agreement
will further provide that the Depositor, the Master Servicer, the Special
Servicer, if any, and any director, officer, employee or agent of the Depositor,
the Master Servicer, the Special Servicer, if any, (and any general partner
thereof) will be entitled to indemnification by the Trust Fund for any loss,
liability or expense incurred in connection with any legal action relating to
the Agreement or the Certificates, other than any loss, liability or expense (i)
incurred by reason of its respective willful misfeasance, bad faith, fraud or
negligence (or, in the case of the Master Servicer or the Special Servicer, if
any, a breach of the servicing standard set forth in the Agreement) in the
performance of duties thereunder or by reason of reckless disregard of its
respective obligations and duties thereunder or (ii) imposed by any taxing
authority which loss, liability or expense is not specifically reimbursable
pursuant to the terms of the Agreement and which results from a breach of the
Agreement (other than a breach with respect to which the Master Servicer or
Special Servicer, as applicable, would have no liability under the standard set
forth in the first sentence of this paragraph) by the Master Servicer or the
Special Servicer, if any, or any of their respective agents. Any loss resulting
from such indemnification will reduce amounts distributable to
Certificateholders and will be borne pro rata by all Certificateholders without
regard to subordination, if any, of one Class to another.
In addition, unless otherwise specified in the related Prospectus Supplement,
the Agreement will provide that none of the Depositor, the Special Servicer or
the Master Servicer, if any, will be under any obligation to appear in,
prosecute or defend any legal action unless such action is related to its duties
under the Agreement and which in its opinion does not involve it in any expense
or liability. The Master Servicer or the Special Servicer, if any, may, however,
in its discretion undertake any such action that is related to its respective
obligations under the related Agreement and that 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 holders of Certificates thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom (except any liability related to the Master Servicer's or the Special
Servicer's, if any, obligations to service the Mortgage Loans in accordance with
the servicing standard under the Agreement) will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or Special Servicer, if
applicable, will be entitled to be reimbursed therefor and to charge the
Collection Account.
Unless otherwise specified in the related Prospectus Supplement, any person
into which the Master Servicer or the Special Servicer, if any, may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer or the Special Servicer, if any, is a party, or any person
succeeding
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to the business of the Master Servicer or the Special Servicer, if any, will be
the successor of the Master Servicer or the Special Servicer, as applicable,
under the Agreement, and will be deemed to have assumed all of the liabilities
and obligations of the Master Servicer or the Special Servicer, as applicable,
under the Agreement, if each of the Rating Agencies has confirmed in writing
that such merger or consolidation and succession will not result in a
downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of the Certificates.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or the Special Servicer, if any, may assign its rights and delegate its
duties and obligations under the Agreement in connection with the sale or
transfer of a substantial portion of its mortgage servicing or asset management
portfolio; provided that certain conditions are met, including the written
consent of the Trustee and written confirmation by each of the Rating Agencies
that such assignment and delegation by the Master Servicer or the Special
Servicer, as applicable, will not, in and of itself, result in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of Certificates.
The Agreement will also provide, unless otherwise specified in the related
Prospectus Supplement, that the Master Servicer or the Special Servicer, if any,
may not otherwise resign from its obligations and duties as Master Servicer or
Special Servicer thereunder, except upon the determination that performance of
its duties is no longer permissible under applicable law and provided that such
determination is evidenced by an opinion of counsel delivered to the Trustee. No
such resignation or removal may become effective until the Trustee or a
successor Master Servicer or Special Servicer, as the case may be, has assumed
the obligations of the Master Servicer or the Special Servicer, as applicable,
under the Agreement.
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer, the
Special Servicer, if any, and/or any of their respective affiliates.
The Trustee may resign from its obligations under the Agreement at any time,
in which event a successor Trustee will be appointed. In addition, the Depositor
may remove the Trustee if the Trustee ceases to be eligible to act as Trustee
under the Agreement or if the Trustee becomes insolvent, at which time the
Depositor will become obligated to appoint a successor Trustee. The Trustee may
also be removed at any time by the holders of Certificates evidencing the
percentage of Voting Rights specified in the applicable Prospectus Supplement.
Any resignation and removal of the Trustee, and the appointment of a successor
Trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Depositor is not obligated to monitor or supervise the performance of the
Master Servicer, Special Servicer, if any, or the Trustee under the Agreement.
Events of Default
Events of default with respect to the Master Servicer or the Special
Servicer, if any, as applicable (each, an "Event of Default") under the
Agreement for each Series will, unless otherwise provided in the applicable
Prospectus Supplement, consist of, in summary form, (i) any failure by the
Master Servicer or the Special Servicer, if any, to remit to the Collection
Account or any failure by the Master Servicer to remit to the Trustee for
deposit into the Distribution Account any amount required to be so remitted
pursuant to the Agreement; (ii) any failure by the Master Servicer or Special
Servicer, as applicable, duly to observe or perform in any material respect any
of its other covenants or agreements or the breach of its representations or
warranties (which breach materially and adversely affects the interests of the
Certificateholders, the Trustee, the Master Servicer or the Special Servicer, if
any, with respect to any Mortgage Loan) under the Agreement, which in each case
continues unremedied for 30 days after the giving of written notice of such
failure to the Master Servicer or the Special Servicer, as applicable, by the
Depositor or the Trustee, or to the Master Servicer or Special Servicer, if any,
the Depositor and the Trustee by the holders of Certificates evidencing Voting
Rights of a majority of any affected Class; (iii) confirmation in writing by any
of the Rating Agencies that the then current rating assigned to any Class of
Certificates would be withdrawn, downgraded or qualified unless the Master
Servicer or Special Servicer, as applicable, is removed; (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by, on behalf of or against the Master
Servicer or Special Servicer, as applicable, indicating its insolvency or
inability to pay its obligations; or (v) any failure by the Master Servicer to
make a required advance.
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Rights Upon Event of Default
Unless otherwise specified in the related Prospectus Supplement, as long as
an Event of Default remains unremedied, the Trustee may, and at the written
direction of the holders of Certificates entitled to a majority of the aggregate
Voting Rights of the Certificates of any Class will, terminate all of the rights
and obligations of the Master Servicer or Special Servicer, as the case may be.
Notwithstanding the foregoing, upon any termination of the Master Servicer or
the Special Servicer, as applicable, under the Agreement the Master Servicer or
the Special Servicer, as applicable, will continue to be entitled to receive all
accrued and unpaid servicing compensation through the date of termination plus,
in the case of the Master Servicer, all advances and interest thereon as
provided in the Agreement.
The holders of Certificates evidencing not less than 66-2/3% of the aggregate
Voting Rights of the Certificates may, on behalf of all holders of Certificates,
waive any default by the Master Servicer or Special Servicer, if any, in the
performance of its obligations under the Agreement and its consequences, except
a default in making any required deposits to (including advances) or payments
from the Collection Account or the Distribution Account or in remitting payments
as received, in each case in accordance with the Agreement. Upon any such waiver
of a past default, such default will cease to exist, and any Event of Default
arising therefrom will be deemed to have been remedied for every purpose of the
Agreement. No such waiver will extend to any subsequent or other default or
impair any right consequent thereon.
On and after the date of termination, the Trustee will succeed to all
authority and power of the Master Servicer or the Special Servicer, as
applicable, under the Agreement and will be entitled to similar compensation
arrangements to which the Master Servicer or the Special Servicer, as
applicable, would have been entitled. Unless otherwise specified in the related
Prospectus Supplement, if the Trustee is unwilling or unable so to act, or if
the holders of Certificates evidencing a majority of the aggregate Voting Rights
so request or if the Trustee is not rated at least "AA" by each of the Rating
Agencies or if the Trustee is not listed on S&Ps list of approved servicers, the
Trustee must appoint, or petition a court of competent jurisdiction for the
appointment of, an established mortgage loan servicing institution with a net
worth of at least $10,000,000 and which is either FNMA or FHLMC approved, the
appointment of which will not result in the downgrading, withdrawal or
qualification of the rating or ratings then assigned to any Class of
Certificates as evidenced in writing by each Rating Agency, to act as successor
to the Master Servicer or the Special Servicer, as applicable, under the
Agreement. Pending such appointment, the Trustee will be 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 or the Special Servicer, as the case may be,
under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, no
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement or the Mortgage Loans, unless, with
respect to the Agreement, such holder previously shall have given to the Trustee
a written notice of a default under the Agreement and of the continuance
thereof, and unless also the holders of Certificates representing a majority of
the aggregate Voting Rights allocated to each affected Class have made written
request of the Trustee to institute such proceeding in its own name as Trustee
under the Agreement and have offered to the Trustee such reasonable indemnity as
it may require against the costs, expenses and liabilities to be incurred
therein or thereby, and the Trustee, for 30 days after its receipt of such
notice, request and offer of indemnity, has neglected or refused to institute
such proceeding.
The Trustee will have no obligation to institute, conduct or defend any
litigation under the Agreement or in relation thereto at the request, order or
direction of any of the holders of Certificates, unless such holders of
Certificates have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
CREDIT ENHANCEMENT
General
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or the
related Mortgage Loans ("Credit Enhancement"). Credit Enhancement may be in the
form of a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, the establishment of one or more reserve funds,
surety bonds, cash collateral accounts, overcollateralization,
cross-collateralization provisions in the Mortgage Loans, certificate guarantee
insurance, the use of cross-support features, limited guarantees or another
method of Credit Enhancement described in the related Prospectus Supplement, or
any combination of the foregoing.
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Unless otherwise specified in the related Prospectus Supplement for a Series,
it is unlikely that Credit Enhancement will provide protection against all risks
of loss or guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur that exceed the amount
covered by Credit Enhancement or that are not covered by Credit Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Credit Enhancement is provided with respect to a Series, or the related
Mortgage Loans, the applicable Prospectus Supplement will include a description
of (a) the amount payable under such Credit Enhancement, (b) any conditions to
payment thereunder not otherwise described herein, (c) the conditions (if any)
under which the amount payable under such Credit Enhancement may be reduced and
under which such Credit Enhancement may be terminated or replaced and (d) the
material provisions of any agreement relating to such Credit Enhancement.
Additionally, the applicable Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Credit Enhancement,
including (i) a brief description of its principal business activities, (ii) its
principal place of business, the jurisdiction of organization and the
jurisdictions 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 such Prospectus Supplement.
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more Classes of
a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the holders of subordinate Certificates
(the "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 (the "Senior
Certificates") to the extent specified in the related Prospectus Supplement. In
addition, subordination may be effected by the allocation of losses first to
Subordinate Certificates in reduction of the principal balance of such
Certificates until the principal balance thereof is reduced to zero before any
losses are allocated to Senior Certificates. The Agreement may require a trustee
that is not the Trustee to be appointed to act on behalf of holders of
Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates entitled
to receive cash flows remaining after distributions are made to all other
Classes designated as being senior thereto. Such right to receive payments will
effectively be subordinate to the rights of holders of such senior designated
Classes of Certificates. A Series may also include one or more Classes of
Subordinate Certificates that will be allocated losses prior to any losses being
allocated to Classes of Subordinate Certificates designated as being senior
thereto. If so specified 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 not covered by insurance policies or other Credit Enhancement, such as
losses arising from damage to property securing a Mortgage Loan not covered by
standard hazard insurance policies.
The related Prospectus Supplement will describe any such subordination in
greater detail and set forth information concerning, among other things, to the
extent applicable, (i) the amount of subordination of a Class or Classes of
Subordinate Certificates in a Series, (ii) the circumstances in which such
subordination will be applicable, (iii) the manner, if any, in which the amount
of subordination will decrease over time, (iv) the manner of funding any related
reserve fund, (v) the conditions under which amounts in any applicable reserve
fund will be used to make distributions to holders of Senior Certificates and/or
to holders of Subordinate Certificates or be released from the applicable Trust
Fund and (vi) if one or more Classes of Subordinate Certificates of a Series are
Offered Certificates, the sensitivity of distributions on such Certificates
based on certain default assumptions.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because many of the legal aspects of
mortgage loans are governed by applicable state laws (which may vary
substantially), the following summaries do not purport to be complete, to
reflect the laws of any particular state, to reflect all the laws applicable to
any particular Mortgage Loan or to encompass the laws of all states in which the
properties securing the Mortgage Loans are situated. The summaries are qualified
in their entirety by reference to the applicable federal and state laws
governing the Mortgage Loans.
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General
All of the Mortgage Loans are loans evidenced by (or, in the case of mortgage
pass-through certificates, supported by) a note or bond that is secured by a
lien and security interest in property created under related security
instruments, which may be mortgages, deeds of trust or deeds to secure debt,
depending upon the prevailing practice and law in the state in which the
Mortgaged Property is located. As used herein, unless the context otherwise
requires, the term "Mortgage" includes mortgages, deeds of trust and deeds to
secure debt. Any of the foregoing mortgages will create a lien upon, or grant a
title interest in, the mortgaged property, the priority of which will depend on
the terms of the mortgage, the existence of any separate contractual
arrangements with others holding interests in the mortgaged property, the order
of recordation of the mortgage in the appropriate public recording office and
the actual or constructive knowledge of the mortgagee as to any unrecorded
liens, leases or other interests affecting the mortgaged property. Mortgages
typically do not possess priority over governmental claims for real estate
taxes, assessments and, in some states, for reimbursement of remediation costs
of certain environmental conditions. See "--Environmental Risks." In addition,
the Code provides priority to certain tax liens over the lien of the mortgage.
The mortgagor is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
Types of Mortgage Instruments
A mortgage either creates a lien against or constitutes a conveyance of an
interest in real property between two parties--a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). A deed
of trust is a three-party instrument, wherein a trustor (the equivalent of a
mortgagor), grants the property to a trustee, in trust with a power of sale, for
the benefit of a beneficiary (the lender) as security for the payment of the
secured indebtedness. A deed to secure debt is a two party instrument wherein
the grantor (the equivalent of a mortgagor) conveys title to, as opposed to
merely creating a lien upon, the subject property to the grantee (the lender)
until such time as the underlying debt is repaid, generally with a power of sale
as security for the indebtedness evidenced by the related note. As used herein,
unless the context otherwise requires, the term "Mortgagor" includes a mortgagor
under a mortgage, a trustor under a deed of trust and a grantor under a deed to
secure debt, and the term "Mortgagee" includes a mortgagee under a mortgage, a
beneficiary under a deed of trust and a grantee under a deed to secure debt. 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 and, in some cases, in deed of trust
transactions, the directions of the beneficiary. The Mortgage Loans (other than
Installment Contracts) will consist of (or, in the case of mortgage pass-through
certificates, be supported by) loans secured by mortgages.
The real property covered by a mortgage is most often the fee estate in land
and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land, leasehold improvements
or both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special provisions
in the instrument creating such interest, in the mortgage or in a separate
agreement with the landlord or other party to such instrument, to protect the
mortgagee against termination of such interest before the mortgage is paid.
Personalty
Certain types of mortgaged properties, such as nursing homes, hotels, motels
and industrial plants, are likely to derive a significant part of their value
from personal property that 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
mortgagee under the Uniform Commercial Code ("UCC"). In order to perfect its
security interest therein, the mortgagee generally must file UCC financing
statements and, to maintain perfection of such security interest, file
continuation statements generally every five years.
Installment Contracts
The Mortgage Loans may also consist of Installment Contracts (also sometimes
called contracts for deed). Under an Installment Contract, the seller (referred
to in this Section as the "mortgagee") retains legal title to the property and
enters into an agreement with the purchaser (referred to in this Section as the
"mortgagor") for the payment of the purchase price, plus interest, over the term
of such Installment Contract. Only after full performance by the mortgagor of
the Installment Contract is the mortgagee obligated to convey title to the
property to the mortgagor. As with mortgage or deed of trust financing, during
the effective period of the Installment Contract, the mortgagor is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
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The method of enforcing the rights of the mortgagee under an Installment
Contract varies on a state-by- state basis depending upon the extent to which
state courts are willing or able to enforce the Installment Contract strictly
according to its terms. The terms of Installment Contracts generally provide
that upon a default by the mortgagor, the mortgagor loses his or her right to
occupy the property, the entire indebtedness is accelerated and the mortgagor's
equitable interest in the property is forfeited. The mortgagee in such a
situation does not have to foreclose in order to obtain title to the property,
although in some cases both a quiet title action to clear title to the property
(if the mortgagor has recorded notice of the Installment Contract) and an
ejectment action to recover possession may be necessary. In a few states,
particularly in cases of a default during the early years of an Installment
Contract, ejectment of the mortgagor and a forfeiture of his or her interest in
the property will be permitted. However, in most states, laws (analogous to
mortgage laws) have been enacted to protect mortgagors under Installment
Contracts from the harsh consequences of forfeiture. These laws may require the
mortgagee to pursue a judicial or nonjudicial foreclosure with respect to the
property, give the mortgagor a notice of default and some grace period during
which the Installment Contract may be reinstated upon full payment of the
default amount. Additionally, the mortgagor may have a post-foreclosure
statutory redemption right, and, in some states, a mortgagor with a significant
equity investment in the property may be permitted to share in the proceeds of
any sale of the property after the indebtedness is repaid or may otherwise be
entitled to a prohibition of the enforcement of the forfeiture clause.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
Some of the Mortgage Loans may be secured by junior mortgages that are
subordinate to senior mortgages held by other lenders or institutional
investors. In such cases, the rights of the Trust Fund (and therefore the
Certificateholders), as mortgagee under a junior mortgage, will be subordinate
to those of the mortgagee under the senior mortgage, including the prior rights
of the senior mortgagee to: (i) receive rents, hazard insurance proceeds and
condemnation proceeds; and (ii) cause the property securing the Mortgage Loan to
be sold upon the occurrence of a default under the senior mortgage, thereby
extinguishing the lien of the junior mortgage, unless the Master Servicer or
Special Servicer, if applicable, either asserts such subordinate interest in the
related property in the foreclosure of the senior mortgage or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee may satisfy a defaulted senior loan in full, or may cure such default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. Absent a provision in the senior mortgage
or the existence of a recorded request for notice in compliance with applicable
state law (if any), no notice of default is typically required to be given to
the junior mortgagee.
The form of the mortgage used by many institutional lenders confers on the
mortgagee the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by such mortgage in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property (or any part thereof) is taken by
condemnation, the mortgagee under the senior mortgage will have the prior right
to collect any applicable insurance proceeds and condemnation awards and to
apply the same to the indebtedness secured by the senior mortgage. However, the
laws of certain states may provide that, unless the security of the mortgagee
has been impaired, the mortgagor must be allowed to use any applicable insurance
proceeds or partial condemnation awards to restore the property.
The form of mortgage used by many institutional lenders also typically
contains a "future advance" clause that provides that additional amounts
advanced to or on behalf of the mortgagor by the mortgagee are to be secured by
the mortgage. Such a clause is valid under the laws of most states. In some
states, however, the priority of any advance made under the clause depends upon
whether the advance was an "obligatory" or "optional" advance. If the mortgagee
is obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage,
notwithstanding that other junior mortgages or other liens may have encumbered
the property between the date of recording of the senior mortgage and the date
of the future advance, and that the mortgagee had actual knowledge of such
intervening junior mortgages or other liens at the time of the advance. If the
mortgagee is not obligated to advance the additional amounts and has actual
knowledge of any such intervening junior mortgages or other liens, the advance
may be subordinate to such intervening junior mortgages or other liens. In many
other states, all advances under a "future advance" clause are given the same
priority as amounts initially made under the mortgage so long as such advances
do not exceed a specified "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage used by many
institutional lenders obligates the mortgagor: (i) to pay all taxes and
assessments affecting the property prior to delinquency; (ii) to pay,
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when due, all other encumbrances, charges and liens affecting the property that
may be prior to the lien of the mortgage; (iii) to provide and maintain hazard
insurance on the property; (iv) to maintain and repair the property and not to
commit or permit any waste thereof; and (v) to appear in and defend any action
or proceeding purporting to affect the property or the rights of the mortgagee
under the mortgage. Upon a failure of the mortgagor to perform any of these
obligations, the mortgage typically provides the mortgagee the option to perform
the obligation itself, with the mortgagor agreeing to reimburse the mortgagee
for any sums expended by the mortgagee in connection therewith. All sums so
expended by the mortgagee also typically become part of the indebtedness secured
by the mortgage. The form of mortgage used by many institutional lenders also
typically requires the mortgagor to obtain the consent of the mortgagee as to
all actions affecting the mortgaged property, including, without limitation, all
leasing activities (including new leases and termination or modification of
existing leases), any alterations, modifications or improvements to the
buildings and other improvements forming a part of the mortgaged property and
all property management activities affecting the mortgaged property (including
new management or leasing agreements or any termination or modification of
existing management or leasing agreements). Tenants will often refuse to execute
a lease unless the mortgagee executes a written agreement with the tenant not to
disturb the tenant's possession of its premises in the event of a foreclosure. A
senior mortgagee may refuse to consent to matters approved by a junior mortgagee
with the result that the value of the security for the junior mortgage is
diminished. For example, a senior mortgagee may decide not to approve a lease or
refuse to grant to a tenant such a non-disturbance agreement. If, as a result,
the lease is not executed, the value of the mortgaged property may be
diminished.
Foreclosure
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 and, by reason thereof, the indebtedness has been
accelerated, 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. Although there are other foreclosure procedures available in
some states that are either infrequently used or available only in certain
limited circumstances, the two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage. In either case, the actual foreclosure of the mortgage
will be accomplished pursuant to a public sale of the mortgaged property by a
designated official or by the trustee under a deed of trust. The purchaser at
any such sale acquires only the estate or interest in the mortgaged property
encumbered by the mortgage. For example, if the mortgage only encumbered a
tenant's leasehold interest in the property, such purchaser will only acquire
such leasehold interest, subject to the tenant's obligations under the lease to
pay rent and perform other covenants contained therein.
Judicial Foreclosure. A judicial foreclosure of a mortgage is a judicial
action initiated by the service of legal pleadings upon all necessary parties
having an interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating the necessary parties to the
action. As a judicial foreclosure is a lawsuit, it is subject to all of
procedures, delays and expenses attendant to litigation, sometimes requiring up
to several years to complete if contested. At the completion of a judicial
foreclosure, if the mortgagee prevails, the court ordinarily issues a judgment
of foreclosure and appoints a referee or other designated official to conduct a
public sale of the property. Such sales are made in accordance with procedures
that vary from state to state.
Non-Judicial Foreclosure. In the majority of cases, foreclosure of a deed of
trust (and in some instances, other types of mortgage instruments) is
accomplished by a non-judicial trustee's sale pursuant to a provision in the
deed of trust that authorizes the trustee, generally following a request from
the beneficiary, to sell the mortgaged property at public sale upon any default
by the mortgagor under the terms of the note or deed of trust. In addition to
the specific contractual requirements set forth in the deed of trust, a
non-judicial trustee's sale is also typically subject to any applicable judicial
or statutory requirements imposed in the state where the mortgaged property is
located. The specific requirements that must be satisfied by a trustee prior to
the trustee's sale vary from state to state. Examples of the varied requirements
imposed by certain states are: (i) that notices of both the mortgagor's default
and the mortgagee's acceleration of the debt be provided to the mortgagor; (ii)
that the trustee record a notice of default and send a copy of such notice to
the mortgagor, any other person having an interest in the real property,
including any junior lienholders, any person who has recorded a request for a
copy of a notice of default and notice of sale, any successor in interest to the
mortgagor and to certain other persons; (iii) that the mortgagor, or any other
person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears,
plus, in certain states, certain allowed costs and expenses incurred by the
mortgagee in connection with the default; and (iv) the method (publication,
posting, recording, etc.), timing, content,
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location and other particulars as to any required public notices of the
trustee's sale. 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 mortgagee 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.
Limitations on Mortgagee's Rights. Because of the difficulty a potential
buyer at any foreclosure sale might have in determining the exact status of
title to the mortgaged property, the potential existence of redemption rights
(see "--Rights of Redemption" below) and because the physical condition and
financial performance of the mortgaged property may have deteriorated during the
foreclosure proceedings and/or for a variety of other reasons, a third party may
be unwilling to purchase the property at the foreclosure sale. Some states
require that the mortgagee disclose all known facts materially affecting the
value of the mortgaged property to potential bidders at a trustee's sale. Such
disclosure may have an adverse affect on the trustee's ability to sell the
mortgaged property or the sale price thereof. Potential buyers may be reluctant
to purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed its
reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) (the "Bankruptcy
Code"), and, therefore, could be rescinded in favor of the bankrupt's estate,
if: (i) the foreclosure sale was held while the debtor was insolvent and not
more than one year prior to the filing of the bankruptcy petition; and (ii) the
price paid for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the Bankruptcy Code). Although the
reasoning and result of Durrett in respect of the Bankruptcy Code was rejected
by the United States Supreme Court in May 1994, the case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law that has
provisions similar to those construed in Durrett. Furthermore, a bankruptcy
trustee or debtor in possession could possibly avoid a foreclosure sale by
electing to proceed under state fraudulent conveyance law, and the period of
time for which a foreclosure sale could be subject to avoidance under such law
is often greater than one year. For these reasons, it is common for the
mortgagee to purchase the property from the trustee, referee or other designated
official for an amount equal to the outstanding principal amount of the secured
indebtedness, together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the mortgagee equals the full
amount of such debt, interest and expenses, the secured debt would be
extinguished. Thereafter, the mortgagee assumes the burdens of ownership and
management of the property (frequently, through the employment of a third party
management company), including third party liability, paying operating expenses
and real estate taxes and making repairs, until a sale of the property to a
third party can be arranged. The costs of operating and maintaining commercial
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
that are hotels, motels or 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 that 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 mortgagee 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 mortgagee's investment in
the property. Moreover, a mortgagee commonly incurs substantial legal fees and
court costs in acquiring a mortgaged property through contested foreclosure
and/or bankruptcy proceedings. In addition, a mortgagee may be responsible under
federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "--Environmental Risks" below. As a result, a
mortgagee could realize an overall loss on a mortgage loan even if the related
mortgaged property is sold at foreclosure or resold after it is acquired through
foreclosure for an amount equal to the full outstanding principal amount of the
mortgage loan, plus accrued interest.
Courts may also apply general equitable principles in connection with
foreclosure proceedings to limit a mortgagee's remedies. These equitable
principles are generally designed to relieve the mortgagor from the legal effect
of his defaults under the loan documents to the extent such effect is determined
to be harsh or unfair. Examples of judicial remedies that have been fashioned
include requiring mortgagees to undertake affirmative and expensive actions to
determine the causes of the mortgagor's default and the likelihood that the
mortgagor will be able to reinstate the loan, requiring the mortgagees to
reinstate loans or recast payment schedules in order to accommodate mortgagors
who are suffering from temporary financial disability, and limiting the rights
of mortgagees to foreclose if the default under the mortgage instrument is not
monetary, such as the mortgagor's failing to maintain the property adequately or
executing a second mortgage affecting the property. 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 mortgagors
under deeds of trust or mortgages receive notices in addition to the statutorily
prescribed minimum. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed
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of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to the mortgagor.
Under the REMIC Regulations and the related Agreement, the Master Servicer or
Special Servicer, if any, may be permitted (and in some cases may be required)
to hire an independent contractor to operate any REO Property. The costs of such
operation may be significantly greater than the costs of direct operation by the
Master Servicer or Special Servicer, if any. See "SERVICING OF THE MORTGAGE
LOANS--Collections and Other Servicing Procedures."
Rights of Redemption. The purposes of a foreclosure 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 that is subordinate to the mortgage being
foreclosed, from any 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 sale, those having
an interest that 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. Equity of redemption is generally a common-law (non-statutory) right
that only exists prior to completion of the foreclosure sale, is not waivable by
the mortgagor and must be exercised prior to foreclosure sale.
In contrast to the doctrine of equity of redemption, in some states, the
mortgagor and foreclosed junior lienors are given a statutory period after the
completion of a foreclosure in which to redeem the property from the foreclosure
sale by payment of a redemption price. The required redemption price varies from
state to state. Some states require the payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure, others require the
payment of the foreclosure sale price, while other states require the payment of
only a portion of the sums due. The effect of a statutory right of redemption is
to diminish the ability of the mortgagee to sell the foreclosed property. The
exercise of a statutory right of redemption may defeat the title of any
purchaser at a foreclosure sale or any purchaser from the mortgagee subsequent
to a foreclosure sale. Consequently, the practical effect of the redemption
right is often to force the mortgagee to retain the property and pay the
expenses of ownership until the redemption period has run. Certain states permit
a mortgagee to invalidate an attempted exercise of a statutory redemption right
by waiving its right to any deficiency judgment. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. 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 Trustee receives (i) an extension from
the IRS or (ii) an opinion of counsel to the effect that holding such property
for such period is permissible under the REMIC Regulations.
Mortgagors under Installment Contracts generally do not have the benefits of
redemption periods such as those that exist in the same jurisdiction for
mortgage loans. If redemption statutes do exist under state laws for Installment
Contracts, the redemption period may be shorter than for mortgages.
Anti-Deficiency Legislation. Some of the Mortgage Loans will be nonrecourse
loans as to which, in the event of default by a mortgagor, recourse may be had
only against the specific property pledged to secure the related Mortgage Loan
and not against the mortgagor's other assets. Even if a mortgage by its terms
provides for recourse against the mortgagor, certain states have imposed
prohibitions against or limitations upon such recourse. For example, some state
statutes limit the right of the mortgagee to obtain a deficiency judgment
against the mortgagor following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former mortgagor equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the mortgagee. Other statutes
require the mortgagee 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 states, the mortgagee has the option of
bringing a personal action against the mortgagor on the debt without first
exhausting its security, however, in some of these states, a mortgagee choosing
to pursue such an action may be deemed to have elected its remedy and may be
precluded from exercising any remedies with respect to the security.
Consequently, the practical effect of the election requirement, when applicable,
is that mortgagees will usually proceed first against the security rather than
bringing personal action against the mortgagor. 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
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statutes is generally to prevent a mortgagee from obtaining a large deficiency
judgment against the former mortgagor as a result of low bids, or the absence of
bids, at the judicial sale.
Leasehold Risks. Certain of the Mortgage Loans may be secured by a mortgage
encumbering the mortgagor's leasehold interest under a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgages encumbering
a fee ownership interest in the mortgaged property. The most significant of
these risks is that the ground lease creating the leasehold estate could
terminate, thereby depriving the leasehold mortgagee of 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. Examples of protective provisions that
may be included in the related ground lease, or a separate agreement between the
ground lessee, the ground lessor and the mortgagee, in order to minimize such
risk are the right of the 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 mortgagee, the
right to acquire the leasehold estate through foreclosure or otherwise prior to
any termination of the ground lease; the ability of the ground lease to be
assigned to and by the mortgagee or a purchaser at a foreclosure sale and for a
release of the assigning ground lessee's liabilities thereunder; the right of
the mortgagee to enter into a ground lease with the ground lessor on the same
terms and conditions as the old ground lease in the event of a termination
thereof; and provisions for disposition of any insurance proceeds or
condemnation awards payable upon a casualty to, or condemnation of, the
mortgaged property. In addition to the foregoing protections, the leasehold
mortgage may 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, and may assign to the
mortgagee the debtor- ground lessee's right to reject a lease pursuant to
Section 365 of the Bankruptcy Code, although the enforceability of such
assignment has not been established. An additional manner in which to obtain
protection against the termination of the ground lease is to have the ground
lessor enter into a mortgage encumbering the fee estate in addition to the
mortgage encumbering the leasehold interest under the ground lease. Additional
protection is afforded to the mortgagee, because if the ground lease is
terminated, the mortgagee may nonetheless possess rights contained in the fee
mortgage. Without the protections described in this paragraph, a leasehold
mortgagee may be more likely to lose the collateral securing its leasehold
mortgage. No assurance can be given that any or all of the above described
provisions will be obtained in connection with any particular Mortgage Loan.
Bankruptcy Laws. Mortgagees often file bankruptcy to delay or prevent
exercise of remedies under loan documents. Numerous statutory and common law
provisions, including the Bankruptcy Code and state laws affording relief to
debtors, may interfere with and delay the ability of a mortgagee to obtain
payment of the loan, 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 often no
interest or principal payments are made during the course of the bankruptcy
proceeding (although "adequate protection" payments for anticipated diminution,
if any, in the value of the mortgaged property may be made). The delay and
consequences thereof caused by such automatic stay can be significant. A
particular mortgagor may become subject to the Bankruptcy Code either by a
voluntary or involuntary petition with respect to such mortgagor or, by virtue
of the doctrine of "substantive consolidation" by an affiliate of such mortgagor
becoming a debtor under the Bankruptcy Code. Additionally, the filing of a
petition in bankruptcy by or on behalf of a junior lienor or junior mortgagee
may stay the senior mortgagee from taking action to foreclose out such junior
lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the mortgagee are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. 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 the mortgagee's security interest), thus
leaving the mortgagee 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 monthly 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 acceleration) of the final maturity date. Some
bankruptcy courts have approved plans, based on the particular facts of the
reorganization case before them, that affected the curing of a mortgage loan
default by paying arrearages over a number of years. A bankruptcy court may also
permit a debtor to de-accelerate a secured loan and to reinstate the loan even
though the mortgagee had accelerated such 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, even if the full amount
due under the original loan is never repaid. Other types of significant
modifications to the terms of the mortgage may be acceptable to the bankruptcy
court, often depending on the particular facts and circumstances of the specific
case.
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Federal bankruptcy law may also interfere with or affect the ability of a
mortgagee to enforce an assignment of rents and leases or a security interest in
hotel revenues related to the mortgaged property. In connection with a
bankruptcy proceeding involving a mortgagor, Section 362 of the Bankruptcy Code
automatically stays any attempts by the mortgagee to enforce any such assignment
or security interest. The legal proceedings necessary to resolve such a
situation can be time-consuming and may result in significant delays in the
receipt of the rents or hotel revenues. Rents or hotel revenues may also be lost
(i) if the assignment or security interest is not fully documented or perfected
under state law prior to commencement of the bankruptcy proceeding; (ii) to the
extent such rents or hotel revenues are used by the mortgagor to maintain the
mortgaged property or for other court authorized expenses; (iii) to the extent
other collateral may be substituted therefor; and (iv) if the bankruptcy court
determines that it is necessary or appropriate "based on the equities of the
case."
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may be
impaired by the commencement of a bankruptcy proceeding relating to the lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in an automatic stay barring the
commencement or continuation of any state court proceeding for past due rent,
for accelerated rent, for damages or for a summary eviction order with respect
to a default under the lease that occurred prior to the filing of the lessee's
petition.
In addition, the Bankruptcy Code generally provides that a bankruptcy trustee
or debtor in possession may, subject to approval of the bankruptcy court, either
(i) assume the lease and retain it or assign it to a third party or (ii) reject
the lease. If the lease is assumed, the bankruptcy trustee or debtor in
possession (or assignee, if applicable) must cure any defaults under the lease,
compensate the lessor for its losses and provide the lessor with "adequate
assurance" of future performance. Such remedies may be insufficient, 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. Furthermore,
there may be a significant period of time between the date that a lessee files a
bankruptcy petition and the date that the lease is assumed or rejected. Although
the lessee is obligated to make all lease payments currently with respect to the
post-petition period, there is a risk that such payments will not be made due to
the lessee's poor financial condition. If the lease is rejected, the lessor will
be treated as an unsecured creditor with respect to its claim for damages for
termination of the lease, and the lessor must relet the mortgaged property
before the flow of lease payments will recommence. In addition, pursuant to
Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for lease rejection
are limited.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery, as a preferential transfer, of certain payments made by the mortgagor
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. If a Mortgage Loan includes any
guaranty, and the guaranty waives any rights of subrogation or contribution,
then certain payments by the mortgagor to the Trust Fund also may be avoided and
recovered as fraudulent conveyances.
A trustee in bankruptcy or a debtor in possession or various creditors who
extend credit after a case is filed, in some cases, may be entitled to collect
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the mortgagee. In certain circumstances, a trustee in bankruptcy or
debtor in possession may have the power to grant liens senior to or pari passu
with 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 enforce a restructuring of a mortgage loan on terms a
mortgagee would not otherwise accept.
A trustee in bankruptcy or a debtor in possession, in some cases, also may be
entitled to subordinate the lien created by the Mortgage Loan to other liens or
the claims of general unsecured creditors. Generally, this requires proof of
"unequitable conduct" by the mortgagee. However, various courts have expanded
the grounds for equitable subordination to apply to various non-pecuniary claims
for such items as penalties and fines. A court may find that any prepayment
charge, various late payment charges and other claims by mortgagees may be
subject to equitable subordination on these grounds.
A trustee in bankruptcy or a debtor in possession, in some cases, also may be
entitled to avoid all or part of any claim or lien by the mortgagee if and to
the extent a judgment creditor, or a bona fide purchaser of real estate, could
have done so outside of bankruptcy. Generally, this involves some defect in the
language, execution or recording of the Mortgage Loan documents.
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Environmental Risks
Real property pledged as security to a mortgagee may be subject to potential
environmental risks arising from the presence of hazardous or toxic substances
on, under, adjacent to, or in such property. The environmental condition of
mortgaged properties may be affected by the actions and operations of tenants
and occupants of such properties. Of particular concern may be those mortgaged
properties that are, or have been, the site of manufacturing, industrial or
disposal activity. In addition, current and future environmental laws,
ordinances or regulations, including new requirements developed by federal
agencies pursuant to the mandates of the Clean Air Act Amendments of 1990, may
impose additional compliance obligations on business operations that can be met
only by significant capital expenditures.
A mortgagee may be exposed to risks related to environmental conditions such
as the following: (i) a diminution in the value of a Mortgaged Property; (ii)
the potential that the mortgagor may default on a Mortgage Loan due to the
mortgagor's inability to pay high remediation costs or difficulty in bringing
its operations into compliance with environmental laws; 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 such Mortgaged
Property or the unpaid balance of the related Mortgage Loan. In certain
circumstances, a mortgagee may choose not to foreclose on contaminated property
rather than risk incurring liability for remedial actions.
In addition, a mortgagee may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the mortgagee to recoup its investment in a loan upon foreclosure.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a mortgagee that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Under federal and certain states' laws, the owner's failure to perform
remedial actions required under environmental laws may in certain circumstances
give rise to a lien on the Mortgaged Property to ensure the reimbursement of
remedial costs incurred by federal and state regulatory agencies. In several
states such lien has priority over the lien of an existing mortgage against such
property. Since the costs of remedial action could be substantial, the value of
a Mortgaged Property as collateral for a Mortgage Loan could be adversely
affected by the existence of an environmental condition giving rise to a lien.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, can be
imposed on a mortgagee such as the Trust Fund with respect to each Series. Under
the laws of some states and under the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), strict
liability may be imposed on present and past "owners" and "operators" of
contaminated real property for the costs of clean-up. A mortgagee may be liable
as an "owner" or "operator" of a contaminated mortgaged property if agents or
employees of the mortgagee have participated in the management of such mortgaged
property or the operations of the mortgagor. Such liability may exist even if
the mortgagee did not cause or contribute to the contamination and regardless of
whether the mortgagee has actually taken possession of a mortgaged property
through foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such
liability is not limited to the original or unamortized principal balance of a
loan or to the value of the property securing a loan. Excluded from CERCLA's
definition of "owner" or "operator", however, is a person "who without
participating in the management of the facility, holds indicia of ownership
primarily to protect his security interest." This is known as the "secured
creditor exemption."
In general, what constitutes sufficient management of a mortgaged property or
the business of a borrower to render the secured creditor exemption unavailable
to a mortgagee is based upon judicial interpretation of CERCLA's statutory
language, and court decisions have been inconsistent in this matter. In United
States v. Fleet Factors, 901 F.2d 1550 (11th Cir. 1990), cert. den. 498 U.S.
1046 (1991), the Court of Appeals for the Eleventh Circuit suggested that the
mere capacity of the mortgagee to influence a mortgagor's disposal of hazardous
substances was sufficient participation in the management of the mortgagor's
business to deny the secured creditor exemption to the mortgagee. However, in re
Bergsoe Metal Corp., 910 F.2d 668 (9th Cir. 1990), the Court of Appeals for the
Ninth Circuit disagreed with the Fleet Factors decision and held that there must
be some degree of "actual management" of a facility on the part of a mortgagee
in order to bar its reliance on the secured creditor exemption. In addition,
certain cases decided in the First Circuit and the
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Fourth Circuit have held that mortgagees were entitled to the secured creditor
exemption, notwithstanding a mortgagee's taking title to a mortgaged property
through foreclosure or deed in lieu of foreclosure. Many states have statutes
similar to CERCLA, and not all of those statutes provide for a secured creditor
exemption.
CERCLA's "innocent landowner" defense to strict liability may be available to
a mortgagee that has taken title to a mortgaged property and has performed an
appropriate environmental site assessment that does not disclose existing
contamination and that meets other requirements of the defense. However, it is
unclear whether the environmental site assessment must be conducted upon loan
origination, prior to foreclosure or both, and uncertainty exists as to what
kind of environmental site assessment must be performed in order to qualify for
the defense.
In addition to the foregoing, mortgagees also could be potentially liable for
releases from underground storage tanks under the federal Resource Conservation
and Recovery Act. Beyond statute-based environmental liability, there exist
common law causes of action that can be asserted to redress hazardous
environmental conditions on a property (e.g., actions based on nuisance for so
called toxic torts resulting in death, personal injury or damage to property).
Although it may be more difficult to hold a mortgagee liable in such cases,
unanticipated or uninsured liabilities of the mortgagor may jeopardize the
mortgagor's ability to meet its loan obligations.
Except as otherwise specified in the applicable Prospectus Supplement, at the
time the Mortgage Loans were originated, it is possible that no environmental
assessment or a very limited environmental assessment of the Mortgaged
Properties was conducted.
The related Agreement will provide that the Master Servicer or the Special
Servicer, if any, acting on behalf of the Trust Fund, may not acquire title to
any Mortgaged Property or take over its operation unless the Master Servicer or
the Special Servicer, if any, has previously determined, based upon a phase I or
other specified environmental assessment prepared by a person who regularly
conducts such environmental assessments, that (a) the Mortgaged Property is in
compliance with applicable environmental laws or that it would be in the best
economic interest of the Trust Fund to take the actions necessary to comply with
such laws and (b) there are no circumstances or conditions present at the
Mortgaged Property relating to hazardous substances for which some
investigation, remediation or clean-up action could be required or that it would
be in the best economic interest of the Trust Fund to take such actions with
respect to such Mortgaged Property. This requirement effectively precludes
enforcement of the security for the related Note until a satisfactory
environmental assessment is obtained and/or any required remedial action is
taken. This requirement will reduce the likelihood that a given Trust Fund will
become liable for any environmental conditions affecting a Mortgaged Property,
but will make it more difficult to realize on the security for the Mortgage
Loan. There can be no assurance that any environmental assessment obtained by
the Master Servicer or the Special Servicer, if any, will detect all possible
environmental conditions or that the other requirements of the Agreement, even
if fully observed by the Master Servicer or the Special Servicer, if any, will
in fact insulate a given Trust Fund from liability for environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing, and specifically including, without limitation, asbestos and
asbestos-containing materials, polychlorinated biphenyls, radon gas, petroleum
and petroleum products, urea formaldehyde and any substances classified as being
"in inventory," "usable work in process" or similar classification that would,
if classified as unusable, be included in the foregoing definition.
If a mortgagee is or becomes liable for clean-up costs, it may bring an
action for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action against the
Mortgagor may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the mortgagee to exhaust its security before bringing a
personal action against the mortgagor (see "--Anti-Deficiency Legislation"
above) may curtail the mortgagee's ability to recover from its mortgagor the
environmental clean-up and other related costs and liabilities incurred by the
mortgagee. Shortfalls occurring as the result of imposition of any clean-up
costs will be addressed in the Prospectus Supplement and Agreement for the
related Series.
Enforceability of Certain Provisions
Default Interest; Late Charges; and Prepayment Fees. Some of
the Mortgage Loans may contain provisions requiring the mortgagor
to pay late charges or additional interest if required payments
are not
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timely made. In certain states there may be limitations upon the enforceability
of such provisions, and no assurance can be given that any of such provisions
related to any Mortgage Loan will be enforceable. Some of the Mortgage Loans may
also contain provisions prohibiting any prepayment of the loan prior to maturity
or requiring the payment of a prepayment fee in connection with any such
prepayment. Even if enforceable, a requirement for such prepayment fees may not
deter mortgagors from prepaying their Mortgage Loans. Although certain states
will allow the enforcement of such provisions upon a voluntary prepayment of a
mortgage loan, in other states such provisions may be unenforceable after a
mortgage loan has been outstanding for a certain number of years or if
enforcement would be unconscionable, or the allowed amount of any prepayment fee
may be limited (i.e., to a specified percentage of the original principal amount
of the mortgage loan, to a specified percentage of the outstanding principal
balance of a mortgage loan or to a fixed number of months' interest on the
prepaid amount). In certain states there may be limitations upon the
enforceability of prepayment fee provisions applicable in connection with a
default by the mortgagor or an involuntary acceleration of the secured
indebtedness, and no assurance can be given that any of such provisions related
to any Mortgage Loan will be enforceable under such circumstances. The
applicable laws of certain states may also treat certain prepayment fees as
usurious if in excess of statutory limits. See "--Applicability of Usury Laws."
Due-on-Sale Provisions. The enforceability of due-on-sale provisions has been
the subject of legislation or litigation in many states, and in some cases,
typically involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits mortgagees to enforce these clauses in
accordance with their terms, subject to certain exceptions. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures exercised their authority to regulate the enforceability of
such clauses with respect to mortgage loans that were: (i) originated or assumed
during the "window period" under the Garn-St Germain Act, which ended in all
cases not later than October 15, 1982; and (ii) originated by lenders other than
national banks, federal savings institutions or federal credit unions. The
Federal Home Loan Mortgage Corporation has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of loans that were originated or assumed during the "window period"
applicable to such state. Also, the Garn-St Germain Act does "encourage" lenders
to permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rates.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will provide that if any Mortgage Loan contains a
provision in the nature of a "Due-on-Sale" clause, which by its terms provides
that: (i) such Mortgage Loan shall (or may at the mortgagee's option) become due
and payable upon the sale or other transfer of an interest in the related
Mortgaged Property or (ii) such Mortgage Loan may not be assumed without the
consent of the related mortgagee in connection with any such sale or other
transfer, then, for so long as such Mortgage Loan is included in the Trust Fund,
the Master Servicer or the Special Servicer, if any, on behalf of the Trustee,
shall take such actions as it deems to be in the best interest of the Trust Fund
in accordance with the servicing standard set forth in the Agreement, and may
waive or enforce any due-on-sale clause contained in the related Note or
Mortgage.
In addition, under the federal Bankruptcy Code, 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.
Acceleration on Default. It is expected that the Mortgage Loans will include
a "Debt-Acceleration" clause, which permits the mortgagee to accelerate the full
debt upon a monetary or nonmonetary default of the mortgagor. The courts of all
states will enforce such acceleration clauses in the event of a material payment
default if appropriate notices of default have been effectively given. However,
the equity courts of any state may refuse to foreclose a mortgage 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, in certain states, the costs and
attorneys' fees incurred by the mortgagee in collecting such defaulted payments.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts. For
example, a mortgagee's practice of accepting late payments from the mortgagor
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the Installment Contract
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following a default. Not infrequently, if a mortgagor under an Installment
Contract has significant equity in the property, equitable principles will be
applied to reform or reinstate the Installment Contract or to permit the
mortgagor to share the proceeds upon a foreclosure sale of the property if the
sale price exceeds the debt.
Soldiers' and Sailors' Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service (including
the Army, Navy, Air Force, Marines, Coast Guard, members of the National Guard
or any Reserves who are called to active duty status after the origination of
their Mortgage Loan and officers of the U.S. Public Health Service assigned to
duty with the military) after the origination of such mortgagor's 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 mortgagee. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by any applicable Credit Enhancement, could result in losses to the
holders of the Certificates. In addition, the Relief Act imposes limitations
that would impair the ability of the Master Servicer or the Special Servicer, if
any, to foreclose on an affected Mortgage Loan during the mortgagor's period of
active duty status and, under certain circumstances, during an additional three
months thereafter. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned by the inability to realize
upon the Mortgaged Property in a timely fashion. Because the Relief Act applies
to mortgagors who enter military service (including reservists who are later
called to active duty) after origination of their Mortgage Loan, no information
can be provided as to the number of Mortgage Loans that may be affected by the
Relief Act. The Relief Act may also be applicable if the mortgagor is an entity
owned or controlled by a person in a military service.
Applicability of Usury Laws
State and federal usury laws limit the interest that mortgagees are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" in the
determination of the "interest" charged in connection with a loan. If, however,
the amount charged for the use of the money loaned is found to exceed a
statutorily established maximum rate, the form employed and the degree of
overcharge are both immaterial. Statutes differ in their provision as to the
consequences of a usurious loan. One type of statute requires the mortgagee to
forfeit the interest above the applicable limit or imposes a specified penalty.
Under this statutory scheme, the mortgagor may have the recorded mortgage or
deed of trust cancelled upon paying its debt with lawful interest, or the
mortgagee may foreclose, but only for the debt plus lawful interest, in either
case, subject to any applicable credit for excessive interest collected from the
mortgagor and any penalty owed by the mortgagee. A second type of statute is
more severe. A violation of this type of usury law results in the invalidation
of the transaction, thereby permitting the mortgagor to have the recorded
mortgage or deed of trust cancelled without any payment and prohibiting the
mortgagee from foreclosing.
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that state usury limitations do 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
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.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially with
respect to residential (including multifamily, but not other commercial)
mortgage loans as a result of the enactment of Title VIII of the Garn-St Germain
Act ("Title VIII"). Title VIII provides that, notwithstanding any state law to
the contrary: (i) state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the Comptroller of the
Currency with respect to origination of alternative mortgage instruments by
national banks; (ii) state-chartered credit unions may originate alternative
mortgage instruments in accordance with regulations promulgated by the National
Credit Union Administration (the "NCUA") with respect to origination of
alternative mortgage instruments by federal
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credit unions; and (iii) all other non-federally chartered housing creditors,
including state-chartered savings and loan associations, state-chartered savings
banks and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal Home
Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII authorized any state to reject applicability of the
provisions of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action. A mortgagee's failure to
comply with the applicable federal regulations in connection with the
origination of an alternative mortgage instrument could subject such mortgage
loan to state restrictions that would not otherwise be applicable.
Leases and Rents
Some of the Mortgage Loans may be secured by an assignment of leases and
rents, either through assignment provisions incorporated in the mortgage,
through a separate assignment document or both. Under an assignment of leases
and rents, the mortgagor typically assigns to the mortgagee the mortgagor's
right, title and interest as landlord under each lease and the income derived
therefrom, while retaining a revocable license to collect the rents for so long
as there is no default under the mortgage loan documentation. In the event of
such a default, the license terminates and the mortgagee may be entitled to
collect rents. A mortgagee's failure to perfect properly its interest in rents
may result in the loss of a substantial pool of funds that could otherwise serve
as a source of repayment for the loan. Some state laws may require that in
addition to recording properly the assignment of leases and rents, the mortgagee
must also take possession of the property and/or obtain judicial appointment of
a receiver before such mortgagee is entitled to collect rents. Although
mortgagees actually taking possession of the property may become entitled to
collect the rents therefrom, such mortgagees may also incur potentially
substantial risks attendant to such possession, including liability for
environmental clean-up costs and other risks inherent to property ownership and
operation. In addition, if a bankruptcy or similar proceeding is commenced by or
in respect of the mortgagor, the mortgagee's ability to collect the rents may
also be adversely affected.
Secondary Financing; Due-on-Encumbrance Provisions
Some of the Mortgage Loans may not restrict secondary financing, thereby
permitting the mortgagor to use the Mortgaged Property as security for one or
more additional loans. Some of the Mortgage Loans may preclude secondary
financing (often by permitting the senior mortgagee to accelerate the maturity
of its loan if the mortgagor further encumbers the Mortgaged Property) or may
require the consent of the senior mortgagee; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. Unless
otherwise specified in the related Prospectus Supplement, the Agreement for each
Series will provide that if any Mortgage Loan contains a provision in the nature
of a "Due-on-Encumbrance" clause, which by its terms: (i) provides that such
Mortgage Loan will (or may at the mortgagee's option) become due and payable
upon the creation of any lien or other encumbrance on the related Mortgaged
Property; or (ii) requires the consent of the related mortgagee to the creation
of any such lien or other encumbrance on the related Mortgaged Property; then
for so long as such Mortgage Loan is included in a given Trust Fund, the Master
Servicer or, if such Mortgage Loan is a Specially Serviced Mortgage Loan, the
Special Servicer, if any, on behalf of such Trust Fund, will exercise (or
decline to exercise) any right it may have as the mortgagee of record with
respect to such Mortgage Loan to (x) accelerate the payments thereon or (y)
withhold its consent to the creation of any such lien or other encumbrance, in a
manner consistent with the servicing standard set forth in the Agreement.
If the mortgagor encumbers the Mortgaged Property with one or more junior
liens, the senior mortgagee is subjected to additional risk, such as the
following. First, the mortgagor may have difficulty servicing and repaying
multiple loans. In addition, if the junior loan permits recourse to the
mortgagor and the senior loan does not, a mortgagor may be more likely to repay
sums due on the junior loan than those due on the senior loan. Second, acts of
the senior mortgagee that prejudice the junior mortgagee or impair the junior
mortgagee's security may create a superior equity in favor of the junior
mortgagee. For example, if the mortgagor and the senior mortgagee agree to an
increase in the principal amount of, or the interest rate payable on, the senior
loan, the senior mortgagee may lose its priority to the extent an existing
junior mortgagee is prejudiced 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 mortgagees can impair
the security available to the senior mortgagee and can interfere with, delay and
in certain circumstances even prevent the taking of action by the senior
mortgagee. Fourth, the bankruptcy of a junior mortgagee may operate to stay
foreclosure or similar proceedings by the senior mortgagee.
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Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in the
value of a Mortgaged Property, which could, together with the possibility of
limited alternative uses for a particular Mortgaged Property (e.g., a nursing or
convalescent home or hospital), result in a failure to realize the full
principal amount of and interest on the related Mortgage Loan.
Type of Mortgaged Property
A mortgagee may be subject to additional risk depending upon the type and use
of the mortgaged property in question. For instance, mortgaged properties that
are hospitals, nursing homes or convalescent homes may present special risks to
mortgagees in large part due to significant governmental regulation of the
ownership, operation, maintenance, control and financing of health care
institutions. Mortgages encumbering mortgaged properties that 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 that are hotels or motels may present additional risk to
the mortgagee in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements that may be terminable by the
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
mortgaged properties that are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control laws,
which could impact the future cash flows of such properties. See "RISK
FACTORS--Risks Associated with Certain Mortgage Loans and Mortgaged Properties."
Criminal Forfeitures
Various federal and state laws (collectively, the "Forfeiture Laws") provide
for the civil or criminal forfeiture of certain property (including real estate)
used or intended to be used to commit or facilitate the commission of a
violation of certain laws (typically criminal laws), or purchased with the
proceeds of such violations. Even though the Forfeiture Laws were originally
intended as tools to fight organized crime and drug related crimes, the current
climate appears to be to expand the scope of such laws. Certain of the
Forfeiture Laws (i.e., the Racketeer Influenced and Corrupt Organizations law
and the Comprehensive Crime Control Act of 1984) provide for notice, opportunity
to be heard and for certain defenses for "innocent lienholders." However, given
the uncertain scope of the Forfeiture Laws and their relationship to existing
constitutional protections afforded property owners, no assurance can be made
that enforcement of a Forfeiture Law with respect to any Mortgaged Property
would not deprive the Trust Fund of its security for the related Mortgage Loan.
Americans With Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove structural, architectural and communication barriers
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 mortgagee who succeeds to the interest of the mortgagor as owner
or landlord. Furthermore, since the "readily achievable" standard may vary
depending on the financial condition of the owner or landlord, a foreclosing
mortgagee 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership and disposition of the Certificates. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations and interpretations on which this summary is based are subject to
change, and such change could apply retroactively.
This summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold Certificates as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Potential purchasers of
Certificates are advised to consult their own tax advisers concerning the
federal, state or local tax consequences to them of the purchase, holding and
disposition of Certificates.
Taxation of the REMIC and its Holders
General. In the opinion of Morrison & Hecker L.L.P., counsel to the
Depositor, if a REMIC election is made with respect to a Series of Certificates,
then the arrangement by which the Certificates of that Series are issued will be
treated as one or more REMICs as long as all of the provisions of the applicable
Agreement are complied with and the statutory and regulatory requirements
concerning REMICs are satisfied. Certificates will be designated as "Regular
Interests" or "Residual Interests" in the REMICs, as specified in the related
Prospectus Supplement. The opinion of counsel may in certain cases be based on
representations of the Depositor or other persons.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related Certificates may not be accorded the
status or given the tax treatment described below. Although the Code authorizes
the U.S. Department of the Treasury to issue regulations providing relief in the
event of an inadvertent termination of REMIC status, no such regulations have
been issued. Any such relief, moreover, may be accompanied by sanctions, such as
the imposition of a corporate tax on all or a portion of the Trust Fund's income
for the period in which the requirements for such status are not satisfied. The
related Agreement with respect to each REMIC will include provisions designed to
maintain the Trust Fund's status as a REMIC under the REMIC Regulations. It is
not anticipated that the status of any Trust Fund as a REMIC will be
inadvertently terminated.
If a REMIC election is made with respect to a Series of Certificates, (i)
Certificates held by a mutual savings bank or domestic building and loan
association will represent interests in "qualifying real property loans" within
the meaning of Code Section 593(d) (assuming that at least 95% of the REMIC's
assets are "qualifying real property loans"); (ii) Certificates held by a
domestic building and loan association will constitute "a regular or a residual
interest in a REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi)
(assuming that at least 95% of the REMIC's assets consist of cash, government
securities, "loans secured by an interest in real property" and other types of
assets described in Code Section 7701(a)(19)(C) (except that if the underlying
Mortgage Loans are not residential Mortgage Loans, the Certificates will not so
qualify)); and (iii) Certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code Section 856(c)(5)(A),
and income with respect to the Certificates will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B) (assuming, for both
purposes, that at least 95% of the REMIC's assets are qualifying assets). If
less than 95% of the REMIC's assets consist of assets described in (i), (ii) or
(iii) above, then a Certificate will qualify for the tax treatment described in
(i), (ii) or (iii) in the proportion that such REMIC assets are qualifying
assets. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
Trustee will report those determinations to Certificateholders in the manner and
at the times required by applicable Treasury regulations.
It is possible that various reserves or funds will reduce the proportion of
REMIC assets that qualify under the standards described above.
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Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs ("Tiered REMICs") for federal income tax purposes. Upon the
issuance of any such Series of Certificates, counsel to the Depositor will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Agreement, the Tiered REMICs will each qualify as a
REMIC and the Certificates issued by the Tiered REMICs, will be considered to
evidence ownership of Regular Certificates or Residual Certificates in the
related REMIC within the meaning of the REMIC Regulations of the Code.
Solely for purposes of determining whether the Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Regular Interests
Interest and Acquisition Discount. Certificates representing Regular
Interests in a REMIC ("Regular Certificates") are generally taxable to
Certificateholders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Certificates will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Certificateholder's normal accounting method. Reports will be made
annually to the Internal Revenue Service (the "IRS") and to holders of Regular
Certificates that are not excepted from the reporting requirements regarding
amounts treated as interest (including accrual of original issue discount) on
Regular Certificates.
Certificates on which interest is not paid currently ("Compound Interest
Certificates") will, and certain of the other Certificates constituting Regular
Interests may, be issued with original issue discount ("OID") within the meaning
of Code Section 1273. Rules governing OID are set forth in Sections 1271-1275 of
the Code and certain final regulations of the U.S. Department of the Treasury
issued in 1994 (the "Final Regulations") and certain proposed regulations of the
U.S. Department of the Treasury issued in 1986, and modified in 1991 and 1994
(the "Proposed Regulations"). The discussion herein is based in part on the
Proposed Regulations, which are subject to change before being adopted as final
regulations and which will not be effective for obligations issued before such
final regulations are adopted. Moreover, although the Code contains specific
provisions governing the calculation of OID on securities, such as the
Certificates, on which principal is required to be prepaid based on prepayments
of the underlying assets, regulations interpreting those provisions have not yet
been issued.
A holder of a Regular Certificate must include OID in gross income as
ordinary income as it accrues under a method taking into account an economic
accrual of the discount. In general, OID must be included in income in advance
of the receipt of the cash representing that income. The amount of OID on a
Regular Certificate will be considered to be zero if it is less than a de
minimis amount determined under the Code.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Certificate and its issue price. The
issue price of a Regular Certificate of a Class will generally be the initial
offering price at which a substantial amount of the Certificates in the Class is
sold to the public, and will be treated by the Depositor as including, in
addition, the amount paid by the Certificateholder for accrued interest that
relates to a period prior to the issue date of such Regular Certificate. Under
the Final Regulations, the stated redemption price at maturity is the sum of all
payments on the Certificate other than any "Qualified Stated Interest" payments.
Qualified stated interest is interest that is unconditionally payable at least
annually during the entire term of the Certificate at either (a) a single fixed
rate that appropriately takes into account the length of the interval between
payments or (b) the current values of (i) a single "qualified floating rate" or
(ii) a single "objective rate" (each a "Single Variable Rate"). A "current
value" is the value of a variable rate on any day that is no earlier than three
months prior to the first day on which that value is in effect and no later than
one year following that day. A qualified floating rate is a rate the variations
in which reasonably can be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the currency in which the Regular Certificate is
denominated (e.g., LIBOR). Such a rate remains qualified even though it is
multiplied by a fixed, positive multiple not exceeding 1.35, increased or
decreased by a fixed rate, or both. Certain combinations of rates constitute a
single qualified floating rate, including (a) interest stated at a fixed rate
for an initial period of less than one year followed by a qualified floating
rate, if the value of the qualified floating rate on the issue date is intended
to approximate the fixed rate, and (b) two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Regular Certificate. A combination of such rates is conclusively
presumed to be a single qualified floating rate if the values of all rates on
the issue date are within .25
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percentage points of each other. A variable rate that is subject to an interest
rate cap, floor, "governor" or similar restriction on rate adjustment may be a
qualified floating rate only if such restriction is fixed throughout the term of
the instrument, or is not reasonably expected as of the issue date to cause the
yield on the debt instrument to differ significantly from the expected yield
absent the restriction. An objective rate is a rate, other than a qualified
floating rate, determined by a single formula that is fixed throughout the term
of the Regular Certificate and is based on (i) one or more qualified floating
rates (including a multiple or inverse of a qualified floating rate); (ii) one
or more rates each of which would be a qualified floating rate for a debt
instrument denominated in a foreign currency; (iii) the yield or the changes in
the price of one or more items of "actively traded" personal property other than
stock or debt of the issuer or a related party, (iv) a combination of rates
described in (i), (ii) or (iii); or (iv) other rates designated by the IRS in
the Internal Revenue Bulletin. Each rate described in (i) through (iv) above
will not be considered an objective rate, however, if it is reasonably expected
that the average value of the rate during the first half of the Regular
Certificate's term will differ significantly from the average value of the rate
during the final half of its term. A combination of interest stated at a fixed
rate for an initial period of less than one year followed by an objective rate
is treated as a single objective rate if the value of the objective rate on the
issue date is intended to approximate the fixed rate; such a combination of
rates is conclusively presumed to be a single objective rate if the value of the
objective rate on the issue date does not differ from the value of the fixed
rate by more than .25 percentage points. The rules for determining the qualified
stated interest payable with respect to certain variable rate Regular
Certificates not bearing interest at a Single Variable Rate are discussed below
under "--Variable Rate Regular Interests." In the case of the Compound Interest
Certificates, Interest Weighted Certificates and certain of the other Regular
Certificates, none of the payments under the instrument will be considered
qualified stated interest, and thus the aggregate amount of all payments will be
included in the stated redemption price at maturity. Because Certificateholders
are entitled to receive interest only to the extent that payments are made on
the Mortgage Loans, interest might not be considered to be "unconditionally
payable."
The holder of a Regular Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Regular
Certificate, the sum of the "daily portions" of such OID. Under Code Section
1272(a)(6), the amount of OID to be included in income by a holder of a debt
instrument, such as a Regular Certificate, that is subject to acceleration due
to prepayments on other debt obligations securing such instrument, is computed
by taking into account the anticipated rate of prepayments assumed in pricing
the debt instrument (the "Prepayment Assumption"). The IRS has not yet issued
regulations that address Prepayment Assumptions; however, the Conference
Committee Report to the Tax Reform Act of 1986 indicates that the assumed rate
of prepayments used in pricing can be used for purposes of OID calculations if
such assumption is reasonable for comparable transactions. The amount of OID
includible in income by a Certificateholder will be computed by allocating to
each day during a taxable year a pro-rata portion of the OID that accrued during
the relevant accrual period. The amount of OID that will accrue during an
accrual period (generally the period between interest payments or compounding
dates) is the excess (if any) of the sum of (a) the present value of all
payments remaining to be made on the Regular Certificate as of the close of the
accrual period and (b) the payments during the accrual period of amounts
included in the stated redemption price of the Regular Certificate, over the
"adjusted issue price" of the Regular Certificate at the beginning of the
accrual period. The adjusted issue price of a Regular Certificate is the sum of
its issue price plus prior accruals of OID, reduced by the total payments, other
than qualified stated interest payments, made with respect to such Regular
Certificate in all prior periods. Code Section 1272(a)(6) requires the present
value of the remaining payments to be determined on the basis of three factors:
(i) the original yield to maturity of the Regular Certificate (determined on the
basis of compounding at the end of each accrual period and properly adjusted for
the length of the accrual period); (ii) events that have occurred before the end
of the accrual period; and (iii) the assumption that the remaining payments will
be made in accordance with the original Prepayment Assumption. The effect of
this method would be to increase the portion of OID required to be included in
income by a Certificateholder taking into account prepayments with respect to
the Mortgage Loans at a rate that exceeds the Prepayment Assumption, and to
decrease (but not below zero for any period) the portions of OID required to be
included in income by a Certificateholder taking into account prepayments with
respect to the Mortgage Loans at a rate that is slower than the Prepayment
Assumption. Although OID will be reported to Certificateholders based on the
Prepayment Assumption, there is no assurance that Mortgage Loans will be repaid
at that rate and no representation is made to Certificateholders that Mortgage
Loans will be prepaid at that rate or at any other rate.
Certain Classes of Certificates may represent more than one Class of Regular
Interests. Unless the applicable Prospectus Supplement specifies otherwise, the
Trustee intends, based on the Final Regulations, to calculate OID on such
Certificates as if, solely for the purposes of computing OID, the separate
Regular Interests were a single debt instrument.
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A subsequent holder of a Regular Certificate will also be required to include
OID in gross income. If such a holder purchases a Regular Certificate for an
amount that exceeds its adjusted issue price the holder will be entitled (as
will an initial holder who pays more than a Regular Certificate's issue price)
to offset such OID by comparable economic accruals of portions of such excess.
Interest Weighted Certificates. It is not clear how income should be accrued
with respect to Regular Certificates the payments on which consist solely or
primarily of a specified portion of the interest payments on qualified mortgages
held by the REMIC ("Interest Weighted Certificate"). The Depositor intends to
take the position that all of the income derived from an Interest Weighted
Certificate should be treated as OID and that the amount and rate of accrual of
such OID should be calculated by treating the Interest Weighted Certificate as a
Compound Interest Certificate. However, the IRS could assert that income derived
from an Interest Weighted Certificate should be calculated as if the Interest
Weighted Certificate were a Certificate purchased at a premium equal to the
excess of the price paid by such Certificateholder for the Interest Weighted
Certificate over its stated principal amount, if any. Under this approach, a
Certificateholder would be entitled to amortize such premium only if it has in
effect an election under Section 171 of the Code with respect to all taxable
debt instruments held by such holder, as described below. Alternatively, the IRS
could assert that the Interest Weighted Certificate should be taxable under
proposed regulations under Section 1275 governing bonds issued with contingent
principal payments, in which case a Certificateholder might recognize income at
a slower rate than if the Interest Weighted Certificate were treated as a
Compound Interest Certificate.
Variable Rate Regular Interests. Regular Certificates bearing interest at one
or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under the
Final Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rates or
(ii) a single fixed rate and (a) one or more qualified floating rates or (b) a
single "qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds (disregarding permissible rate caps, floors, governors and
similar restrictions such as are described above).
Purchasers of Regular Certificates bearing a variable rate of interest should
be aware that there is uncertainty concerning the application of Code Section
1272(a)(6), the Final Regulations and the Proposed Regulations to such
Certificates. In the absence of other authority, the Depositor intends to be
guided by the provisions of the Final Regulations governing variable rate debt
instruments in adapting the provisions of Code Section 1272(a)(6) to such
Certificates for the purpose of preparing tax reports furnished to the IRS and
Certificateholders. In that regard, in determining OID with respect to Regular
Certificates bearing interest at a Single Variable Rate, (a) all stated interest
with respect to a Regular Certificate is treated as qualified stated interest
and (b) the amount and accrual of OID, if any, is determined under the OID rules
applicable to fixed rate debt instruments discussed above by assuming that the
Single Variable Rate is a fixed rate equal to (i) in the case of a qualified
floating rate or qualified inverse floating rate, the issue date value of the
rate or (ii) in the case of any other objective rate, a fixed rate that reflects
the yield that is reasonably expected for the Regular Certificate. Interest and
OID attributable to the Regular Certificates bearing interest at a Multiple
Variable Rate similarly will be taken into account under a methodology that
converts the Certificate into an equivalent fixed rate debt instrument. However,
in determining the amount and accrual of OID, the assumed fixed rates are (a)
for each qualified floating rate, the value of each such rate as of the issue
date (with appropriate adjustment for any differences in intervals between
interest adjustment dates); (b) for a qualified inverse floating rate, the value
of the rate as of the issue date; and (c) for any other objective rate, the
fixed rate that reflects the yield that is reasonably expected for the
Certificate. In the case of a Certificate that provides for stated interest at a
fixed rate in one or more accrual periods and either one or more qualified
floating rates or a qualified inverse floating rate in other accrual periods,
the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Certificate provides for a qualified
inverse floating rate). The qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Regular Certificate as of its issue date is approximately the same
as the fair market value of an otherwise identical debt-instrument that provides
for either the qualified floating rate or the qualified inverse floating rate.
Subsequent to converting the fixed rate into either a qualified floating rate or
a qualified inverse floating rate, the Regular Certificate is then treated as
converted into an equivalent fixed rate debt instrument in the manner described
above. If the interest paid or accrued with respect to a Single Variable Rate or
Multiple Variable Rate Certificate during an accrual period differs from the
assumed fixed interest rate, such difference will be an adjustment (to interest
or OID, as applicable) to the Certificateholder's taxable income for the taxable
period or periods to which such difference relates.
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Purchasers of Certificates bearing a variable rate of interest should be
aware that the provisions of the Final Regulations governing variable rate debt
instruments are limited in scope and may not apply to some Regular Certificates
having variable rates. If such a Certificate is not subject to the provisions of
the Final Regulations governing variable rate debt instruments, it may be
subject to the provisions of the Proposed Regulations applicable to debt
instruments having contingent payments. The application of those provisions to
instruments such as variable rate Regular Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Regular Certificates
should consult their tax advisers concerning the appropriate tax treatment of
such Certificates.
Market Discount and Premium. A purchaser of a Regular Certificate may also be
subject to the market discount rules of Code Section 1278 if the stated
redemption price at maturity (or the revised issue price where OID has accrued
on such Certificate) exceeds the basis of the Certificate in the hands of the
purchaser. Such purchaser generally will be required to recognize accrued market
discount as ordinary income as payments of principal are received on such
Regular Certificate, or upon the sale or exchange of the Regular Certificate. In
general terms, until regulations are promulgated, market discount may be treated
as accruing, at the election of the Certificateholder, either (i) under a
constant yield method, taking into account the Prepayment Assumption, or (ii) in
proportion to accruals of OID (or, if there is no OID, in proportion to accruals
of stated interest). A holder of a Regular Certificate having market discount
may also be required to defer a portion of the interest deductions attributable
to any indebtedness incurred or continued to purchase or carry the Regular
Certificate. As an alternative to the inclusion of market discount in income on
the foregoing basis, the Certificateholder may elect to include such market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. Such election will apply to all taxable
debt instruments (including all Regular Interests) held by the Certificateholder
at the beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who purchase Regular
Certificates at a market discount should consult their tax advisors regarding
the elections for recognition of such discount.
A Certificateholder who purchases a Regular Certificate (other than an
Interest Weighted Certificate, to the extent described above) at a cost greater
than its stated redemption price at maturity, generally will be considered to
have purchased the Certificate at a premium, which it may elect under Code
Section 171 to amortize as an offset to interest income on such Certificate (and
not as a separate deduction item) on a constant yield method. Although no
regulations addressing the computation of premium accrual on collateralized
mortgage obligations or Regular Interests have been issued, the legislative
history of the Tax Reform Act of 1986 (the "1986 Act") indicates that premium is
to be accrued in the same manner as market discount. Accordingly, it appears
that the accrual of premium on a Regular Certificate will be calculated using
the Prepayment Assumption. If a Certificateholder makes an election to amortize
premium on a Certificate, such election will apply to all taxable debt
instruments (including all Regular Interests) held by the holder at the
beginning of the taxable year in which the election is made, and to all taxable
debt instruments acquired thereafter by such holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for Regular
Certificates should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
Interest Election. Under the Final Regulations, holders of Regular
Certificates generally may elect to include all accrued interest on a Regular
Certificate in gross income using the constant yield to maturity method. For
purposes of this election, interest includes stated interest, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest, as adjusted by any premium. If a holder of a
Regular Certificate makes such an election and (i) the Regular Certificate has
amortizable bond premium, the holder is 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 or (ii) the Regular
Certificate has market discount, the holder is deemed to have made an election
to include market discount in income currently for all debt instruments having
market discount acquired during the year of the election or thereafter. See
"--Market Discount and Premium" above. A holder of a Regular Certificate should
consult its tax adviser before making this election.
Treatment of Subordinate Certificates. As described above under "CREDIT
ENHANCEMENT--Subordinate Certificates," certain Series of Certificates may
contain one or more Classes of Subordinate Certificates. Holders of Subordinate
Certificates will be required to report income with respect to such Certificates
on the accrual method without giving effect to delays and reductions in
distributions attributable to defaults or delinquencies on any Mortgage Loans,
except possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a holder of a
Subordinate Certificate in any period could significantly exceed the amount of
cash distributed to such holder in that period.
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Although not entirely clear, it appears that a corporate Certificateholder
generally should be allowed to deduct as an ordinary loss any loss sustained on
account of partial or complete worthlessness of a Subordinate Certificate.
Although similarly unclear, a noncorporate Certificateholder generally should be
allowed to deduct as a short-term capital loss any loss sustained on account of
complete worthlessness of a Subordinate Certificate. A noncorporate
Certificateholder alternatively, depending on the factual circumstances, may be
allowed such a loss deduction as the principal balance of a Subordinate
Certificate is reduced by reason of realized losses resulting from liquidated
Mortgage Loans; however, the IRS could contend that a noncorporate
Certificateholder should be allowed such losses only after all Mortgage Loans in
the Trust Fund have been liquidated or the Subordinate Certificates otherwise
have been retired. Special rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Holders of
Subordinate Certificates should consult their own tax advisers regarding the
appropriate timing, character and amount of any loss sustained with respect to
Subordinate Certificates.
REMIC Expenses
As a general rule, all of the expenses of a REMIC will be taken into account
by holders of the Residual Certificates. In the case of a "Single-Class REMIC,"
however, the expenses will be allocated, under temporary Treasury regulations,
among the holders of the Regular Certificates and the holders of the Residual
Certificates on a daily basis in proportion to the relative amounts of income
accruing to each Certificateholder on that day. In the case of a Regular
Interest Certificateholder who is an individual or a "pass-through interest
holder" (including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the
Certificateholder, exceed 2% of such Certificateholder's adjusted gross income.
In addition, Code Section 68 provides that the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds the applicable amount (for 1996, estimated to be $117,950, or
$58,975, in the case of a separate return of a married individual within the
meaning of Code Section 7703, which amounts will be adjusted annually 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. The partial or total
disallowance of this deduction may have a significant impact on the yield of the
Regular Certificate to such a holder. 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.
Sale or Exchange of Regular Certificates
A Regular Interest Certificateholder's tax basis in its Regular Certificate
is the price such holder pays for a Certificate, plus amounts of OID or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange or redemption of a Regular Certificate, measured
by the difference between the amount realized and the Regular Certificate's
basis as so adjusted, will generally be capital gain or loss, assuming that the
Regular Certificate is held as a capital asset. If, however, a Certificateholder
is a bank, thrift or similar institution described in Section 582 of the Code,
gain or loss realized on the sale or exchange of a Certificate will be taxable
as ordinary income or loss. In addition, gain from the disposition of a Regular
Certificate that might otherwise be capital gain will be treated as ordinary
income to the extent of the excess, if any, of (i) the amount that would have
been includible in the holder's income if the yield on such Regular Certificate
had equaled 110% of the applicable federal rate as of the beginning of such
holder's holding period, over (ii) the amount of ordinary income actually
recognized by the holder with respect to such Regular Certificate prior to its
sale. As of date of this Prospectus the maximum marginal tax rate on ordinary
income for individual taxpayers is 39.6% and the maximum marginal tax rate on
long-term capital gains for non-corporate taxpayers is 28%. The maximum tax rate
on both ordinary income and long-term capital gains of corporate taxpayers is
35% (subject to higher rates of up to 39% on certain ranges of marginal taxable
income which phase out the benefits of the graduated rate structure).
In addition, all or a portion of any gain from the sale of a Certificate that
might otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "Conversion Transaction" as defined in Code
Section 1258(c), in an amount equal to the interest that would have accrued on
the holder's net investment in the conversion transaction at 120% of the
appropriate applicable federal rate under Code Section 1274(d) in effect at the
time the taxpayer entered into the transaction reduced by any amount treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, or (ii) if, in the case of a noncorporate taxpayer,
election is made under Code Section 163(d)(4) to have net
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capital gains taxed as investment income at ordinary income rates for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Taxation of the REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level taxation. Rather,
except in the case of a "Single-Class REMIC," the taxable income or net loss of
a REMIC is taken into account by the holders of Residual Interests. The Regular
Interests are generally treated as debt of the REMIC and taxed accordingly. See
"--Taxation of Regular Interests" above.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual having the calendar year as a taxable year, with
certain adjustments as required under Code Section 860C(b). In general, the
taxable income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any OID or market
discount on loans and other assets, plus any cancellation of indebtedness income
due to the allocation of realized losses to the Regular Certificates, and (ii)
deductions, including stated interest and OID accrued on Regular Certificates,
amortization of any premium with respect to loans and servicing fees and other
expenses of the REMIC. A holder of a Residual Certificate that is an individual
or a "Pass-Through Interest Holder" (including certain pass-through entities,
but not including real estate investment trusts) will be unable to deduct
servicing fees payable on the loans or other administrative expenses of the
REMIC for a given taxable year to the extent that such expenses, when aggregated
with the Residual Interest Certificateholder's other miscellaneous itemized
deductions for that year, do not exceed 2% of such holder's adjusted gross
income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1996, estimated to be
$117,950, or $58,975 in the case of a separate return of a married individual
within the meaning of Code Section 7703, which amounts will be adjusted annually
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. The amount of additional
taxable income reportable by Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
Certificateholder that is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or trusts, no
deduction will be allowed for such holder's allocable portion of servicing fees
and other miscellaneous itemized deductions of the REMIC, even though an amount
equal to the amount of such fees and other deductions will be included in such
holder's gross income. Accordingly, such Certificates may not be appropriate
investments for individuals, estates or trusts, or pass-through entities
beneficially owned by one or more individuals, estates or trusts. Such
prospective investors should consult with their tax advisors prior to making an
investment in such Certificates.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the Regular Interests and the Residual Interests on the "Startup
Day" (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on or
after March 2, 1984, and the market discount provisions apply to all loans.
Subject to possible application of the de minimis rules, the method of accrual
by the REMIC of OID or market discount income on such loans will be equivalent
to the method under which holders of Regular Certificates accrue OID (i.e.,
under the constant yield method taking into account the Prepayment Assumption).
The REMIC will deduct OID on the Regular Certificates in the same manner that
the holders of the Certificates include such discount in income, but without
regard to the de minimis rules. See "--Taxation of Regular Interests" above.
However, a REMIC that acquires loans at a market discount must include such
market discount in income currently, as it accrues, on a constant interest
basis.
To the extent that the REMIC's basis allocable to loans that it holds exceeds
their principal amounts, the resulting premium, if attributable to mortgages
originated after September 27, 1985, will be amortized over the life of the
loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding the recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
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Taxation of Holders of Residual Certificates
The holder of a Certificate representing a residual interest (a "Residual
Certificate") will take into account the "daily portion" of the taxable income
or net loss of the REMIC for each day during the taxable year on which such
holder held the Residual Certificate. The daily portion is determined by
allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the holders (on such day) of the Residual Certificates in
proportion to their respective holdings on such day. For this purpose, the
taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days
per year" convention unless otherwise disclosed in the related Prospectus
Supplement. Ordinary income derived from Residual Certificates will be
"portfolio income" for taxpayers subject to Code Section 469 limitation on the
deductibility of "passive losses."
The holder of a Residual Certificate must report its proportionate share of
the taxable income of the REMIC whether it receives cash distributions from the
REMIC attributable to such income or loss. The reporting of taxable income
without corresponding distributions could occur, for example, in certain REMICs
in which the loans held by the REMIC were issued or acquired at a discount,
since mortgage prepayments cause recognition of discount income, while the
corresponding portion of the prepayment could be used in whole or in part to
make principal payments on Regular Interests issued without any discount or at
an insubstantial discount. (If this occurs, it is likely that cash distributions
to holders of Residual Certificates will exceed taxable income in later years.)
Taxable income may also be greater in the earlier years of certain REMICs as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal of Regular Certificates, will typically increase over time
as lower yielding Certificates are paid, whereas interest income with respect to
loans will generally remain constant over time as a percentage of outstanding
loan principal.
In any event, because the holder of a Residual Interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Certificate in a
given taxable year 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
Residual Certificate will most likely be less than that of such a bond or
instrument.
Prohibited Transactions Tax and Other Taxes. The REMIC will be subject to a
100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions include
(i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. It is anticipated that a REMIC will not engage in any
prohibited transactions in which it would recognize a material amount of net
income. In addition, subject to a number of limited exceptions for cash
contributions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the close of the three-month period beginning on the Startup Day.
The holders of Residual Certificates will generally be responsible for the
payment of any such taxes imposed on the REMIC. To the extent not paid by such
Certificateholders or otherwise, however, such taxes will be paid out of the
Trust Fund and will be allocated pro-rata to all outstanding Classes of
Certificates of such REMIC.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Limitation on Losses. The amount of the REMIC's net loss that a
Certificateholder may take into account currently is limited to the holder's
adjusted basis at the end of the calendar quarter in which such loss arises. A
holder's basis in a Residual Certificate will initially equal such holder's
purchase price, and will subsequently be increased by the amount of the REMIC's
taxable income allocated to the holder, and decreased (but not below zero) by
the amount of distributions made and the amount of the REMIC's net loss
allocated to the holder. Any disallowed loss may be carried forward
indefinitely, but may be used only to offset income of the REMIC generated by
the same REMIC. The ability of Residual Interest
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Certificateholders to deduct net losses may be subject to additional limitations
under the Code, as to which such holders should consult their tax advisers.
Distributions. Distributions on a Residual Certificate, if any, will
generally not result in any additional taxable income or loss to a holder of a
Residual Certificate. If the amount of such distribution exceeds a holder's
adjusted basis in the Residual Certificate, however, the holder will recognize
gain (treated as gain from the sale of the Residual Certificate) to the extent
of such excess. If the Residual Certificate is property held for investment,
such gain will generally be capital in nature.
Sale or Exchange. A holder of a Residual Certificate will recognize gain or
loss on the sale or exchange of a Residual Certificate equal to the difference,
if any, between the amount realized and such Certificateholder's adjusted basis
in the Residual Certificate at the time of such sale or exchange. Any such loss
may be a capital loss subject to limitation; gain which might otherwise be
capital may be treated as ordinary income under certain circumstances. See
"--Sale or Exchange of Regular Certificates" above. Except to the extent
provided in regulations, which have not yet been issued, the "wash sale" rules
of Code Section 1091 will disallow any loss upon disposition or a Residual
Certificate if the selling Certificateholder acquires any Residual Interest in a
REMIC or similar mortgage pool within six months before or after such
disposition. Any such disallowed loss would be added to the Residual Interest
Certificateholder's adjusted basis in the newly acquired Residual Interest.
Excess Inclusions
The portion of a Residual Interest Certificateholder's REMIC taxable income
consisting of "excess inclusion" income may not be offset by other deductions or
losses, including net operating losses, on such Certificateholder's federal
income tax return. An exception applies to organizations to which Code Section
593 applies (generally, certain thrift institutions); however, such exception
will not apply if the aggregate value of the Residual Certificates is not
considered to be "significant," as described below. Further, if the holder of a
Residual Certificate is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Residual Interest Certificateholder's
excess inclusion income will be treated as unrelated business taxable income of
such Certificateholder. In addition, under Treasury regulations yet to be
issued, if a real estate investment trust, a regulated investment company, a
common trust fund or certain cooperatives were to own a Residual Certificate, a
portion of dividends (or other distributions) paid by the real estate investment
trust (or other entity) would be treated as excess inclusion income. If a
Residual Certificate is owned by a foreign person, excess inclusion income is
subject to tax at a rate of 30%, which rate may not be reduced by treaty and is
not eligible for treatment as "portfolio interest." Treasury regulations under
the REMIC provisions of the Code (the "REMIC Regulations") provide that a
Residual Certificate has significant value only if (i) the aggregate issue price
of the Residual Certificates is at least 2% of the aggregate of the issue prices
of all Regular Certificates and Residual Certificates in the REMIC and (ii) the
anticipated weighted average life (determined as specified in the REMIC
Regulations) of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Certificate, over the daily accruals for such quarterly period of (i)
120% of the long term applicable federal rate on the Startup Day multiplied by
(ii) the adjusted issue price of such Residual Certificate at the beginning of
such quarterly period. The adjusted issue price of a Residual Interest at the
beginning of each calendar quarter will equal its issue price (calculated in a
manner analogous to the determination of the issue price of a Regular Interest),
increased by the aggregate of the daily accruals for prior calendar quarters,
and decreased (but not below zero) by the amount of loss allocated to a holder
and the amount of distributions made on the Residual Certificate before the
beginning of the quarter. The long-term applicable federal rate, which is
announced monthly by the Treasury Department, is an interest rate that is based
on the average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances,
transfers of Residual Certificates may be disregarded. See
"--Restrictions on Ownership and Transfer of Residual Certificates"
and "--Tax Treatment of Foreign Investors."
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Restrictions on Ownership and Transfer of Residual Certificates
As a condition to qualification as a REMIC, reasonable arrangements must be
made to prevent the ownership of a Residual Interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any state
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Agreement will prohibit Disqualified Organizations
from owning a Residual Certificate. In addition, no transfer of a Residual
Certificate will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acting on behalf of
a Disqualified Organization.
If a Residual Certificate is transferred to a Disqualified Organization (in
violation of the restrictions set forth above), a tax will be imposed on the
transferor of such Residual Certificate at the time of the transfer pursuant to
Code Section 860E(e)(2) equal to the product of (i) the present value
(discounted using the "applicable federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Residual Certificate) of the total anticipated excess
inclusions with respect to such Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. In addition, if a Disqualified Organization is the record holder
of an interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company or any person
holding as nominee) that owns a Residual Certificate, the pass-through entity
will be required to pay tax equal to its product of (i) the amount of excess
inclusion income of the REMIC for such taxable year allocable to the interest
held by such Disqualified Organization; multiplied by (ii) the highest marginal
federal income tax rate imposed on corporations by Code Section 11(b)(1).
Under the REMIC Regulations, if a Residual Certificate is a "noneconomic
residual interest," as described below, a transfer of a Residual Certificate to
a United States person will be disregarded for all federal tax purposes if a
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate is a "noneconomic residual interest" unless, at
the time of the transfer (i) the present value of the expected future
distributions on the Residual Certificate at least equals the product of the
present value of the anticipated excess inclusions and the highest rate of tax
imposed on corporations 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 the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. The
present value is calculated based on the Prepayment Assumption, using a discount
rate equal to the applicable federal rate under Code Section 1274(d)(1) that
would apply to a debt instrument issued on the date the noneconomic residual
interest was transferred and whose term ended on the close of the last quarter
in which excess inclusions were expected to accrue with respect to the Residual
Interest at the time of transfer. If a transfer of a Residual Interest is
disregarded, the transferor would be liable for any federal income tax imposed
upon the taxable income derived by the transferee from the REMIC. A significant
purpose to impede the assessment or collection of tax exists if the transferor,
at the time of transfer, knew or should have known that the transferee would be
unwilling or unable to pay taxes on its share of the taxable income of the
REMIC. A similar type of limitation exists with respect to certain transfers of
Residual Interests by foreign persons to United States persons. See "--Tax
Treatment of Foreign Investors."
Mark-to-Market Rules
A "negative value" Residual Interest (and any Residual Interest or
arrangement that the IRS deems to have substantially the same economic effect)
is not treated as a security and thus may not be marked to market under the
temporary Treasury regulations under Section 475 of the Code that generally
require a securities dealer to mark to market securities held for sale to
customers. In general, a Residual Interest has negative value if, as of the date
a payer acquires the Residual Interest, the present value of the tax liabilities
associated with holding the Residual Interest exceeds the sum of (i) the present
value of the expected future distributions on the Residual Interest, and (ii)
the present value of the anticipated tax savings associated with holding the
Residual Interest as the REMIC generates losses. In addition, in the Preamble to
the temporary Treasury regulations, the IRS requested comments regarding whether
additional rules are needed to carry out the purposes of Section 475 of the
Code. Consequently, the IRS may further limit, prospectively or retroactively,
the definition of "security" for purposes of Section 475 of the Code by carving
out of such definition all Residual Interests.
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Administrative Matters
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction or credit by the IRS in a unified
administrative proceeding.
Unless otherwise stated in the related Prospectus Supplement, the Trustee
will, to the extent permitted by applicable law, act as agent of the REMIC, and
will file REMIC federal income tax returns on behalf of the related REMIC.
Unless otherwise stated in the related Prospectus Supplement, the holder of the
largest percentage interest of the Residual Certificates will be designated as
and will act as the "tax matters person" with respect to the REMIC in all
respects.
Unless otherwise stated in the related Prospectus Supplement, the Trustee
will act as attorney in fact and agent for the tax matters person and, subject
to certain notice requirements and various restrictions and limitations,
generally will have the authority to act on behalf of the REMIC and the Residual
Interest Certificateholders in connection with the administrative and judicial
review of items of income, deduction, gain or loss of the REMIC, as well as the
REMIC's classification. Residual Interest Certificateholders generally will be
required to report such REMIC items consistently with their treatment on the
related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the Trustee as attorney in fact and agent for tax
matters person, and the IRS concerning any such REMIC item. Adjustments made to
the REMIC tax return may require a Residual Interest Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of a
Residual Interest Certificateholder's return. No REMIC will be registered as a
tax shelter pursuant to Section 6111 of the Code because it is not anticipated
that any REMIC will have a net loss for any of the first five taxable years of
its existence. Any person that holds a Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Tax Status as a Grantor Trust
General. If the applicable Prospectus Supplement so specifies with respect to
a Series of Certificates, the Certificates of such Series will not be treated as
regular or residual interests in a REMIC for federal income tax purposes but
instead will be treated as an undivided beneficial ownership interest in the
Mortgage Loans and the arrangement pursuant to which the Mortgage Loans will be
held and the Certificates will be issued, will be classified for federal income
tax purposes as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code and not as an association taxable as a corporation. In such a case,
Morrison & Hecker L.L.P., counsel to the Depositor, will deliver its opinion to
the effect that the arrangement by which the Certificates of that Series are
issued will be treated as a grantor trust as long as all of the provisions of
the applicable Trust Agreement are complied with and the statutory and
regulatory requirements are satisfied. In some Series ("Pass-Through
Certificates"), there will be no separation of the principal and interest
payments on the Mortgage Loans. In such circumstances, a Certificateholder will
be considered to have purchased an undivided interest in each of the Mortgage
Loans. In other cases ("Stripped Certificates"), sale of the Certificates will
produce a separation in the ownership of the principal payments and interest
payments on the Mortgage Loans.
Each Certificateholder must report on its federal income tax return its pro
rata share of the gross income derived from the Mortgage Loans (not reduced by
the amount payable as fees to the Trustee, the Master Servicer and the Special
Servicer, if any, and similar fees (collectively, the "Servicing Fee")), at the
same time and in the same manner as such items would have been reported under
the Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with respect to the Mortgage Loans and paid directly its share of the Servicing
Fees. In the case of Pass-Through Certificates, such gross income will consist
of a pro rata share of all of the income derived from all of the Mortgage Loans
and, in the case of Stripped Certificates, such income will consist of a pro
rata share of the income derived from each stripped bond or stripped coupon in
which the Certificateholder owns an interest. The holder of a Certificate will
generally be entitled to deduct such Servicing Fees under Section 162 or Section
212 of the Code to the extent that such Servicing Fees represent "reasonable"
compensation for the services rendered by the Trustee, the Master Servicer and
the Special Servicer, if any. In the case of a noncorporate holder, however,
Servicing Fees (to the extent not otherwise disallowed, e.g., because they
exceed reasonable compensation) will be deductible in computing such holder's
regular tax liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and may
not be deductible to any extent in computing such holder's alternative minimum
tax liability. In addition, Section 68 of the Code provides that the amount of
itemized
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deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1996, $117,950, or
$58,975 in the case of a separate return by a married individual within the
meaning of Code Section 7703, which amounts will be adjusted annually 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.
Discount or Premium on Pass-Through Certificates. The holder's purchase price
of a Pass-Through Certificate is to be allocated among the Mortgage Loans in
proportion to their fair market values, determined as of the time of purchase of
the Certificates. In the typical case, the Depositor believes it is reasonable
for this purpose to treat each Mortgage Loan as having a fair market value
proportional to the share of the aggregate principal balances of all of the
Mortgage Loans that it represents, since the Mortgage Loans, unless otherwise
specified in the applicable Prospectus Supplement, will have a relatively
uniform interest rate and other common characteristics. To the extent that the
portion of the purchase price of a Certificate allocated to a Mortgage Loan
(other than to a right to receive any accrued interest thereon and any
undistributed principal payments) is less than or greater than the portion of
the principal balance of the Mortgage Loan allocable to the Certificate, the
interest in the Mortgage Loan allocable to the Certificate will be deemed to
have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount represents
original issue discount or market discount. In the case of a Mortgage Loan with
original issue discount in excess of a prescribed de minimus amount, a holder of
a Certificate will be required to report as interest income in each taxable year
its share of the amount of original issue discount that accrues during that
year, determined under a constant yield method by reference to the initial yield
to maturity of the Mortgage Loan, in advance of receipt of the cash attributable
to such income and regardless of the method of federal income tax accounting
employed by that holder. Original issue discount with respect to a Mortgage Loan
could arise for example by virtue of the financing of points by the originator
of the Mortgage Loan, or by virtue of the charging of points by the originator
of the Mortgage Loan in an amount greater than a statutory de minimus exception,
in circumstances under which the points are not currently deductible pursuant to
applicable Code provisions. However, the OID Regulations provide that if a
holder acquires an obligation at a price that exceeds its stated redemption
price, the holder will not include any original issue discount in gross income.
In addition, if a subsequent holder acquires an obligation for an amount that
exceeds its adjusted issue price the subsequent holder will be entitled to
offset the original issue discount with economic accruals of portions of such
excess. Accordingly, if the Mortgage Loans acquired by a Certificateholder are
purchased at a price that exceeds the adjusted issue price of such Mortgage
Loans, any original issue discount will be reduced or eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest in
Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage Loans
over the purchaser's purchase price) will be required under Section 1276 of the
Code to include accrued market discount in income as ordinary income in each
month, but limited to an amount not exceeding the principal payments on the
Mortgage Loans received in that month and, if the Certificates are sold, the
gain realized. Such market discount would accrue in a manner to be provided in
Treasury regulations. The legislative history of the 1986 Act indicates that,
until such regulations are issued, such market discount would in general accrue
either (i) on the basis of a constant interest rate or (ii) in the ratio of (a)
in the case of Mortgage Loans not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Mortgage Loans originally issued at a discount, original issue discount in
the relevant period to total original issue discount remaining to be paid.
Section 1277 of the Code provides that the excess of interest paid or accrued
to purchase or carry a loan with market discount over interest received on such
loan is allowed as a current deduction only to the extent such excess is greater
than the market discount that accrued during the taxable year in which such
interest expense was incurred. In general, the deferred portion of any interest
expense will be deductible when such market discount is included in income,
including upon the sale, disposition or repayment of the loan. A holder may
elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule
discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally will
be deemed to have purchased its interest in the underlying Mortgage Loans at a
premium. A Certificateholder who holds a Certificate as a capital asset may
generally elect under Section 171 of the Code to amortize such premium as an
offset to interest income on the Mortgage Loans (and not as a separate deduction
item) on a constant yield method. The legislative history of the 1986 Act
suggests that the same rules that will apply to the accrual of market
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discount (described above) will generally also apply in amortizing premium with
respect to Mortgage Loans originated after September 27, 1985. If a holder makes
an election to amortize premium, such election will apply to all taxable debt
instruments held by such holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such holder, and will be irrevocable without the consent of the IRS. Purchasers
who pay a premium for the Certificates should consult their tax advisers
regarding the election to amortize premium and the method to be employed.
Although the law is somewhat unclear regarding recovery of premium allocable to
Mortgage Loans originated before September 28, 1985, it is possible that such
premium may be recovered in proportion to payments of Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificates ("Ratio Strip Certificates") may represent a right
to receive differing percentages of both the interest and principal on each
Mortgage Loan. Pursuant to Section 1286 of the Code, 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. Section 1286 of the
Code applies the original issue discount rules to stripped bonds and stripped
coupons. For purposes of computing original issue discount, a stripped bond or a
stripped coupon is treated as a debt instrument issued on the date that such
stripped interest is purchased with an issue price equal to its purchase price
or, if more than one stripped interest is purchased, the ratable share of the
purchase price allocable to such stripped interest. The Code, the OID
Regulations and judicial decisions provide no direct guidance as to how the
interest and original issue discount rules are to apply to Stripped
Certificates. Under the method described above for REMIC Regular Interest
Certificates (the "Cash Flow Bond Method"), a prepayment assumption is used and
periodic recalculations are made which take into account with respect to each
accrual period the effect of prepayments during such period. The 1986 Act
prescribed the same method for debt instruments "secured by" other debt
instruments, the maturity of which may be affected by prepayments on the
underlying debt instruments. However, the 1986 Act does not, absent Treasury
regulations, appear specifically to cover instruments such as the Stripped
Certificates which technically represent ownership interests in the underlying
Mortgage Loans, rather than being debt instruments "secured by" those loans.
Nevertheless, it is believed that the Cash Flow Bond Method is a reasonable
method of reporting income for such Certificates, and it is expected that
original issue discount will be reported on that basis. In applying the
calculation to such Certificates, the Trustee will treat all payments to be
received with respect to the Certificates, whether attributable to principal or
interest on the loans, as payments on a single installment obligation and as
includible in the stated redemption price at maturity. The IRS could, however,
assert that original issue discount must be calculated separately for each
Mortgage Loan underlying a Certificate. In addition, in the case of Ratio Strip
Certificates, the IRS could assert that original issue discount must be
calculated separately for each stripped coupon or stripped bond underlying a
Certificate.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower than the Prepayment Assumption, in some
circumstances the use of this method may decelerate a Certificateholder's
recognition of income.
In the case of a Stripped Certificate which either embodies only interest
payments on the underlying loans or (if it embodies some principal payments on
the Mortgage Loans) is issued at a price that exceeds the principal payments (an
"Interest Weighted Certificate), additional uncertainty exists because of the
enhanced potential for applicability of the proposed contingent principal
provisions of the Original Proposed OID Regulations.
Under the contingent principal provisions, "contingent principal" represents
the portion of the purchase price in excess of the amount of principal payments.
Under this method, the Certificateholder is in effect put on the cash method
with respect to interest income at the applicable federal rate. First, each
payment denominated "interest" is treated as interest to the extent of accrued
and unpaid interest on the debt instrument at the time that the payment is
received. Second, the portion of a payment denominated interest that is not
treated as interest, as described in the preceding sentence, is treated as a
repayment of contingent principal. The interest for any accrual period, other
than an initial short period, is the product of the applicable federal rate
(published monthly by the Treasury Department) at the time of the debt
instrument's issuance and the adjusted issue price at the beginning of the
accrual period (the sum of the purchase price of the instrument plus the accrued
interest for all prior accrual periods, reduced by the total of payments
received in all prior periods). The total of the payments denominated interest
with respect to the Interest Weighted Certificate that
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may be treated as principal may not exceed the amount of contingent principal.
If the contingent principal has been completely recovered, all subsequent
payments will be treated as interest.
The Original Proposed OID Regulations provide that if all contingent
principal is not recovered as of the final payment, then the final payment will
be treated as principal to the extent of such unrecovered principal and interest
to the extent of the remainder, if any. To the extent the final payment is not
sufficient to cover the principal amount, the Certificateholders will recognize
a loss. If the loss generating Mortgage Loan was issued by a natural person,
such loss may be an ordinary loss since loss recognized on retirement of a debt
instrument issued by a natural person is not a loss from a sale or exchange.
However, the IRS might contend that such loss should be a capital loss if the
Certificateholder held its Certificate as a capital asset within the meaning of
Section 1221 of the Code.
Possible Alternative Characterizations. The characterizations of the Stripped
Certificates described above are not the only possible interpretations of the
applicable Code provisions. Among other possibilities, the IRS could contend
that (i) in certain Series, each non-Interest Weighted Certificate is composed
of an unstripped undivided ownership interest in Mortgage Loans and an
installment obligation consisting of stripped principal payments; (ii) the
non-Interest Weighted Certificates are subject to the Proposed Regulations;
(iii) each Interest Weighted Certificate is composed of an unstripped undivided
ownership interest in the Mortgage Loans and an installment obligation
consisting of stripped interest payments; or (iv) there are as many stripped
bonds or stripped coupons as there are scheduled payments of principal and/or
interest on each Mortgage Loan.
Given the variety of alternatives for treatment of the Certificates and the
different federal income tax consequences that result from each alternative,
potential purchasers are urged to consult their own tax advisers regarding the
proper treatment of the Certificates for federal income tax purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped Certificates
there is no specific legal authority existing regarding whether the character of
the Certificates, for federal income tax purposes, will be the same as the
Mortgage Loans. The IRS could take the position that the Mortgage Loans'
character is not carried over to the Certificates in such circumstances.
Pass-Through Certificates will be, and, although the matter is not free from
doubt, Stripped Certificates should be considered to represent "qualifying real
property loans" within the meaning of Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(6)(B) of the Code, and "loans
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code; and interest income attributable to the
Certificates should be considered to represent "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Section 856(c)(3)(B) of the Code. However, Mortgage Loans secured by
non-residential real property will not constitute "loans secured by an interest
in real property" within the meaning of Section 7701(a)(19)(C) of the Code. In
addition, it is possible that various reserves or funds underlying the
Certificates may cause a proportionate reduction in the above-described
qualifying status categories of Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the holder thereof in an amount equal to the
difference between the amount realized on the sale and the Certificateholder's
adjusted tax basis in the Certificate. Such gain or loss will generally be
capital gain or loss if the Certificate is held as a capital asset. In the case
of Pass-Through Certificates, such tax basis will generally equal the holder's
cost of the Certificate increased by any discount income with respect to the
loans represented by such Certificate previously included in income, and
decreased by the amount of any distributions of principal previously received
with respect to the Certificate. Such gain, to the extent not otherwise treated
as ordinary income, will be treated as ordinary income to the extent of any
accrued market discount not previously reported as income. In the case of
Stripped Certificates, the tax basis will generally equal the
Certificateholder's cost for the Certificate, increased by any discount income
with respect to the Certificate previously included in income, and decreased by
the amount of all payments previously received with respect to such Certificate.
Miscellaneous Tax Aspects
Backup Withholding. A Certificateholder, other than a Residual Interest
Certificateholder, may, under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to distributions or the proceeds of
a sale of Certificates to or through brokers that represent interest or original
issue discount on the Certificates. This withholding generally applies if the
holder of a Certificate (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
TIN and that the holder is not subject to
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backup withholding. Backup withholding will not apply, however, with respect to
certain payments made to Certificateholders, including payments to certain
exempt recipients (such as exempt organizations) and to certain Nonresidents.
Holders of the Certificates should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the Certificateholders and to the Master Servicer
for each calendar year the amount of any "reportable payments" during such year
and the amount of tax withheld, if any, with respect to payments on the
Certificates.
Tax Treatment of Foreign Investors
Under the Code, unless interest (including OID) paid on a Certificate (other
than a Residual Certificate) is considered to be "effectively connected" with a
trade or business conducted in the United States by a nonresident alien
individual, foreign partnership or foreign corporation ("Nonresidents"), such
interest will normally qualify as portfolio interest (except if (i) the
recipient is a holder, directly or by attribution, of 10% or more of the capital
or profits interest in the issuer or (ii) the recipient is a controlled foreign
corporation as to which the issuer is a related person) and will be exempt from
federal income tax. Upon receipt of appropriate ownership statements, the issuer
normally will be relieved of obligations to withhold tax from such interest
payments. These provisions supersede the generally applicable provisions of
United States law that would otherwise require the issuer to withhold at a 30%
rate (unless reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or determinable, annual or periodic income paid
to Nonresidents. Holders of Certificates, including "stripped certificates"
(i.e., Certificates that separate ownership of principal payments and interest
payments on the Mortgage Loans), however, may be subject to withholding to the
extent that the Mortgage Loans were originated on or before July 18, 1984.
Interest and OID of Certificateholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Certificateholder. They will, however, generally be
subject to the regular United States income tax.
Payments to holders of Residual Certificates who are foreign persons will
generally be treated as interest and be subject to United States withholding tax
at 30% or any lower applicable treaty rate. Holders should assume that such
income does not qualify for exemption from United States withholding tax as
portfolio interest. It is clear that, to the extent that a payment represents a
portion of REMIC taxable income that constitutes excess inclusion income, a
holder of a Residual Certificate will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax. If the payments are
subject to United States withholding tax, they generally will be taken into
account for withholding tax purposes only when paid or distributed (or when the
Residual Certificate is disposed of). The Treasury has statutory authority,
however, to promulgate regulations that would require such amounts to be taken
into account at an earlier time in order to prevent the avoidance of tax. Such
regulations could, for example, require withholding prior to the distribution of
cash in the case of Residual Certificates that do not have significant value.
Under the Proposed Regulations, if a Residual Certificate has tax avoidance
potential, a transfer of a Residual Certificate to a Nonresident will be
disregarded for all federal tax purposes. A Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee Residual
Interest holder amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which the
excess inclusion accrues and not later than the close of the calendar year
following the calendar year of accrual. If a Nonresident transfers a Residual
Certificate to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Certificate for purposes of the withholding tax provisions of
the Code. See "--Excess Inclusions."
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
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 advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
Plans") and prohibits certain transactions between ERISA Plans and persons who
are "parties in interest" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans ("Code Plans," and together with ERISA Plans, "Plans") and
persons who are "disqualified persons" (as defined in the Code) with respect to
Code 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 requirements of ERISA or Section 4975 of the Code, and
assets of such plans may be invested in Certificates, subject to the provisions
of other applicable federal and state law. Any such plan which is qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is, however, subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in a Certificate, an
ERISA Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan. Such fiduciary should especially consider the sensitivity of the
investments to the rate of principal payments (including prepayments) on the
Mortgage Loans, as discussed in the Prospectus Supplement related to a Series.
Prohibited Transactions
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans or "plan assets" of
such Plans, unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA
provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions. The
Depositor, the Master Servicer, the Special Servicer, if any, or the Trustee or
certain affiliates thereof may be considered or may become parties in interest
or disqualified persons with respect to an investing Plan. If so, the
acquisition or holding of Certificates by, on behalf of or with "plan assets" of
such Plan may be considered to give rise to a "prohibited transaction" within
the meaning of ERISA and/or Section 4975 of the Code, unless an administrative
exemption described below or some other exemption is available.
Special caution should be exercised before "plan assets" of a Plan are used
to purchase a Certificate if, with respect to such assets, the Depositor, the
Master Servicer, the Special Servicer, if any, or the Trustee or an affiliate
thereof either (a) has investment discretion with respect to the investment of
such assets or (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
Further, if the underlying assets included in a Trust Fund were deemed to
constitute "plan assets," certain transactions involved in the operation of the
Trust Fund may be deemed to constitute prohibited transactions under ERISA
and/or the Code. Neither ERISA nor Section 4975 of the Code defines the term
"plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning whether a Plan's assets would be deemed to include an
undivided interest in each of the underlying assets of an entity (such as the
Trust Fund), for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an undivided interest in each of the
underlying assets of the Trust Fund. However, it cannot be predicted in advance,
nor can there be a continuing assurance whether such exceptions may be met,
because of the factual nature of certain of the rules set forth in the
Regulations. For example, one of the exceptions in the Regulations states that
the underlying assets of an entity will not be considered "plan assets" if less
than 25% of the value of each class of equity interests is held by "Benefit Plan
Investors," which are defined as ERISA Plans, Code Plans and employee benefit
plans not subject to ERISA (for example, governmental plans), but this exemption
is tested immediately after each acquisition of an equity interest in the entity
whether upon initial issuance or in the secondary market.
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Pursuant to the Regulations, if the assets of the Trust Fund were deemed to
be "plan assets" by reason of the investment of assets of a Plan in any
Certificates, the "plan assets" of such Plan would include an undivided interest
in the Mortgage Loans, the mortgages underlying the Mortgage Loans and any other
assets held in the Trust Fund. Therefore, because the Mortgage Loans and other
assets held in the Trust Fund may be deemed to be "plan assets" of each Plan
that purchases Certificates, in the absence of an exemption, the purchase, sale
or holding of Certificates of any Series or Class by or with "plan assets" of a
Plan may result in a prohibited transaction and the imposition of civil
penalties or excise taxes. Depending on the relevant facts and circumstances,
certain prohibited transaction exemptions may apply to the purchase, sale or
holding of Certificates of any Series or Class by a Plan, for example,
Prohibited Transaction Class Exemption ("PTCE") 95-60, which exempts certain
transactions between insurance company general accounts and parties in interest;
PTCE 91-38, which exempts certain transactions between bank collective
investment funds and parties in interest; PTCE 90-1, which exempts certain
transactions between insurance company pooled separate accounts and parties in
interest; or PTCE 84-14, which exempts certain transactions effected on behalf
of a plan by a "qualified professional asset manager." There can be no assurance
that any of these exemptions will apply with respect to any Plan's investment in
any Certificates or, even if an exemption were deemed to apply, that any
exemption would apply to all prohibited transactions that may occur in
connection with such investment. Also, the Department has issued individual
administrative exemptions from application of certain prohibited transaction
restrictions of ERISA and the Code to most underwriters of mortgage-backed
securities (each, an "Underwriter's Exemption"). Such an Underwriter's Exemption
can only apply to mortgage-backed securities which, among other conditions, are
sold in an offering with respect to which such an underwriter serves as the sole
or a managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, the
related Prospectus Supplement will refer to such possibility. Further, the
related Prospectus Supplement may provide that certain Classes or Series of
Certificates may not be purchased by, or transferred to, Plans or may only be
purchased by, or transferred to, an insurance company for its general account
under circumstances that would not result in a prohibited transaction.
Any fiduciary or other Plan investor who proposes to invest "plan assets" of
a Plan in Certificates of any Series or Class should consult with its counsel
with respect to the potential consequences under ERISA and Section 4975 of the
Code of any such acquisition and ownership of such Certificates.
Unrelated Business Taxable Income -- Residual Interests
The purchase of a Certificate evidencing an interest in the Residual Interest
in a Series that is treated as a REMIC by any employee benefit or other plan
that is exempt from taxation under Code Section 501(a), including most varieties
of Plans, may give rise to "unrelated business taxable income" as described in
Code Sections 511-515 and 86OE. Further, prior to the purchase of an interest in
a Residual Interest, a prospective transferee may be required to provide an
affidavit to a transferor that it is not, nor is it purchasing an interest in a
Residual Interest on behalf of, a "Disqualified Organization," which term as
defined above includes certain tax-exempt entities not subject to Code Section
511, such as certain governmental plans, as discussed above under "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES --Taxation of Holders of Residual Certificates"
and "--Restrictions on Ownership and Transfer of Residual Certificates."
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that
individuals responsible for investment decisions with respect to ERISA Plans and
Code Plans consult with their counsel regarding the consequences under ERISA
and/or the Code of their acquisition and ownership of Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Depositor or the applicable underwriter that this investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the Offered
Certificates will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 (the "Enhancement Act").
All depository institutions considering an investment in the Certificates
should review the Supervisory Policy Statement on Securities Activities dated
January 28, 1992 (the "Policy Statement") of the Federal Financial Institutions
Examination Council (to the extent adopted by their respective regulators),
which in
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relevant part prohibits depository institutions from investing in certain
"high-risk" mortgage securities, except under limited circumstances, and sets
forth certain investment practices deemed to be unsuitable for regulated
institutions.
The foregoing does not take into consideration the applicability of statutes,
rules, regulations, orders, guidelines or agreements generally governing
investments made by a particular investor, including, but not limited to,
"prudent investor" provisions, percentage-of-assets limits, provisions that may
restrict or prohibit investment in securities that are not "interest bearing" or
"income-paying," and provisions that may restrict or prohibit investments in
securities that are issued in book-entry form.
The appropriate characterization of the Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisers to determine
whether, and to what extent, the Certificates will constitute legal investments
for them.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates offered hereby in Series either
directly or through underwriters. The related Prospectus Supplement or
Prospectus Supplements for each Series will describe the terms of the offering
for that Series and will state the public offering or purchase price of each
Class of Certificates of such Series, or the method by which such price is to be
determined, and the net proceeds to the Depositor from such sale.
If the sale of any Certificates is made pursuant to an underwriting agreement
pursuant to which one or more underwriters agree to act in such capacity, such
Certificates will be acquired by such underwriters for their own account and may
be resold 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. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with respect to the offer
and sale of a particular Series of Certificates will be set forth on the cover
of the Prospectus Supplement related to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Depositor to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be subject to
certain conditions precedent. Unless otherwise provided in the related
Prospectus Supplement, the underwriters with respect to a sale of any Class of
Certificates will be obligated to purchase all such Certificates if any are
purchased. Pursuant to each such underwriting agreement, the Depositor will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the 1933 Act.
If any Certificates are offered other than through underwriters pursuant to
such underwriting agreements, the related Prospectus Supplement or Prospectus
Supplements will contain information regarding the terms of such offering and
any agreements to be entered into in connection with such offering.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the 1933 Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer and sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein may purchase some or all of one or more Classes of
Certificates of such Series from the underwriter or underwriters or such other
person or persons specified in such Prospectus Supplement. Such purchaser may
thereafter from time to time offer and sell, pursuant to this Prospectus and the
related Prospectus Supplement, some or all of such Certificates so purchased,
directly, through one or more underwriters to be designated at the time of the
offering of such Certificates, through dealers acting as agent and/or principal
as in such other manner as may be specified in the related Prospectus
Supplement. Such transactions may be effected at market prices prevailing at the
time of sale, at negotiated prices or at fixed prices. Any underwriters and
dealers participating in such purchaser's offering of such Certificates may
receive compensation in the form of underwriting discounts or commissions from
such purchaser and such dealers may receive commissions from the investors
purchasing such Certificates for whom they may act as agent (which discounts or
commissions will not exceed those customary in those types of transactions
involved). Any dealer that participates in the distribution of such Certificates
may be deemed to
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be an "underwriter" within the meaning of the 1933 Act, and any commissions and
discounts received by such dealer and any profit on the resale of such
Certificates by such dealer might be deemed to be underwriting discounts and
commissions under the 1933 Act.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositor by Morrison & Hecker L.L.P., Kansas City,
Missouri, and for the Underwriters as specified in the related Prospectus
Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
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 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.
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INDEX OF SIGNIFICANT DEFINITIONS
Definitions Page
1933 Act..........................................................2
1986 Act.........................................................42
ADA..............................................................37
Agreement.........................................................9
Bankruptcy Code..............................................28, 30
Cash Flow Bond Method............................................50
CERCLA........................................................7, 32
Certificateholders...............................................10
Certificates......................................................1
Classes...........................................................1
Closing Date.....................................................15
Code Plans.......................................................53
Collection Account...............................................11
Commission........................................................2
Compound Interest Certificates...................................39
Credit Enhancement...............................................23
Cut-off Date.....................................................10
Department.......................................................53
Depositor.........................................................1
Disqualified Organization........................................47
Distribution Account.............................................11
Distribution Date................................................10
Enhancement Act..................................................54
ERISA............................................................53
ERISA Plans......................................................53
Escrow Account...................................................18
Escrow Payments..................................................18
Event of Default.................................................22
FHA..............................................................16
FHLMC............................................................10
Final Regulations................................................39
FNMA.............................................................10
Forfeiture Laws..................................................37
Form 8-K.........................................................15
Garn-St Germain Act..............................................34
GNMA.............................................................10
Hazardous Materials..............................................33
HUD..............................................................16
Installment Contracts............................................14
Interest Weighted Certificate....................................41
IRS..............................................................39
Mortgage.....................................................14, 25
Mortgage Loan....................................................14
Mortgage Loan File...............................................15
Mortgage Loan Groups.............................................15
Mortgage Loan Schedule...........................................15
Mortgage Loan Seller.............................................16
Mortgage Loans....................................................1
Mortgage Pool.....................................................1
Mortgaged Property...............................................14
Mortgagee........................................................25
Mortgagor........................................................25
Multiple Variable Rate...........................................41
NCUA.............................................................35
Nonresidents.....................................................52
Note.............................................................14
Offered Certificates..............................................1
OID..............................................................39
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Definitions Page
Pass-Through Certificates48
Pass-Through Rate.................................................2
Permitted Investments............................................11
Plans............................................................53
Policy Statement.................................................54
Prepayment Assumption............................................40
Property Protection Expenses.....................................11
Proposed Regulations.............................................39
PTCE.............................................................54
Rating Agency.....................................................9
Ratio Strip Certificates.........................................50
Registration Statement............................................2
Regular Certificates.............................................39
Regular Interests................................................38
Regulations......................................................53
Relief Act.......................................................35
REMIC.............................................................1
REMIC Regulations................................................46
REO Account......................................................11
Reserve Account...................................................9
Residual Certificate.............................................45
Residual Interests...............................................38
S&P..............................................................12
Senior Certificates..............................................24
Series............................................................1
Servicer.........................................................17
Servicer Remittance Date.........................................11
Servicing Fee................................................20, 48
Simple Interest Loans............................................14
Single Variable Rate.............................................39
Specially Serviced Mortgage Loans................................17
Startup Day......................................................44
Stripped Certificates............................................48
Subordinate Certificates.........................................24
Tiered REMICs....................................................39
TIN..............................................................51
Title V..........................................................35
Title VIII.......................................................35
Trust Fund.....................................................1, 9
Trustee..........................................................13
UCC..............................................................25
Underwriter's Exemption..........................................54
Voting Rights.....................................................8
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No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that the information herein is correct
as of any time subsequent to the date hereof or that there has been no change in
the affairs of the Depositor since such date.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Available Information...........................................S-4
Summary.........................................................S-5
Risk Factors ..................................................S-20
Description of the Mortgage Pool...............................S-24
The Mortgage Loan Seller ......................................S-47
The Master Servicer ...........................................S-47
The Special Servicer ..........................................S-48
Description of the Certificates ...............................S-49
Yield Considerations ..........................................S-63
The Pooling and Servicing Agreement............................S-71
Certain Federal Income Tax Consequences........................S-88
ERISA Considerations ..........................................S-90
Legal Investment...............................................S-94
Plan of Distribution ..........................................S-94
Use of Proceeds ...............................................S-95
Legal Matters .................................................S-95
Ratings .......................................................S-95
Index of Significant Definitions ..............................S-97
Appendix A .....................................................A-1
Appendix B .....................................................B-1
PROSPECTUS
Prospectus Supplement........................................... 2
Additional Information.......................................... 2
Incorporation Of Certain Information By Reference............... 2
Reports......................................................... 3
Risk Factors.................................................... 3
The Depositor................................................... 8
Use Of Proceeds................................................. 9
Description Of The Certificates................................. 9
The Mortgage Pools.............................................. 14
Servicing Of The Mortgage Loans................................. 17
Credit Enhancement.............................................. 23
Certain Legal Aspects Of The Mortgage Loans..................... 24
Certain Federal Income Tax Consequences......................... 38
State Tax Considerations........................................ 52
Erisa Considerations............................................ 53
Legal Investment................................................ 54
Plan Of Distribution............................................ 55
Legal Matters................................................... 56
Financial Information........................................... 56
Rating.......................................................... 56
Index Of Significant Definitions................................ 57
$_____________ (Approximate)
Midland Realty Acceptance Corp.
Depositor
-------------------
Mortgage Loan Seller
Midland Loan Services, L.P.
Master Servicer
-------------------
Special Servicer
Commercial Mortgage
Pass-Through Certificates
Series _____
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
Prudential Securities Incorporated
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the SEC
registration and filing fees, are estimated:
SEC Registration Fee..................................$344.83
NASD Filing Fee........................................ N/A
Legal Fees and Expenses.............................$ *
Accounting Fees and Expenses........................$ *
Trustee's Fees and Expenses (including counsel fees)$ *
Blue Sky Qualification Fees and Expenses............$ *
Printing and Engraving Fees.........................$ *
Rating Agency Fees..................................$ *
Miscellaneous.......................................$ *
Total...............................................$ *
*To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Section 355 of the General and Business Corporation Law of Missouri
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses, costs and fees (including attorney's fees), judgements, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if the person indemnified acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. If the person indemnified is not wholly successful in such action,
suit or proceeding, but is successful, on the merits or otherwise, in one or
more but less than all claims, issues or matters in such proceeding, he or she
may be indemnified against expenses actually and reasonably incurred in
connection with each successfully resolved claim, issue or matter. In the case
of an action or suit by or in the right of the corporation, no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 355 provides that to the extent a director, officer, employee or agent
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him or her in connection therewith.
Section 355 of the General and Business Corporation Law of Missouri
further provides that a corporation may give any further indemnity, in addition
to the indemnity set forth above to any person who is or was a director,
officer, employee
<PAGE>
or agent, or to any person who is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, provided
such further indemnity is either (i) authorized, directed, or provided for in
the articles of incorporation of the corporation or any duly adopted amendment
thereof or (ii) is authorized, directed, or provided for in any bylaw or
agreement of the corporation which has been adopted by a vote of the
shareholders of the corporation, and provided further that no such indemnity
shall indemnify any person from or on account of such person's conduct which
was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct. The Articles of Incorporation of the
Depositor contain a provision requiring the Depositor to indemnity each such
person to the extent his or her conduct is not adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct.
Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto for provisions relating to the indemnification of directors,
officers and controlling persons against certain liabilities including
liabilities under the Section Act of 1933, as amended.
Unless otherwise specified, the Agreement relating to each Series
will provide that neither the Depositor nor any partner, director, officer,
employee or agent of the Depositor will be liable to the Trust Fund or the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement, or for errors in judgment,
provided, however, that neither the Depositor nor any such person will be
protected against liability for a breach of its representations and warranties
under the Agreement or that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligations and duties thereunder. The
Agreement relating to each Series will further provide that the Depositor and
any director, officer, employee or agent of the Depositor will be entitled to
indemnification by the Trust Fund for any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the Certificates,
other than loss, liability or expense (i) incurred by reason of its respective
willful misfeasance, bad faith, fraud or negligence in the performance of duties
thereunder or by reason of reckless disregard of its respective obligations and
duties thereunder or (ii) imposed by any taxing authority which loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
Agreement or which results from a breach (other than a breach with respect to
which the Master Servicer or Special Servicer, as applicable, would have no
liability under the standard set forth in the first sentence of this paragraph)
by the Master Servicer, the Special Servicer or its agents of its respective
obligations under the Agreement.
Item 16. Exhibits and Financial Statements
(a) Exhibit
1.1** Form of Underwriting Agreement.
4.1* Form of Pooling and Servicing Agreement.
5.1* Form of Opinion of Morrison & Hecker L.L.P. as to legality
(including consent of such firm).
8.1* Form of Opinion of Morrison & Hecker L.L.P. as to certain tax
matters (including consent of such firm).
23.1** Consent of Morrison & Hecker L.L.P. (included in Exhibits 5.1
and 8.1).
24.1* Power of Attorney (included at page II-5).
- ------------------
* Filed herewith.
** To be filed by Amendment.
II-2
<PAGE>
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
Item 17. Undertakings
A. Undertaking pursuant to rule 415.
The undersigned 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 Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933 each such post- effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
B. Undertaking Concerning Filings Incorporating
Subsequent Exchange Act Documents by Reference.
The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing, if any, of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant as described in Item 15 above, or otherwise, the
Registrant has been advised
II-3
<PAGE>
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 (including that the security rating
requirement will be met by the time of sale of any securities registered
hereunder) and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri, on the 16th day of May, 1996.
MIDLAND REALTY ACCEPTANCE CORP.
By: /s/ Alan L. Atterbury
Alan L. Atterbury, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clarence Krantz, Alan L. Atterbury and
Leon E. Bergman his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and any and all other documents in
connection therewith, and to file the same, with all exhibits thereto, 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 might or could be done in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Position Date
/s/ Alan L. Atterbury May 16, 1996
- ---------------------
Alan L. Atterbury Director and President
(Principal Executive Officer)
/s/ Leon E. Bergman May 16, 1996
- -------------------
Leon E. Bergman Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Clarence A. Krantz May 16, 1996
- ----------------------
Clarence A. Krantz Director
/s/ William V. Morgan May 16, 1996
- ---------------------
William V. Morgan Director
PJRES07M.KCM/js
II-5
<PAGE>
MIDLAND REALTY ACCEPTANCE CORP.
DEPOSITOR
MIDLAND LOAN SERVICES, L.P.,
SERVICER
____________,
SPECIAL SERVICER
____________,
TRUSTEE
[and
____________,
FISCAL AGENT]
POOLING AND SERVICING AGREEMENT
Dated as of
Commercial Mortgage Pass-Through Certificates
Series
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms.............................. 3
SECTION 1.2. Certain Calculations....................... 40
SECTION 1.3. Certain Constructions...................... 41
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1. Conveyance and Assignment of Mortgage Loans;. 41
SECTION 2.2. Acceptance by the Custodian and the Trustee. 46
SECTION 2.3. Representations and Warranties of the
Depositor................................................. 47
SECTION 2.4. Representations, Warranties and Covenants of
the
Servicer and the Special Servicer............... 52
SECTION 2.5. Execution and Delivery of Certificates;
Issuance of
Lower-Tier Regular Interests.................... 55
SECTION 2.6. Miscellaneous REMIC Provisions............. 56
SECTION 2.7. Documents Not Delivered to Custodian....... 56
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.1. Servicer to Act as Servicer; Special Servicer
to Act as
Special Servicer; Administration of the Mortgage
Loans........................................... 57
SECTION 3.2. Liability of the Servicer.................. 60
SECTION 3.3. Collection of Certain Mortgage Loan Payments 61
SECTION 3.4. Collection of Taxes, Assessments and Similar
Items...................................... 61
SECTION 3.5. Collection Account; Distribution Account... 63
SECTION 3.6. Permitted Withdrawals from the Collection
Account.................................... 64
SECTION 3.7. Investment of Funds in the Collection
Account, the
Distribution Account and the Reserve Accounts... 67
SECTION 3.8. Maintenance of Insurance Policies and Errors
and
Omissions and Fidelity Coverage................. 69
i
<PAGE>
PAGE
SECTION 3.9. Enforcement of Due-On-Sale Clauses; Assumption
Agreements...................................... 72
SECTION 3.10. Realization Upon Mortgage Loans............ 74
SECTION 3.11. Trustee to Cooperate; Release of Mortgage
Files...................................... 78
SECTION 3.12. Servicing Compensation and Trustee Fees.... 79
SECTION 3.13. Reports to the Trustee; Collection Account
Statements................................. 82
SECTION 3.14. Annual Statement as to Compliance.......... 82
SECTION 3.15. Annual Independent Public Accountants'
Servicing
Report.......................................... 83
SECTION 3.16. Access to Certain Documentation............ 83
SECTION 3.17. Title and Management of REO Properties..... 84
SECTION 3.18. Sale of Specially Serviced Mortgage Loans and
REO Properties.................................. 88
SECTION 3.19. Inspections................................ 89
SECTION 3.20. Available Information and Notices.......... 90
SECTION 3.21. Reserve Accounts........................... 92
SECTION 3.22. Property Advances.......................... 92
SECTION 3.23. Appointment of Special Servicer............ 93
SECTION 3.24. Transfer of Servicing Between Servicer and
Special Servicer; Record Keeping................ 94
SECTION 3.25. Adjustment of Servicing Compensation in
Respect
of Prepayment Interest Shortfalls............... 95
SECTION 3.26. Extension Advisor.......................... 96
ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1. Distributions.............................. 97
SECTION 4.2. Statements to Rating Agencies and
Certificateholders;
Available Information; Information Furnished to
Financial Market Publisher......................108
SECTION 4.3. Compliance with Withholding Requirements...109
SECTION 4.4. REMIC Compliance...........................110
SECTION 4.5. Imposition of Tax on the Trust Fund........112
SECTION 4.6. Remittances; P&I Advances..................113
ii
<PAGE>
PAGE
ARTICLE V
THE CERTIFICATES
SECTION 5.1. The Certificates...........................115
SECTION 5.2. Registration, Transfer and Exchange of
Certificates...............................116
[SECTION 5.3. Book-Entry Certificates....................122
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen
Certificates...............................123
SECTION 5.5. Appointment of Paying Agent................124
SECTION 5.6. Access to Certificateholders' Names and
Addresses..................................124
SECTION 5.7. Actions of Certificateholders..............124
ARTICLE VI
THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
SECTION 6.1. Liability of the Depositor, the Servicer and
the
Special Servicer................................125
SECTION 6.2. Merger or Consolidation of the Servicer and
Special Servicer................................125
SECTION 6.3. Limitation on Liability of the Depositor, the
Servicer and Others.............................126
SECTION 6.4. Limitation on Resignation of the Servicer and
of
the Special Servicer............................127
SECTION 6.5. Rights of the Depositor and the Trustee in
Respect
of the Servicer and the Special Servicer........128
ARTICLE VII
DEFAULT
SECTION 7.1. Events of Default..........................129
SECTION 7.2. Trustee to Act; Appointment of Successor...131
SECTION 7.3. Notification to Certificateholders.........132
SECTION 7.4. Other Remedies of Trustee..................133
SECTION 7.5. Waiver of Past Events of Default; Termination133
iii
<PAGE>
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1. Duties of Trustee..........................134
SECTION 8.2. Certain Matters Affecting the Trustee......136
SECTION 8.3. Trustee Not Liable for Certificates or
Mortgage Loans.............................138
SECTION 8.4. Trustee May Own Certificates...............139
SECTION 8.5. Payment of Trustee's Fees and Expenses;
Indemnification.................................140
SECTION 8.6. Eligibility Requirements for Trustee.......141
SECTION 8.7. Resignation and Removal of the Trustee.....142
SECTION 8.8. Successor Trustee..........................143
SECTION 8.9. Merger or Consolidation of Trustee.........144
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee144
SECTION 8.11. Authenticating Agent.......................146
SECTION 8.12. Appointment of Custodians..................147
[SECTION 8.13. Fiscal Agent Appointed; Concerning the Fiscal
Agent......................................147
ARTICLE IX
TERMINATION
SECTION 9.1. Termination................................148
SECTION 9.2. Additional Termination Requirements........153
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Counterparts...............................154
SECTION 10.2. Limitation on Rights of Certificateholders.154
SECTION 10.3. Governing Law..............................155
SECTION 10.4. Notices....................................155
SECTION 10.5. Severability of Provisions.................157
SECTION 10.6. Notice to the Depositor and Each Rating Agency158
SECTION 10.7. Amendment..................................159
SECTION 10.8. Confirmation of Intent.....................161
iv
<PAGE>
EXHIBITS
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class B Certificate
Exhibit A-3 Form of Class C Certificate
Exhibit A-4 [Form of Class [EC] Certificate]
Exhibit A-5 [Form of Class [IO] Certificate]
Exhibit A-6 [Form of Class [PO] Certificate]
Exhibit A-7 Form of Class R Certificate
Exhibit A-8 Form of Class LR Certificate
Exhibit B Mortgage Loan Schedule
Exhibit C-1 Form of Transferee Affidavit
Exhibit C-2 Form of Transferor Letter
Exhibit D-1 Form of Investment Representation Letter
Exhibit D-2 Form of ERISA Representation Letter
Exhibit E Form of Request for Release
Exhibit F Form of Custodial Agreement
Exhibit G Form of Mortgage Loan Purchase and Sale
Agreement
Exhibit H Privately Placed Securities Legend
v
<PAGE>
Pooling and Servicing Agreement, dated as of
among Midland Realty Acceptance Corp., as
Depositor, Midland Loan Services, L.P., as Servicer,
as Special Servicer, ,
as Trustee and Custodian, [and , as Fiscal
Agent of the Trustee].
PRELIMINARY STATEMENT:
(Terms used but not defined in this Preliminary Statement shall have the
meanings specified in Article I)
The Depositor intends to sell pass-through certificates to be issued
hereunder in multiple classes which in the aggregate will evidence the entire
beneficial ownership interest in the Trust Fund consisting primarily of the
Mortgage Loans. As provided herein, the Trustee will elect that the Trust Fund
be treated for federal income tax purposes as two separate real estate mortgage
investment conduits (each a "REMIC" or, in the alternative, the "Lower-Tier
REMIC" and the "Upper-Tier REMIC," respectively). The Class A, Class B, Class C,
[Class [EC], Class [PO] and Class [IO]] Certificates constitute "regular
interests" in the Upper-Tier REMIC and the Class R Certificates are the sole
class of "residual interest" in the Upper-Tier REMIC for purposes of the REMIC
Provisions. The Class LR Certificates are the sole class of "residual interest"
in the Lower-Tier REMIC for purposes of the REMIC Provisions. There are also
[four] classes of uncertificated Lower-Tier Regular Interests issued under this
Agreement (the Class A-L, Class B-L, Class C-L and [Class [PO]-L] Interests),
each of which will constitute a regular interest in the Lower-Tier REMIC. All
such Lower-Tier Regular Interests will be held by the Trustee as assets of the
Upper-Tier REMIC.
The following table sets forth the designation and aggregate initial
Certificate Balance (or, with respect to the Class [EC] and Class [IO]
Certificates, the Class [EC] Notional Balance and the Class [IO] Notional
Balance, respectively) for each Class of Certificates comprising interests in
the Upper-Tier REMIC.
Certificate Balance
Class or Notional Balance
Class A $
Class B $
Class C $
[Class [EC] $ (1)]
------
[Class [PO] $ ]
---------
[Class [IO] $ (1)]
------
[(1) The Class [EC] and Class [IO] Certificates are not denominated in
Certificate Balance and accordingly will not receive principal
distributions. The Class [EC] and Class [IO] Certificates have an initial
Class [EC] Notional Balance and an initial Class [IO] Notional Balance,
respectively, in the amounts shown in the above table.]
1
<PAGE>
The initial Certificate Balance of each of the Class R and Class LR
Certificates will be zero. The Certificate Balance of any class of Certificates
outstanding at any time represents the maximum amount which 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.
As of the Cut-off Date, the Mortgage Loans have an aggregate
Scheduled Principal Balance equal to approximately $ .
In consideration of the mutual agreements herein contained, the
Depositor, the Servicer, the Special Servicer, the Trustee [and the Fiscal
Agent] agree as follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article.
"Advance": Any P&I Advance or Property Advance.
"Advance Interest Amount": The sum for all Mortgage Loans as to which
any Advance remains unreimbursed of interest at the related Advance Rate on the
amount of any P&I Advances and Property Advances for which the Servicer, the
Trustee [or the Fiscal Agent,] as applicable, has not been paid or reimbursed
for the number of days from the date on which such Advance was made or, if
interest has been previously paid on such Advance, from the date on which
interest was last paid, through the date of payment or reimbursement of the
related Advance (which in no event shall be later than the Determination Date
following the date on which funds are available to reimburse such Advance with
interest thereon at the Advance Rate).
"Advance Rate": A per annum rate equal to the Prime Rate (as
published in The Wall Street Journal, or, if The Wall Street Journal is no
longer published, The New York Times, from time to time) plus ___________%.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. The Trustee may obtain
and rely on an Officer's Certificate of the Servicer, the Special Servicer or
the Depositor to determine whether any Person is an Affiliate of such party.
"Aggregate Certificate Balance": As defined in
Section 9.1(d)(i).
"Agreement": This Pooling and Servicing Agreement and
all amendments hereof and supplements hereto.
"Annual Debt Service": For any Mortgage Loan, the current annual debt
service (including interest allocable to payment of the Servicing Fee) payable
with respect to such Mortgage Loan during the 12-month period commencing on the
Cut-off Date (assuming no principal prepayments occur).
3
<PAGE>
"Anticipated Loss": As defined in Section 4.6(c).
"Anticipated Termination Date": Any Distribution Date
on which it is anticipated that the Trust Fund will be terminated
pursuant to Section 9.1(c) or Section 9.1(d).
"Applicable Monthly Payment": As defined in Section
4.6(a).
"Applicant": As defined in Section 5.6(a).
"Appraised Value": For each of the Mortgaged Properties, the
appraised value of such property as determined by an appraisal thereof,
conforming to MAI standards, made not more than one year prior to the
origination date of the related Mortgage Loan.
"Assignment of Leases, Rents and Profits": With respect to any
Mortgaged Property, any assignment of leases, rents and profits or similar
agreement executed by the Borrower, assigning to the mortgagee all of the
income, rents and profits derived from the ownership, operation, leasing or
disposition of all or a portion of such Mortgaged Property, in the form which
was duly executed, acknowledged and delivered by the Borrower, as amended,
modified, renewed or extended through the date hereof and from time to time
hereafter.
"Assignment of Mortgage": An assignment of mortgage without recourse,
notice of transfer or equivalent instrument, in recordable form, which is
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect of record the sale of the related Mortgage, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering Mortgages encumbering Mortgaged
Properties located in the same jurisdiction, if permitted by law and acceptable
for recording; provided, however, that none of the Trustee, the Custodian, the
Special Servicer or the Servicer shall be responsible for determining whether
any assignment is legally sufficient or in recordable form.
"Assumed Scheduled Payment": With respect to any Mortgage Loan that
is delinquent in respect of its Balloon Payment (including any REO Mortgage Loan
as to which the Balloon Payment would have been past due), an amount equal to
the sum of (a) the principal portion of the Monthly Payment that would have been
due on such Mortgage Loan on a Due Date that falls on or after the date on which
such Balloon Payment was due, based on the original amortization schedule
thereof, assuming such Balloon Payment had not become due, after giving effect
to any modification, and (b) interest at the applicable Net Mortgage Rate on the
principal balance that would have remained on such Mortgage Loan after giving
effect to deemed principal payments pursuant to clause (a) hereof on prior Due
Dates.
"Assumption Fees": Any fees collected by the Servicer
or the Special Servicer in connection with an assumption or
modification of a Mortgage Loan or substitution of a
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Borrower thereunder permitted to be executed under the provisions of Section
3.1, Section 3.9 or Section 3.10.
["Auction Agent": An Independent financial advisory or
investment banking or investment brokerage firm nationally
recognized in the field of real estate financial analysis and
auction procedures appointed by the Trustee pursuant to Section
9.1(d).]
["Auction Fees": As defined in Section 9.1(d)(v).]
["Auction Procedures": As defined in Section
9.1(d)(vi).]
["Auction Proceeds Distribution Date": The third
Distribution Date following an Auction Valuation Date, or such
later Distribution Date determined by the Auction Agent.]
["Auction Valuation Date": Each of (i) the
Distribution Date occurring in September of each year from and
including 2006 and (ii) any Business Day on which the Trustee
receives an unsolicited bona fide offer to purchase all (but not
less than all) of the Mortgage Loans.]
"Authenticating Agent": Any authenticating agent
appointed by the Trustee pursuant to Section 8.11.
"Balloon Payment": With respect to each Mortgage Loan, the scheduled
payment of principal and interest due on the Maturity Date of such Mortgage Loan
which, pursuant to the related Note, is equal to the entire remaining principal
balance of such Mortgage Loan, plus accrued interest thereon.
"Borrower": With respect to each Mortgage Loan, any
obligor on any related Note.
["Book-Entry Certificate": Any Certificate registered
in the name of the Securities Depository or its nominee.]
"Business Day": Any day other than a Saturday, a
Sunday or a day on which banking institutions in the States of New
York, or Missouri are authorized or obligated by
law, executive order or governmental decree to be closed.
"Cash Deposit": An amount equal to all cash payments of principal and
interest received by the Mortgage Loan Seller in respect of the Mortgage Loans
prior to or on the Closing Date which are due after the Cut-off Date, which
amount is to be deposited with the Trustee by the Depositor pursuant to Section
2.1.
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<PAGE>
"Certificate": Any Class A, Class B, Class C, [Class
[EC], Class [PO], Class [IO]], Class R or Class LR Certificate
issued, authenticated and delivered hereunder.
"Certificate Balance": With respect to any Class of
Regular Certificates [(other than the Class [EC] and Class [IO]
Certificates)] (a) on or prior to the first Distribution Date, an
amount equal to the aggregate initial Certificate Balance of such
Class, as specified in the Preliminary Statement hereto, and (b)
as of any date of determination after the first Distribution Date,
the Certificate Balance of such Class of Certificates on the
Distribution Date immediately prior to such date of determination,
after application of the distributions and Realized Losses made
thereon on such prior Distribution Date; and with respect to any
Lower-Tier Regular Interest, (a) on or prior to the first
Distribution Date, an amount equal to the Certificate Balance of
the Related Certificates, and (b) as of any date of determination
after the first Distribution Date, the Certificate Balance of such
Lower-Tier Regular Interest on the Distribution Date immediately
prior to such date of determination, after application of
distributions in respect of principal and Realized Losses made
thereon on such prior Distribution Date. [The Class [EC] and
Class [IO] Certificates have no Certificate Balances.]
"Certificate Owner": With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Certificate as reflected on the books
of the Securities Depository or on the books of a Securities Depository
Participant or on the books of an indirect participating brokerage firm for
which a Securities Depository Participant acts as agent.
"Certificate Register" and "Certificate Registrar":
The register maintained and the registrar appointed pursuant to
Section 5.2(a).
"Certificateholder": A Person whose name is registered in the
Certificate Register; provided, however, that any Certificate held or
beneficially owned by the Depositor, the Servicer, the Trustee, a Manager or a
Borrower or any Person known to a Responsible Officer of the Certificate
Registrar to be an Affiliate of any thereof shall be deemed not to be
outstanding and the Voting Rights to which it is entitled shall not be taken
into account in determining whether the requisite percentage of Voting Rights
necessary to effect any consent has been obtained (unless such consent is to an
action which would materially adversely affect in any material respect the
interests of the Certificateholders of any Class, while the Servicer or any
Affiliate thereof is the holder of Certificates aggregating not less than
66-2/3% of the Percentage Interest of any such Class). All references herein to
"Holders" or "Certificateholders" shall reflect the rights of Certificate Owners
as they may indirectly exercise such rights through the Securities Depository
and the Securities Depository Participants, except as otherwise specified
herein.
"Class": With respect to Certificates or Lower-Tier
Regular Interests, all of the Certificates or Lower-Tier Regular
Interests bearing the same alphabetical and numerical class
designation.
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<PAGE>
"Class A Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating
Agent on behalf of the Depositor in substantially the form set
forth in Exhibit A-1 hereto.
"Class A Pass-Through Rate": A per annum rate equal to
%.
"Class A-L Interest": A regular interest in the
Lower-Tier REMIC entitled to monthly distributions payable thereto
pursuant to Section 4.1.
"Class B Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating
Agent on behalf of the Depositor in substantially the form set
forth in Exhibit A-2 hereto.
"Class B Pass-Through Rate": A per annum rate equal to
%
"Class B-L Interest": A regular interest in the
Lower-Tier REMIC entitled to the monthly distributions payable
thereto pursuant to Section 4.1.
"Class C Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating
Agent on behalf of the Depositor in substantially the form set
forth in Exhibit A-3 hereto.
"Class C Pass-Through Rate": A per annum rate equal to
%.
"Class C-L Interest": A regular interest in the
Lower-Tier REMIC entitled to the monthly distributions payable
thereto pursuant to Section 4.1.
["Class [EC] Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating
Agent on behalf of the Depositor in substantially the form set
forth in Exhibit A-4 hereto.]
["Class [EC] Excess Interest": With respect to any Distribution Date,
an amount equal to the Class [EC] Pass-Through Rate multiplied by the Class [EC]
Notional Balance. Class [EC] Excess Interest represents a portion of the
interest payments on the Class A-L Interest, the Class B-L Interest and the
Class C-L Interest.]
["Class [EC] Notional Balance": As of any date of
determination, an amount equal to the sum of the Certificate
Balances of the Class A Certificates, the Class B Certificates,
the Class C Certificates and the Class [PO] Certificates.]
["Class [EC] Pass-Through Rate": With respect to any
Interest Accrual Period, a per annum rate equal to the excess of
the Weighted Average Net Mortgage Rate over the weighted averages
of the Pass-Through Rates of the P&I Certificates (weighted in
each case on
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<PAGE>
the basis of a fraction equal to the Certificate Balance of each such Class of
Certificates divided by the sum of the Certificate Balances of the P&I
Certificates and the Class [PO] Certificates as of the first day of such
Interest Accrual Period) and the Class [IO] Pass-Through Rate (weighted on the
basis of a fraction equal to the Class [IO] Notional Balance divided by the sum
of the Certificate Balances of the P&I Certificates and the Class [PO]
Certificates, each as of the first day of such Interest Accrual Period). For
purposes of this definition, the Pass-Through Rates of the Class and Class
Certificates shall be equal to the Weighted Average Net Mortgage Rate.]
"Class Interest Distribution Amount": With respect to any
Distribution Date and any of the Class A, Class B and Class C Certificates,
interest for the related Interest Accrual Period at the applicable Pass-Through
Rate for such Class of Certificates for such Interest Accrual Period on the
Certificate Balance of such Class. [With respect to any Distribution Date and
the Class [EC] Certificates, (a) for any Distribution Date occurring on or prior
to the EC Maturity Date, the Class [EC] Excess Interest and, (b) thereafter,
zero.] [With respect to the Class [PO] Certificates, zero.] [With respect to any
Distribution Date and the Class [IO] Certificates, an amount equal to the
product of the Class [IO] Pass-Through Rate and the Class [IO] Notional Balance.
The Class Interest Distribution Amount of the Class [IO] Certificates represents
a specified portion equal to 100% of the interest payments on the Class [PO]-L
Interest.] For purposes of determining any Class Interest Distribution Amount,
any distributions in reduction of Certificate Balance, any reductions of
Certificate Balance [(and any resulting reductions in Notional Balance)] as a
result of allocations of Realized Losses on the Distribution Date occurring in
such Interest Accrual Period shall be deemed to have been made as of the first
day of such Interest Accrual Period. Notwithstanding the foregoing, the Class
Interest Distribution Amount for each Class of Certificates otherwise calculated
as described above shall be reduced by such Class' pro rata share of any
Uncovered Prepayment Interest Shortfall for such Distribution Date (pro rata
according to each respective Class' Interest Distribution Amount determined
without regard to this sentence).
"Class Interest Shortfall": On any Distribution Date for any Class of
Certificates, the excess, if any, of the Class Interest Distribution Amount for
such Class over the amount of interest actually distributed in respect of such
Class Interest Distribution Amount to the Holders of such Certificates pursuant
to Section 4.1(b) on such Distribution Date.
["Class [IO] Certificate": Any one of the Certificates
executed and authenticated by the Trustee or Authenticating Agent
on behalf of the Depositor in substantially the form set forth in
Exhibit A-5 hereto.]
["Class [IO] Notional Balance": As of any date of
determination, an amount equal to the Certificate Principal
Balance of the Class [IO] Certificates.]
["Class [IO] Pass-Through Rate": With respect to any
Interest Accrual Period, a per annum rate equal to the Weighted
Average Net Mortgage Rate.]
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<PAGE>
"Class LR Certificate": Any Certificate executed and
authenticated by the Trustee or the Authenticating Agent on behalf
of the Depositor in substantially the form set forth in Exhibit
A-7 hereto. The Class LR Certificates have no Pass-Through Rate
or Certificate Balance.
["Class [PO] Certificate": Any one of the Certificates
executed and authenticated by the Trustee or Authenticating Agent
on behalf of the Depositor in substantially the form set forth in
Exhibit A-6 hereto.]
["Class [PO]-L Interest": A regular interest in the
Lower-Tier REMIC entitled to the monthly distributions payable
thereto pursuant to Section 4.1.]
"Class R Certificate": Any Certificate executed and
authenticated by the Trustee or the Authenticating Agent on behalf
of the Depositor in substantially the form set forth in Exhibit
A-8 hereto. The Class R Certificates have no Pass-Through Rate or
Certificate Balance.
"Closing Date": .
"Code": The Internal Revenue Code of 1986, as amended
from time to time, any successor statute thereto, and any
temporary or final regulations of the United States Department of
the Treasury promulgated pursuant thereto.
"Collection Account": The account or accounts created
and maintained by the Servicer pursuant to Section 3.5(a), which
shall be entitled " , as Trustee, in
trust for Holders of
, Commercial Mortgage Pass-Through Certificates, Series
, Collection Account" and which shall be an Eligible Account.
"Collection Period": With respect to any Distribution Date and any
Mortgage Loan, the period beginning on the first day following the Determination
Date in the month preceding the month in which such Distribution Date occurs
(or, in the case of the Distribution Date occurring in , on the day after the
Cut-off Date) and ending on the Determination Date in the month in which such
Distribution Date occurs.
"Commission": The Securities and Exchange Commission
of the United States of America.
"Condemnation Proceeds": Any amount (other than
Insurance Proceeds) received in connection with the taking of a
Mortgaged Property by exercise of the power of eminent domain or
condemnation.
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<PAGE>
"Corporate Trust Office": The principal office of the
Trustee located at
, Attention:
,
or the principal trust office of any successor trustee qualified and appointed
pursuant to Section 8.8.
"Custodial Agreement": The Custodial Agreement, if any, in effect
from time to time between the Custodian named therein, the Servicer and the
Trustee, substantially in the form of Exhibit F hereto, as the same may be
amended or modified from time to time in accordance with the terms thereof.
"Custodian": Any Custodian appointed pursuant to Section 8.12 and,
unless the Trustee is Custodian, named pursuant to any Custodial Agreement. The
Custodian may (but need not) be the Trustee or the Servicer or any Affiliate of
the Trustee or the Servicer, but may not be the Depositor or any Affiliate of
the Depositor.
"Cut-off Date": ;
[provided, however, that references to the principal balance of
Mortgage Loans No. (or other terms derived in part
by reference to the principal of balance of such Mortgage Loans)
as of the Cut-off Date shall refer to the principal balance of
such Mortgage Loans as of .]
"Debt Service Coverage Ratio": With respect to any
Mortgage Loan, (a) the Underwritten Cash Flow for the related
Mortgaged Property, divided by (b) the Annual Debt Service for
such Mortgage Loan.
"Default Interest": With respect to any Mortgage Loan,
interest accrued on such Mortgage Loan at the excess of the
Default Rate over the Mortgage Rate.
"Default Rate": With respect to each Mortgage Loan, the annual rate
at which interest accrues on such Mortgage Loan following any event of default
on such Mortgage Loan, including a default in the payment of a Monthly Payment
or a Balloon Payment, as such rate is set forth in the Mortgage Loan Schedule.
["Deficient Auction Bid": As defined in Section
9.1(d)(iii).]
"Definitive Certificate": As defined in Section 5.3(a).
"Depositor": Midland Realty Acceptance Corp., a
Missouri corporation and its successors and assigns.
"Determination Date": The day of any month, or if
such day is not a Business Day, the Business Day immediately
preceding such day, commencing on .
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<PAGE>
"Directly Operate": With respect to any REO Property, the furnishing
or rendering of services to the tenants thereof that are not customarily
provided to tenants in connection with the rental of space for occupancy only
within the meaning of Treasury Regulations Section 1.512(h)-1(c)(5), the
management or operation of such REO Property, the holding of such REO Property
primarily for sale to customers or any use of such REO Property in a trade or
business conducted by the Trust Fund other than through an Independent
Contractor; provided, however, that the Servicer, on behalf of the Trust Fund
(or the Special Servicer on behalf of the Trust Fund), shall not be considered
to Directly Operate an REO Property solely because the Servicer, on behalf of
the Trust Fund (or the Special Servicer on behalf of the Trust Fund),
establishes rental terms, chooses tenants, enters into or renews leases, deals
with taxes and insurance, or makes decisions as to repairs or capital
expenditures with respect to such REO Property.
"Discount Rate": The rate determined by the Trustee in connection
with distributions pursuant to Section 4.1(c)(I) to be the rate (interpolated
and rounded to the nearest one-thousandth of a percent, if necessary) in the
secondary market on the United States Treasury security with a maturity equal to
the then-computed weighted average life of the related Class of Certificates
(rounded to the nearest month) (without taking into account the related
prepayment and assuming (i) no further prepayments on the Mortgage Loans and
(ii) no delinquencies or defaults with respect to payments on the Mortgage
Loans) plus [0.50%] per annum.
["Disposition Fee": With respect to any Specially Serviced Mortgage
Loan or REO Property which is sold or transferred or otherwise liquidated, an
amount equal to the product of (I) the excess, if any of (a) the Liquidation
Proceeds of such Specially Serviced Mortgage Loan or REO Property minus (b) any
broker's commission and related brokerage referral fees, times (II) (a) %, if
such sale or liquidation occurs prior to months following the date on which the
related Mortgage Loan initially became a Specially Serviced Mortgage Loan, or
(b) %, if such sale or liquidation occurs upon or after the expiration of such
- -month period.]
"Disqualified Non-U.S. Person": With respect to a Class R or Class LR
Certificate, any Non-U.S. Person or agent thereof other than (i) a Non-U.S.
Person that holds the Class R or Class LR Certificate in connection with the
conduct of a trade or business within the United States and has furnished the
transferor and the Certificate Registrar with an effective IRS Form 4224 or (ii)
a Non-U.S. Person that has delivered to both the transferor and the Certificate
Registrar an Opinion of Counsel to the effect that the transfer of the Class R
or Class LR Certificate to it is in accordance with the requirements of the Code
and the regulations promulgated thereunder and that such transfer of the Class R
or Class LR Certificate will not be disregarded for federal income tax purposes.
"Disqualified Organization": Either (a) the United
States, a State or any political subdivision thereof, any
possession of the United States, or any agency or instrumentality
of any
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<PAGE>
of the foregoing (other than an instrumentality that is a corporation if all of
its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental unit), (b) a foreign government,
International Organization or agency or instrumentality of either of the
foregoing, (c) an organization that is exempt from tax imposed by Chapter 1 of
the Code (including the tax imposed by Code Section 511 on unrelated business
taxable income) on any excess inclusions (as defined in Code Section 860E(c)(1))
with respect to the Class R or Class LR Certificates (except certain farmers'
cooperatives described in Code Section 521), (d) rural electric and telephone
cooperatives described in Code Section 1381(a)(2), or (e) any other Person so
designated by the Certificate Registrar based upon an Opinion of Counsel to the
effect that any Transfer to such Person may cause the Upper-Tier REMIC or
Lower-Tier REMIC to fail to qualify as a REMIC at any time that the Certificates
are outstanding. The terms "United States," "State" and "International
Organization" shall have the meanings set forth in Code Section 7701 or
successor provisions.
"Distribution Account": The account or accounts
created and maintained as a separate trust account or accounts by
the Trustee pursuant to Section 3.5(b), which shall be entitled
" , as Trustee, in trust for Holders of
Commercial Mortgage
Pass-Through Certificates, Series , Distribution
Account" and which shall be an Eligible Account.
"Distribution Date": The day of any month, or if
such day is not a Business Day, the Business Day immediately
following such day, commencing on .
"Due Date": With respect to any Collection Period and any Mortgage
Loan, the date on which scheduled payments are due on such Mortgage Loan
(without regard to grace periods), such date being for all Mortgage Loans [other
than Mortgage Loan No.
] the [first] day of each month, [and for Mortgage
Loan No. the day of the month].
"Early Termination Notice Date": Any date as of which the aggregate
Scheduled Principal Balance of the Mortgage Loans remaining in the Trust Fund is
less than % of the aggregate Scheduled Principal Balance of the Mortgage Loans
as of the Cut-off Date.
["EC Maturity Date": .]
"Eligible Account": Either (i) an account or accounts maintained with
a federally or state-chartered depository institution or trust company, the long
term unsecured debt obligations of which (or of such institution's parent
holding company) are assigned a rating by each Rating Agency that is greater
than or equal to the rating then assigned to the Class of Certificates
outstanding at the time of any deposit therein which has the highest rating then
assigned of any such outstanding Class or (ii) a trust account or accounts
maintained with a federally or state-chartered depository institution or trust
company acting in its fiduciary
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<PAGE>
capacity, having, in either case, a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority, or otherwise confirmed in writing by each of the Rating Agencies that
the maintenance of such account, which may be an account maintained with the
Trustee or the Servicer, shall not, in and of itself, result in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of Certificates. Eligible Accounts may bear interest.
"Eligible Investor": (i) A Qualified Institutional Buyer that is
purchasing Privately Placed Certificates for its own account or for the account
of a Qualified Institutional Buyer to whom notice is given that the offer, sale
or transfer is being made in reliance on Rule 144A promulgated under the 1933
Act or (ii) with respect to Privately Placed Certificates other than the Class R
and Class LR Certificates, an Institutional Accredited Investor.
"Environmental Report": With respect to each Mortgaged Property, the
environmental audit report or reports delivered to the Mortgage Loan Seller in
connection with the purchase of the related Mortgage Loan from the Originator of
such Mortgage Loan.
"ERISA": The Employee Retirement Income Security Act
of 1974, as it may be amended from time to time.
"Escrow Account": As defined in Section 3.4(b).
"Escrow Payment": Any payment made by any Borrower to
the Servicer for the account of such Borrower for application
toward the payment of taxes, insurance premiums, assessments and
similar items in respect of the related Mortgaged Property [and
the payment of the Financial and Lease Reporting Fee.]
"Event of Default": As defined in Section 7.1.
"Extension Advisor": The Person who has the right to
approve the actions of the Special Servicer in granting extensions
as set forth in Section 3.26. [Midland Loan Services, L.P.] shall
serve as the initial Extension Advisor.
["Extension Advisory Fee": With respect to each Mortgage Loan as to
which an extension is requested after three successive extensions have been
granted in accordance with Section 3.10(a), % of the Scheduled Principal Balance
of such Mortgage Loan; provided that so long as [Midland Loan Services L.P.] is
the Extension Advisor the Extension Advisory Fee will be zero.]
"FDIC": The Federal Deposit Insurance Corporation, or
any successor thereto.
"FHA": The Federal Housing Administration.
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<PAGE>
"FHLMC": The Federal Home Loan Mortgage Corporation,
or any successor thereto.
"Final Recovery Determination": With respect to any REO Mortgage
Loan, Specially Serviced Mortgage Loan or Mortgage Loan subject to repurchase by
the Mortgage Loan Seller pursuant to Section 2.3(d) or 2.3(e), the recovery of
all Insurance Proceeds, Condemnation Proceeds, Liquidation Proceeds, the related
Repurchase Price and other payments or recoveries (including proceeds of the
final sale of any related REO Property) which the Servicer, in its reasonable
judgment as evidenced by a certificate of a Servicing Officer delivered to the
Trustee and the Custodian, expects to be finally recoverable. The Servicer shall
maintain records, prepared by a Servicing Officer, of each Final Recovery
Determination until the earlier of (i) its termination as Servicer hereunder and
the transfer of such records to a successor servicer and (ii) five years
following the termination of the Trust Fund.
["Financial and Lease Reporting Fee": Any payment made
by any Borrower under the related Note as a deposit to ensure that
such Borrower furnishes to the mortgagee the required financial
and leasing information on a timely basis during the term of the
related Mortgage Loan.]
["Financial Market Publisher":
.]
["Fiscal Agent": , in its capacity
as fiscal agent of the Trustee, or its successor in interest, or
any successor fiscal agent appointed as herein provided.]
"FNMA": The Federal National Mortgage Association, or
any successor thereto.
"Hazardous Materials": Any dangerous, toxic or hazardous pollutants,
chemicals, wastes, or substances, including, without limitation, those so
identified pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq., or any other environmental
laws now existing, and specifically including, without limitation, asbestos and
asbestos-containing materials, polychlorinated biphenyls, radon gas, petroleum
and petroleum products, urea formaldehyde and any substances classified as being
"in inventory", "usable work in process" or similar classification which would,
if classified as unusable, be included in the foregoing definition.
"Holder": With respect to any Certificate, a
Certificateholder; with respect to any Lower-Tier Regular
Interest, the Trustee.
"Indemnified Party": As defined in Section 8.5(c).
"Independent": When used with respect to any specified
Person, any other Person who (i) does not have any direct
financial interest, or any material indirect financial interest,
in any of the Manager, the Depositor, the Servicer, the Special
Servicer, any Borrower or any
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<PAGE>
Affiliate thereof, and (ii) is not connected with any such specified Person as
an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions.
"Independent Contractor": Either (i) any Person that would be an
"independent contractor" with respect to the Trust Fund within the meaning of
Section 856(d)(3) of the Code if the Trust Fund were a real estate investment
trust (except that the ownership tests set forth in that section shall be
considered to be met by any Person that owns, directly or indirectly, 35% or
more of any Class or 35% or more of the aggregate value of all Classes of
Certificates), provided that the Trust Fund does not receive or derive any
income from such Person and the relationship between such Person and the Trust
Fund is at arm's length, all within the meaning of Treasury Regulations Section
1.856-4(b)(5) (except that the Servicer shall not be considered to be an
Independent Contractor under the definition in this clause (i) unless an Opinion
of Counsel (obtained at the expense of the Servicer) addressed to the Servicer
and the Trustee has been delivered to the Trustee to the effect that the
Servicer meets the requirements of such definition) or (ii) any other Person
(including the Servicer) if the Servicer, on behalf of itself and the Trustee,
has received an Opinion of Counsel (obtained at the expense of the party seeking
to be deemed an Independent Contractor) to the effect that the taking of any
action in respect of any REO Property by such Person, subject to any conditions
therein specified, that is otherwise herein contemplated to be taken by an
Independent Contractor will not cause such REO Property to cease to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) or cause any income realized with respect of such REO
Property to fail to qualify as Rents from Real Property (provided that such
income would otherwise so qualify).
"Individual Certificate": Any Certificate in
definitive, fully registered form without interest coupons.
"Institutional Accredited Investor": An entity meeting
the requirements of Rule 501(a)(1), (2), (3) or (7) of Regulation
D promulgated under the 1933 Act and which is not otherwise a
Qualified Institutional Buyer.
"Insurance Proceeds": Proceeds of any fire and hazard insurance
policy, title policy or other insurance policy relating to a Mortgage Loan
and/or the Mortgaged Property securing any Mortgage Loan (including any amounts
paid by the Servicer or the Special Servicer pursuant to Section 3.8), to the
extent such proceeds are not to be applied to the restoration of the related
Mortgaged Property or released to the Borrower in accordance with the express
requirements of the related Mortgage or Note or other documents including in the
related Mortgage File or in accordance with prudent and customary servicing
practices.
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<PAGE>
"Interest Accrual Period": With respect to any Distribution Date, the
calendar month preceding the month in which such Distribution Date occurs.
Interest for each Interest Accrual Period shall be calculated based on a 360-day
year consisting of twelve 30-day months.
"Interest Distribution Amount": With respect to any Lower-Tier
Regular Interest and any Distribution Date, interest for the related Interest
Accrual Period at the Lower-Tier Pass-Through Rate for such Interest Accrual
Period on the Certificate Balance of such Lower-Tier Regular Interest, provided
that, for such purpose, any distributions in reduction of the Certificate
Balance and reductions of the Certificate Balance as a result of allocations of
Realized Losses on the Distribution Date occurring in such Interest Accrual
Period shall be deemed to have been made as of the first day of such Interest
Accrual Period.
"Interest Shortfall": With respect to any Distribution Date for any
Lower-Tier Regular Interest, the excess, if any, of the Interest Distribution
Amount of such Lower-Tier Regular Interest on such Distribution Date over the
amount actually distributed to such Lower- Tier Regular Interest in respect of
its Interest Distribution Amount on such Distribution Date.
"Interested Person": As of any date of determination, the Depositor,
the Servicer, the Special Servicer, the Trustee, any Borrower, any Manager of a
Mortgaged Property, any Independent Contractor engaged by the Special Servicer
pursuant to Section 3.17, or any Person known to a Responsible Officer of the
Trustee to be an Affiliate of any of them.
"Investment Account": As defined in Section 3.7(a).
"Investment Representation Letter": As defined in
Section 5.2(c)(i).
"IRS": The Internal Revenue Service.
"Liquidation Expenses": Expenses incurred by the Special Servicer and
the Trustee in connection with the liquidation of any Specially Serviced
Mortgage Loan or property acquired in respect thereof (including, without
limitation, legal fees and expenses, committee or referee fees, and, if
applicable, brokerage commissions, and conveyance taxes) and any Property
Protection Expenses incurred with respect to such Specially Serviced Mortgage
Loan or such property not previously reimbursed from collections or other
proceeds therefrom.
"Liquidation Proceeds": The amount (other than Insurance Proceeds)
received in connection with (i) the taking of a Mortgaged Property by exercise
of the power of eminent domain or condemnation, (ii) the liquidation of a
Specially Serviced Mortgage Loan through a trustee's sale, foreclosure sale or
otherwise, (iii) the sale of a Specially Serviced Mortgage Loan or an REO
Property in accordance with Section 3.18 or (iv) the sale of all of the Mortgage
Loans in accordance with Section 9.1.
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<PAGE>
"Loan Agreement": With respect to any Mortgage Loan,
the loan agreement, if any, between the Originator and the
Borrower, pursuant to which such Mortgage Loan was made.
"Loan Number": With respect to any Mortgage Loan, the
loan number by which such Mortgage Loan was identified on the
books and records of the Servicer or any subservicer for the
Servicer, as set forth in the Mortgage Loan Schedule.
"Loan-to-Value Ratio": With respect to any Mortgage
Loan, (a) the principal balance of such Mortgage Loan as of the
Cut-off Date, divided by (b) the Appraised Value of the related
Mortgaged Property.
"Lower-Tier Pass-Through Rate": [With respect to any Distribution
Date on or prior to the EC Maturity Date and any Class of Lower-Tier Regular
Interests [other than the Class -L and the Class -L Interests], a per annum rate
equal to the Weighted Average Net Mortgage Rate for the related Interest Accrual
Period, and with respect to the Class -L and the Class -L Interests, a per annum
rate equal to the higher of the Weighted Average Net Mortgage Rate for the
related Interest Accrual Period and %.] For each Distribution Date [following
the EC Maturity Date] and each of the Class A-L, Class B-L and Class C-L
Interests, a rate equal to the Pass-Through Rate of the Related Certificate.
[For each Distribution Date following the EC Maturity Date and the Class -L and
Class -L Interests, a per annum rate equal to the higher of the Weighted Average
Net Mortgage Rate for the related Interest Accrual Period and % for each
Distribution Date following the EC Maturity Date and the Class -L Interest, a
per annum rate equal to the Weighted Average Net Mortgage Rate for the related
Interest Accrual Period.]
"Lower-Tier Regular Interests": The Class A-L, Class
B-L, Class C-L and [Class [PO]-L] Interests.
"Lower-Tier REMIC": A segregated asset pool within the Trust Fund
consisting of the Mortgage Loans, collections thereon, any REO Property acquired
in respect thereof and amounts held from time to time in the Collection Account.
"MAI": Member of the Appraisal Institute.
"Management Agreement": With respect to any Mortgage
Loan, the Management Agreement, if any, by and between the Manager
and the related Borrower, or any successor Management Agreement
between such parties.
"Manager": With respect to any Mortgage Loan, any
property manager for the related Mortgaged Property.
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"Maturity Date": With respect to each Mortgage Loan,
the maturity date as set forth in the Mortgage Loan Schedule.
"Midland L.P.": Midland Loan Services, L.P., together
with its successor and assigns.
"Monthly Payment": With respect to any Mortgage Loan (other than any
REO Mortgage Loan) and any Due Date, the scheduled monthly payment of principal
and interest, excluding any Balloon Payment, on such Mortgage Loan which is
payable by the related Borrower on such Due Date under the related Note (after
giving effect to any extension or modification permitted hereunder). With
respect to any REO Mortgage Loan, the monthly payment which would otherwise have
been payable on such Due Date had the related Note not been discharged (after
giving effect to any extension or other modification), determined as set forth
in the preceding sentence and on the assumption that all other amounts, if any,
due thereunder are paid when due.
"Mortgage": The mortgage, deed of trust or other
instrument creating a first lien on or first priority ownership
interest in a Mortgaged Property securing the related Note.
"Mortgage File": With respect to any Mortgage Loan,
the mortgage documents required to be maintained in either the
Trustee Mortgage File or the Servicer Mortgage File.
"Mortgage Loan": Each of the mortgage loans transferred and assigned
to the Trustee pursuant to Section 2.1 and from time to time held in the Trust
Fund, such mortgage loans originally so transferred, assigned and held being
identified on the Mortgage Loan Schedule as of the Cut-off Date. Such term shall
include any REO Mortgage Loan.
"Mortgage Loan Documents": Any and all documents
contained in the Trustee Mortgage File and the Servicer Mortgage
File.
"Mortgage Loan Purchase and Sale Agreement": The
Mortgage Loan Purchase and Sale Agreement, dated as of the Cut-off
Date, by and among the Depositor, the Mortgage Loan Seller [and
], substantially in the form attached hereto as
Exhibit G.
"Mortgage Loan Schedule": As of any date, the list of Mortgage Loans
included in the Trust Fund on such date, such list as of the Closing Date being
attached hereto as Exhibit B, which list shall set forth the following
information with respect to each Mortgage Loan:
(a) the Loan Number;
(b) the property name of the related Mortgaged
Property and the city and state where such
Mortgaged Property is located;
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(c) the Monthly Payment in effect as of the Cut-off
Date;
(d) the Mortgage Rate and the Default Rate;
(e) the Maturity Date;
(f) the period over which scheduled principal payments on such
Mortgage Loan would amortize the principal balance thereof;
(g) the Debt Service Coverage Ratio and Loan to Value
Ratio.
(h) the Scheduled Principal Balance as of the Cut-off Date and, as
applicable, the allocation of such balance to each related
Mortgaged Property;
(i) if applicable, the name of the Manager for the
related Mortgaged Property;
(j) whether such Mortgage Loan permits Non-Premium
Prepayments;
(k) a description of the Prepayment Premium payable
with respect to such Mortgage Loan;
(l) the Loan Number of any Mortgage Loan with which
such Mortgage Loan is cross-collateralized or
cross-defaulted;
(m) whether such Mortgage Loan is secured by a fee
simple interest or a leasehold interest in the
related Mortgaged Property or both;
(n) the property type of the Mortgaged Property
securing such Mortgage Loan; and
(o) the originator of such Mortgage Loan.
The Mortgage Loan Schedule shall also set forth the total of the amounts
described under clause (c) and (g) above for all of the Mortgage Loans. The
Mortgage Loan Schedule may be in the form of more than one list, collectively
setting forth all of the information required.
"Mortgage Loan Seller":
, a
corporation, and its successors in interest.
"Mortgage Rate": With respect to each Mortgage Loan,
the annual rate at which interest accrues on such Mortgage Loan
(in the absence of a default), as set forth in the Mortgage Loan
Schedule.
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"Mortgaged Property": The underlying property securing a Mortgage
Loan, including any REO Property, consisting of a fee simple or leasehold estate
in a parcel of land improved by a commercial property, together with any
personal property, fixtures, leases and other property or rights pertaining
thereto.
"Net Liquidation Proceeds": The excess of Liquidation
Proceeds received with respect to any Mortgage Loan over the
amount of Liquidation Expenses incurred with respect thereto.
"Net Mortgage Rate": With respect to any Mortgage
Loan, the Mortgage Rate for such Mortgage Loan minus the Servicing
Fee Rate.
"Net REO Proceeds": With respect to each REO Property, REO Proceeds
with respect to such REO Property net of any insurance premiums, taxes,
assessments and other costs and expenses permitted to be paid therefrom pursuant
to Section 3.17(b).
"New Lease": Any lease of REO Property entered into on behalf of the
Trust Fund, including any lease renewed or extended on behalf of the Trust Fund
if the Trust Fund has the right to renegotiate the terms of such lease.
"1933 Act": The Securities Act of 1933, as it may be
amended from time to time.
"1934 Act": The Securities Exchange Act of 1934, as it
may be amended from time to time.
"Non-Premium Prepayment": Any Principal Prepayment
received that is not required to be accompanied by a Prepayment
Premium.
"Nonrecoverable Advance ": Any portion of an Advance proposed to be
made or previously made which has not been previously reimbursed to the
Servicer, the Trustee [or the Fiscal Agent], as applicable, and which the
Servicer, the Trustee [or the Fiscal Agent] has determined, based on an internal
or external appraisal conducted in accordance with MAI standards and
methodologies (which appraisal shall have been conducted within the 12 months
preceding any such determination) or, in the event that a Phase I or Phase II
environmental report has been conducted which leads the Servicer to determine
that foreclosing upon or otherwise obtaining title to the related Mortgaged
Property would be prohibited in accordance with the provisions of Section
3.10(f), based on such environmental report, will not or, in the case of a
proposed Advance, would not, be ultimately recoverable by the Servicer, the
Trustee [or the Fiscal Agent], as applicable, from late payments, Insurance
Proceeds, Condemnation Proceeds, Liquidation Proceeds and other collections on
or in respect of the related Mortgage Loan. To the extent that any Borrower is
not obligated under the related Mortgage Loan Documents to pay or reimburse any
portion of any Advances that are outstanding with respect
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to the related Mortgage Loan as a result of a modification of such Mortgage Loan
by the Special Servicer which forgives unpaid Monthly Payments or other amounts
which the Servicer had previously advanced, and the Servicer determines that no
other source of payment or reimbursement for such advances is available to it,
such Advances shall be deemed to be nonrecoverable; provided, however, that in
connection with the foregoing the Servicer shall provide an Officer's
Certificate as described below. The determination by the Servicer, the Trustee
[or the Fiscal Agent], as applicable, that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable Advance
shall be evidenced by a certificate of a Servicing Officer, Responsible Officer
[or Vice President or equivalent or senior officer of the Fiscal Agent], as
appropriate, delivered to the Trustee, the Special Servicer and the Depositor
setting forth such determination and the procedures and considerations of the
Servicer, the Trustee [or Fiscal Agent], as applicable, forming the basis of
such determination (including a copy of the appraisal or environmental report
which was the basis for such determination). Notwithstanding the above, the
Trustee [and the Fiscal Agent] shall be entitled to rely upon any determination
by the Servicer that any Advance previously made is a Nonrecoverable Advance or
that any proposed Advance, if made, would constitute a Nonrecoverable Advance.
"Non-U.S. Person": A person that is not a citizen or
resident of the United States; a corporation, partnership, or
other entity created or organized in or under the laws of the
United States or any political subdivision thereof; or an estate
or trust whose income is subject to United States federal income
tax regardless of its source.
"Note": With respect to any Mortgage Loan as of any date of
determination, the note or other evidence of indebtedness and/or agreements
evidencing the indebtedness of the related Borrower or obligor under such
Mortgage Loan, in each case, including any amendments or modifications, or any
renewal or substitution notes, as of such date.
"Notice of Termination": Any of (i) the notices given to the Trustee
by the Servicer or any Holder of a Class LR Certificate pursuant to Section
9.1(c) and (ii) the notice given by the Trustee to each Holder pursuant to
Section 9.1(d)(iv).
"Officer's Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Vice President (however
denominated), the Treasurer, the Secretary, one of the Assistant Treasurers or
Assistant Secretaries or any other officer of the general partner of the
Servicer, Special Servicer [or the Auction Agent] customarily performing
functions similar to those performed by any of the above designated officers and
also with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject, or an authorized officer of the Depositor, and delivered to
the Depositor, the Trustee, the Special Servicer or the Servicer, as the case
may be.
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"Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be counsel for the Depositor, the Special Servicer or the Servicer,
as the case may be, acceptable to the Trustee, except that any opinion of
counsel relating to (a) qualification of the Upper-Tier REMIC or Lower-Tier
REMIC as a REMIC or the imposition of tax under the REMIC Provisions on any
income or property of either REMIC, (b) compliance with the REMIC Provisions
(including application of the definition of "Independent Contractor") or (c) a
resignation of the Servicer or the Special Servicer pursuant to Section 6.4,
must be an opinion of counsel who is Independent of the Depositor, the Special
Servicer and the Servicer.
"Originator": With respect to a Mortgage Loan, the
originator of such Mortgage Loan, as identified in the Mortgage
Loan Schedule.
"Ownership Interest": As to any Certificate, any
ownership or security interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or
indirect, legal or beneficial, as owner or as pledgee.
"P&I Advance": As to any Mortgage Loan, any advance made by the
Servicer, the Trustee, [or the Fiscal Agent] pursuant to Section 4.6(b)(iii).
"P&I Certificates": The Class A, Class B and Class C
Certificates.
"Pass-Through Rate": Any one of the Class A, Class B,
Class C, [Class [EC], or [Class [IO]] Pass-Through Rates.
"Paying Agent": The paying agent appointed pursuant to
Section 5.5.
"Percentage Interest": As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made with respect to the
related Class. With respect to any Certificate (except the Class R and Class LR
Certificates), the percentage interest is derived by dividing the denomination
of such Certificate by the initial Certificate Balance [or notional amount] of
such Class of Certificates. With respect to any Class R or Class LR Certificate,
the percentage interest is set forth on the face thereof.
"Permitted Investments": Any one or more of the following obligations
or securities payable on demand or having a scheduled maturity on or before the
Business Day preceding the date on which such funds are required to be drawn,
regardless of whether issued by the Depositor, the Servicer, the Special
Servicer, the Trustee or any of their respective Affiliates, and having at all
times the required ratings, if any, provided for in this definition (provided
that no Permitted Investment, if downgraded, shall be required to be sold at a
loss), unless each Rating Agency shall have confirmed in writing to the Servicer
or the Special Servicer, as applicable, that a lower rating will not result in
the withdrawal, downgrading or qualification of the ratings then assigned to the
Certificates:
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[(i) direct obligations of, or obligations guaranteed
as to full and timely payment of principal and
interest by, the United States or any agency or
instrumentality thereof, provided that such
obligations are backed by the full faith and
credit of the United States of America,
including, without limitation, U.S. Treasury
Obligations, Farmers Home Administration
certificates of beneficial interest, General
Services Administration participation
certificates and Small Business Administration
guaranteed participation certificates or
guaranteed pool certificates;
(ii) Federal Housing Administration debentures;
(iii) direct obligations of FHLMC (debt obligations
only), FNMA (debt obligations only), the Federal
Farm Credit System (consolidated systemwide
bonds and notes only), the Federal Home Loan
Banks (consolidated debt obligations only), the
Student Loan Marketing Association (debt
obligations only), the Financing Corp.
(consolidated debt obligations only), and the
Resolution Funding Corp. (debt obligations only);
(iv) Federal funds time deposits in, or
uncertificated certificates of deposit of, or
bankers' acceptances, or repurchase obligations,
all having maturities of not more than 365 days
issued by, any bank or trust company, savings
and loan association or savings bank, depository
institution or trust company having a short term
debt obligation rating from S&P of "A-1+" and
that is in the highest short-term rating
category of each Rating Agency unless each of
the Rating Agencies has confirmed in writing
that a lower rating shall not result, in and of
itself, in a downgrading, withdrawal or
qualification of the rating then assigned by
such Rating Agency to any Class of the
Certificates;
(v) commercial paper having a maturity of 365 days
or less (including (A) both non-interest-bearing
discount obligations and interest-bearing
obligations payable on demand or on a specified
date not more than one year after the date of
issuance thereof and (B) demand notes that
constitute vehicles for investment in commercial
paper) that is rated by each Rating Agency in
its highest short-term unsecured rating category;
(vi) units of taxable money market funds rated "AAAm" or "AAAg" by
S&P or mutual funds, which funds seek to maintain a constant
asset value and have been rated by each Rating Agency in its
highest rating category or which have been designated in
writing by each Rating Agency as Permitted Investments with
respect to this definition;
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(vii) any other demand, money market or time deposit,
demand obligation or any other obligation,
security or investment, as may be acceptable to
each Rating Agency as a permitted investment of
funds backing securities having ratings
equivalent to its initial rating of the Class
Certificates if each of the Rating Agencies has
previously confirmed in writing that the holding
of such demand, money market or time deposit,
demand obligation or any other obligation,
security or investment shall not result, in and
of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by
such Rating Agency to any Class of Certificates;
and
(viii) such other obligations confirmed in writing by each of the
Rating Agencies that such obligations are acceptable as
Permitted Investments and the holding of such obligations by
the Servicer or the Special Servicer, as applicable, shall not
result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating
Agency to any Class of Certificates;
provided, however, that (a) none of such obligations or securities listed above
shall have an "r" highlighter affixed to its rating if rated by [S&P]; (b) each
such obligation or security shall have a fixed dollar amount of principal due at
maturity which cannot vary or change; (c) if any such obligation or security
provides for a variable rate of interest, interest shall be tied to a single
interest rate index plus a single fixed spread (if any) and move proportionately
with that index; and (d) if any of the obligations or securities listed in
paragraphs (iii) - (ix) above are not rated by [_______________________], such
investment shall be rated by [S&P] and by [_________________________], as
appropriate, and if such obligations or securities are not rated by
[_________________________], such investment shall be rated by [S&P] and one
other nationally recognized statistical rating organization; and provided,
further, however, that such instrument continues to qualify as a "cash flow
investment" pursuant to Code Section 860G(a)(6) earning a passive return in the
nature of interest and that no instrument or security shall be a Permitted
Investment if (i) such instrument or security evidences a right to receive only
interest payments or (ii) the right to receive principal and interest payments
derived from the underlying investment provides a yield to maturity in excess of
120% of the yield to maturity at par of such underlying investment.]
"Permitted Transferee": With respect to a Class R or Class LR
Certificate, any Person or agent thereof that is a Qualified Institutional Buyer
other than (a) a Disqualified Organization, (b) any other Person designated by
the Certificate Registrar based upon an Opinion of Counsel (provided at the
expense of such Person or the Person requesting the Transfer) to the effect that
the Transfer of an Ownership Interest in any Class R or Class LR Certificate to
such Person may cause the Upper-Tier REMIC or Lower-Tier REMIC to fail to
qualify as a REMIC
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at any time that the Certificates are outstanding, or (c) a Person
that is a Disqualified Non-U.S. Person.
"Person": Any individual, corporation, limited
liability company, partnership, joint venture, association,
joint-stock company, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Placement Agent": .
"Plan": As defined in Section 5.2(i).
"Pooled Available Funds": For each Distribution Date, the sum of all
previously undistributed Monthly Payments or other receipts on account of
principal and interest (including Unscheduled Payments and any Net REO Proceeds
transferred from an REO Account to the Collection Account pursuant to Section
3.17(b)) on or in respect of the Mortgage Loans received by the Servicer in the
Collection Period relating to such Distribution Date, plus all other amounts
received by the Servicer during such Collection Period and required to be placed
in the Collection Account by the Servicer pursuant to Section 3.5(a) allocable
to such Mortgage Loans, and including all P&I Advances made by the Servicer, the
Trustee [or the Fiscal Agent] in respect of such Distribution Date and deposits
made by the Servicer pursuant to Section 3.25 with respect to such Distribution
Date, but excluding the following:
(a) amounts permitted to be used to reimburse the Servicer, the
Trustee [or the Fiscal Agent] for previously unreimbursed
Advances and interest thereon as described in Section 3.6(ii)
and (iii);
(b) those portions of each payment of interest which
represent the applicable Servicing Compensation;
(c) all amounts in the nature of late fees, late charges and similar
fees, loan modification fees, extension fees, loan service
transaction fees, demand fees, beneficiary statement charges,
Assumption Fees and similar fees;
(d) all amounts representing scheduled Monthly Payments due after
the Due Date in the related Collection Period (such amounts to
be treated as received on the Due Date when due);
(e) that portion of Liquidation Proceeds, Condemnation Proceeds or
Insurance Proceeds with respect to a Mortgage Loan which
represents any unpaid Servicing Compensation to which the
Servicer is entitled;
(f) all amounts representing certain expenses
reimbursable to the Servicer, the Special
Servicer, the Trustee [or the Fiscal Agent] and
other amounts
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permitted to be retained by the Servicer or the Special Servicer or withdrawn by
the Servicer from the Collection Account (including, without limitation, as
provided in Section 3.6) pursuant to the terms hereof;
(g) with respect to Distribution Dates after the EC Maturity Date,
Prepayment Premiums received in the related Collection Period;
(h) any interest or investment income on funds on deposit in the
Collection Account or in Permitted Investments in which such
fund may be invested.
"Pooled Principal Distribution Amount": For any
Distribution Date, an amount equal to the sum of:
(i) the principal component of all scheduled Monthly Payments
(other than Balloon Payments) which become due (regardless of
whether received) on the Mortgage Loans during the related
Collection
Period;
(ii) to the extent not included elsewhere in this definition, the
principal component of all Assumed Scheduled Payments, as
applicable, deemed to become due (regardless of whether
received) during the related Collection Period with respect to
any Mortgage Loan that is delinquent in respect of its Balloon
Payment;
(iii) to the extent not included elsewhere in this definition, the
Scheduled Principal Balance of each Mortgage Loan that was
repurchased from the Trust Fund in connection with the breach
of a representation or warranty or purchased from the Trust
Fund pursuant to Section 9.1, in either case, during the
related Collection Period;
(iv) to the extent not included elsewhere in this definition, the
portion of Unscheduled Payments allocable to principal of any
Mortgage Loan that was liquidated during the related
Collection Period;
(v) to the extent not included elsewhere in this definition, the
principal component of all Balloon Payments received during
the related Collection Period;
(vi) to the extent not included elsewhere in this
definition, all other Principal Prepayments
received in the related Collection Period; and
(vii) to the extent not included elsewhere in this definition, any
other full or partial recoveries in respect of principal,
including Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds and Net REO Proceeds.
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"Prepayment Assumption": The assumption identified as "Scenario [2]"
in Annex B to the Private Placement Memorandum dated , relating to the Privately
Placed Certificates and identified as "Scenario 2" in Annex B to the Prospectus
Supplement, dated , relating to the Publicly Offered Certificates.
"Prepayment Interest Shortfall": With respect to any Distribution
Date and any Mortgage Loan as to which a Principal Prepayment was made by the
related Borrower during the related Collection Period, the amount by which (i)
30 full days of interest at the related Net Mortgage Rate on the Scheduled
Principal Balance of such Mortgage Loan in respect of which interest would have
been due in the absence of such Principal Prepayment on the Due Date next
succeeding the date of such Principal Prepayment exceeds (ii) the amount of
interest received from the related Borrower in respect of such Principal
Prepayment.
"Prepayment Interest Surplus": With respect to any Distribution Date
and any Mortgage Loan as to which a Principal Prepayment was made by the related
Borrower during the related Collection Period, the amount by which (i) the
amount of interest received from the related Borrower in respect of such
Principal Prepayment exceeds (ii) 30 full days of interest at the related Net
Mortgage Rate on the Scheduled Principal Balance of such Mortgage Loan in
respect of which interest would have been due in the absence of such Principal
Prepayment on the Due Date next succeeding the date of such Principal
Prepayment.
"Prepayment Premium": Payments received on a Mortgage
Loan as the result of a Principal Prepayment thereon, not
otherwise due thereon in respect of principal or interest, which
are intended to be a disincentive to prepayment.
"Principal Prepayment": With respect to any Mortgage Loan, any
payment of principal made by the related Borrower which is received in advance
of its scheduled Due Date and which is not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment.
"Privately Placed Certificates": The Class
Certificates, the Class R Certificates and the Class LR
Certificates.
"Property Advance": As to any Mortgage Loan, any advance made by the
Servicer, the Trustee [or the Fiscal Agent] in respect of Property Protection
Expenses or any expenses incurred to protect and preserve the security for such
Mortgage Loan or taxes and assessments or insurance premiums, pursuant to
Section 3.4, 3.8 or Section 3.22, as applicable.
"Property Protection Expenses": Any costs and expenses
incurred pursuant to Sections 3.10(c), 3.10(g), 3.10(j), 3.17(b),
3.17(c), 3.18(a) and 3.18(b).
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"Publicly Offered Certificates": The Class
Certificates.
"Qualified Institutional Buyer": A qualified
institutional buyer within the meaning of Rule 144A.
"Qualified Insurer": An insurance company or security or bonding
company qualified to write the related insurance policy in the relevant
jurisdiction, which (i) except as provided in clauses (ii) or (iii) below, shall
have a claims paying ability of "AA" or better by each Rating Agency [(or, if
such company is not rated by [_________________________], by S&P and by
[________________________], and if such company is not rated by
], by S&P and one other
nationally recognized statistical rating organization)], (ii) in the case of
public liability insurance policies required to be maintained with respect to
REO Properties in accordance with Section 3.8(a), shall have a claims paying
ability of "A" or better by each Rating Agency [(or, if such company is not
rated by [ ], by S&P and one other nationally recognized statistical rating
organization)] or (iii) in the case of the fidelity bond and errors and
omissions insurance required to be maintained pursuant to Section 3.8(c), shall
have a claims paying ability rated by each Rating Agency [(or if such company is
not rated by [__________________________], by S&P and by
[_________________________], and if such company is not rated by [ ], by S&P and
one other nationally recognized statistical rating organization)] no lower than
two ratings categories lower than the highest rating of any outstanding Class of
Certificates from time to time, but in no event lower than "BBB", unless in any
such case each of the Rating Agencies has confirmed in writing that an insurance
company with a lower claims paying ability shall not result, in and of itself,
in a downgrading, withdrawal or qualification of the rating then assigned by
such Rating Agency to any Class of Certificates.
"Qualified Mortgage": A Mortgage Loan that is a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code (but without regard to the
rule in Treasury Regulations 1.860G-2(f)(2) that treats a defective obligation
as a qualified mortgage), or any substantially similar successor provision.
["Qualified Offeror": A prospective purchaser of the
Mortgage Loans in an auction pursuant to Section 9.1(d) whom the
Auction Agent has reasonably determined possesses the financial
ability and is otherwise qualified to purchase all of the Mortgage
Loans.]
"Rating Agency": Each of [_______________],
[_________________] or [________]. References herein to the
highest long-term unsecured debt rating category of each Rating
Agency shall mean "AAA."
"Real Property": Land or improvements thereon such as buildings or
other inherently permanent structures (including items that are structural
components of such buildings or structures), in each such case as such terms are
used in the REMIC Provisions.
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"Realized Loss": With respect to any Distribution Date, the amount,
if any, by which the aggregate of the Certificate Balances of the Lower-Tier
Regular Interests, after giving effect to distributions made on such
Distribution Date, exceeds the aggregate of the Scheduled Principal Balances of
the Mortgage Loans as of the Due Date in the month in which such Distribution
Date occurs.
"Record Date": With respect to each Distribution Date,
the last business day of the month preceding the month in which
such Distribution Date occurs.
"Regular Certificates": The Class A, Class B, Class C,
[Class [EC], Class [PO] and Class [IO]] Certificates.
"Regular Servicing Period": Any Interest Accrual
Period other than a Special Servicing Period.
"Regulation D": Regulation D under the Act.
"Related Certificates" and "Related Lower-Tier Regular
Interest": For any Lower-Tier Regular Interest, the related
Certificates set forth below and for any Certificates, the related
Lower-Tier Regular Interest set forth below:
Related Certificates
Class A Class B Class C Class [EC] Class [IO] Class [PO]
Related Lower-Tier
Regular Interest
Class A-L
Class B-L
Class C-L
N/A
N/A
Class [PO]-L
"REMIC": A "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations (including any applicable proposed regulations) and rulings
promulgated thereunder, as the foregoing may be in effect from time to time.
"Remittance Date": The Business Day preceding each
Distribution Date.
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"Rents from Real Property": With respect to any REO Property, gross
income of the character described in Section 856(d) of the Code, which income,
subject to the terms and conditions of that Section of the Code in its present
form, does not include:
(i) except as provided in Section 856(d)(4) or (6)
of the Code, any amount received or accrued,
directly or indirectly, with respect to such REO
Property, if the determination of such amount
depends in whole or in part on the income of
profits derived by any Person from such property
(unless such amount is a fixed percentage or
percentages of receipts or sales and otherwise
constitutes Rents from Real Property);
(ii) any amount received or accrued, directly or indirectly, from
any Person if the Trust Fund owns directly or indirectly
(including by attribution) a 10% or greater interest in such
Person determined in accordance with Sections 856(d)(2)(B) and
(d)(5) of the Code;
(iii) any amount received or accrued, directly or indirectly, with
respect to such REO Property if any Person Directly Operates
such REO Property;
(iv) any amount charged for services that are not customarily
furnished in connection with the rental of property to tenants
in buildings of a similar class in the same geographic market
as such REO Property within the meaning of Treasury
Regulations Section 1.856-4(b)(1) (whether or not such charges
are separately stated); and
(v) rent attributable to personal property unless such personal
property is leased under, or in connection with, the lease of
such REO Property and, for any taxable year of the Trust Fund,
such rent is no greater than 15% of the total rent received or
accrued under, or in connection with, the lease.
"REO Account": As defined in Section 3.17(b).
"REO Mortgage Loan": Any Mortgage Loan as to which the
related Mortgaged Property has become an REO Property.
"REO Proceeds": With respect to any REO Property and the related REO
Mortgage Loan, all revenues received by the Servicer with respect to such REO
Property or REO Mortgage Loan that do not constitute Liquidation Proceeds.
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"REO Property": A Mortgaged Property title to which has been acquired
by the Servicer on behalf of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise.
"Repurchase Price": With respect to any Mortgage Loan to be
repurchased pursuant to Section 2.3(d) or 2.3(e) or any Specially Serviced
Mortgage Loan or any REO Property to be sold or repurchased pursuant to Section
3.18, an amount, calculated by the Servicer, equal to:
(i) the unpaid principal balance of such Mortgage Loan, Specially
Serviced Mortgage Loan or REO Mortgage Loan related to any REO
Property as of the Due Date as to which a payment was last
made by the related Borrower or was advanced by the Servicer;
plus
(ii) unpaid accrued interest from the Due Date as to
which interest was last paid by such Borrower or
was advanced by the Servicer up to the Due Date
in the month following the month in which the
purchase or repurchase occurred at a rate equal
to the related Mortgage Rate on the unpaid
principal balance of such Mortgage Loan,
Specially Serviced Mortgage Loan or REO Mortgage
Loan related to any REO Property; plus
----
(iii) any unreimbursed Advances, together with interest thereon at
the Advance Rate, and unpaid Servicing Compensation allocable
to such Mortgage Loan; and plus
(iv) in the event that such Mortgage Loan is required
to be repurchased pursuant to Section 2.3(d) or
2.3(e), expenses reasonably incurred or to be
incurred by the Servicer or the Trustee in
respect of the breach or defect giving rise to
the repurchase obligation, including any
expenses arising out of the enforcement of the
repurchase obligation.
"Request for Release": A request for release signed by
a Servicing Officer, substantially in the form of Exhibit E hereto.
"Reserve Accounts": With respect to any Mortgage Loan, reserve or
escrow accounts, if any, established pursuant to the related Mortgage Loan
Documents and any Escrow Account. Each Reserve Account shall be an Eligible
Account to the extent consistent with applicable law and the related Mortgage
Loan Documents. Any Reserve Account shall be beneficially owned for federal
income tax purposes by the Person who is entitled to receive the reinvestment
income or gain thereon in accordance with the related Mortgage Loan Documents
and Section 3.7.
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"Responsible Officer": Any officer or any employee with
responsibilities similar to those of an officer of the [Asset-Backed Trust
Services Department] of the Trustee (and, in the event that the Trustee is the
Certificate Registrar or the Paying Agent, of the Certificate Registrar or the
Paying Agent, as applicable) assigned to the Corporate Trust Office with direct
responsibility for the administration of this Agreement and also, with respect
to a particular matter, any other officer or any employee with responsibilities
similar to those of an officer of the [Asset-Backed Trust Services Department]
of the Trustee to whom such matter is referred because of such officer's or
employee's knowledge of and familiarity with the particular subject, and, in the
case of any certification required to be signed by a Responsible Officer, such
an officer or employee whose name and specimen signature appears on a list of
corporate trust officers and employees furnished to the Servicer by the Trustee,
as such list may from time to time be amended.
"Rule 144A": Rule 144A, under the 1933 Act.
["S&P": Standard & Poor's Ratings Services, or its
successor in interest.]
"Scheduled Final Distribution Date": .
"Scheduled Principal Balance": With respect to any Mortgage Loan, as
of any Due Date, the principal balance of such Mortgage Loan as of such Due
Date, after giving effect to (a) any Principal Prepayments, Non-Premium
Prepayments or other unscheduled recoveries of principal and any Balloon
Payments received during the related Collection Period, and (b) any payment in
respect of principal, if any, due on or before such Due Date (other than a
Balloon Payment, but including the principal portion of any Assumed Scheduled
Payment, if applicable), irrespective of any delinquency in payment by the
Borrower. The Scheduled Principal Balance of any REO Mortgage Loan as of any Due
Date is equal to the principal balance thereof outstanding on the date that the
related Mortgaged Property became an REO Property minus any Net REO Proceeds
allocated to principal on such REO Mortgage Loan and reduced by Monthly Payments
due thereon on or before such Due Date. With respect to any Mortgage Loan, from
and after the date on which the Servicer makes a Final Recovery Determination,
the Scheduled Principal Balance thereof shall be zero.
["Securities Depository": The Depository Trust Company, or any
successor Securities Depository hereafter named. The nominee of the initial
Securities Depository, for purposes of registering those Certificates that are
to be Book-Entry Certificates, is Cede & Co. The Securities Depository shall at
all times be a "clearing corporation" as defined in Section 8- 102(3) of the
Uniform Commercial Code of the State of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended.]
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["Securities Depository Participant": A broker,
dealer, bank or other financial institution or other Person for
whom from time to time the Securities Depository effects book-
entry transfers and pledges of securities deposited with the
Securities Depository.]
"Securities Legend": With respect to each Residual Certificate and
any Individual Certificate (other than a Residual Certificate) that is a
Privately Placed Certificate the legend set forth in, and substantially in the
form of, Exhibit H hereto.
["[Senior] Principal Distribution Cross-Over Date": The first
Distribution Date as of which the aggregate Certificate Balance of the Class -1
Certificates and of the Class -2 Certificates outstanding immediately prior
thereto exceeds the sum of (a) the aggregate Scheduled Principal Balance of the
Mortgage Loans that will be outstanding immediately following such Distribution
Date and (b) the portion of the Available Distribution Amount for such
Distribution Date that will remain after the distribution of interest has been
made on the Class -1 and Class -2 Certificates on such Distribution Date.]
"Seriously Delinquent Loan": With respect to any Remittance Date, any
Mortgage Loan that (i) is 90 days or more delinquent (without regard to any
grace period) or (ii) was 90 days or more delinquent (without regard to any
grace period) and as to which the related Borrower has not made, since the most
recent date on which such Mortgage Loan was so delinquent, 24 consecutive
Monthly Payments.
"Servicer": Midland Loan Services, L.P., a Missouri
limited partnership, or its successor in interest, or any
successor Servicer appointed as herein provided.
"Servicer Mortgage File": With respect to any Mortgage Loan, all
Mortgage Loan Documents related to such Mortgage Loan that are not required to
be delivered to the Custodian pursuant to Section 2.1 or to be maintained as
part of the Trustee Mortgage File, including without limitation:
(i) a copy of the Management Agreement, if any, for
the related Mortgaged Property;
(ii) a copy of the related ground lease, as amended,
if any, for such Mortgaged Property;
(iii) any and all amendments, modifications and
supplements to, and waivers related to, any of
the foregoing;
(iv) copies of the related appraisals, surveys,
environmental reports and other similar
documents; and
(v) any other written agreements related to such
Mortgage Loan.
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"Servicer Remittance Report": A report prepared by the Servicer in
such media as may be agreed upon by the Servicer and the Trustee containing such
information regarding the Mortgage Loans as will permit the Trustee to calculate
the amounts to be distributed pursuant to Section 4.1 and to furnish statements
to Certificateholders pursuant to Section 4.2 and containing such additional
information as the Servicer and the Trustee may from time to time agree.
"Servicing Compensation": With respect to each Mortgage Loan, the
Servicing Fee and the Special Servicing Fee which shall be due to the Servicer
and the Special Servicer, as applicable, and such other compensation of the
Servicer and Special Servicer specified in Section 3.12, as adjusted pursuant to
Section 3.25.
"Servicing Fee": With respect to each Mortgage Loan and for any
Distribution Date, an amount per calendar month equal to the product of (i)
one-twelfth of the related Servicing Fee Rate and (ii) the Scheduled Principal
Balance of such Mortgage Loan as of the Due Date in the month preceding the
month in which such Distribution Date occurs.
"Servicing Fee Rate": [With respect to Mortgage Loan
No. , a rate equal to %.] With respect to
each [other] Mortgage Loan, a rate equal to %.
"Servicing Officer": Any officer or employee of the Servicer or the
Special Servicer involved in, or responsible for, the administration and
servicing of the Mortgage Loans or this Agreement and also, with respect to a
particular matter, any other officer or employee to whom such matter is referred
because of such officer's or employee's knowledge of and familiarity with the
particular subject, and, in the case of any certification required to be signed
by a Servicing Officer, such an officer or employee whose name and specimen
signature appears on a list of servicing officers furnished to the Trustee by
the Servicer or the Special Servicer, as applicable, as such list may from time
to time be amended, together with, in the case of a certificate or other writing
executed by an employee who constitutes a Servicing Officer because of such
employee's knowledge and familiarity with a particular subject, a
countersignature of an officer of the general partner of the Servicer or of an
officer of the Special Servicer, as appropriate.
"Servicing Standard": The standards for the conduct of
the Servicer and the Special Servicer in the performance of their
respective obligations under this Agreement as set forth in
Section 3.1(a).
"Similar Law": As defined in Section 5.2(i).
"Special Servicer": , a
corporation, or its successor in interest, or any successor
Special Servicer appointed as herein provided.
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"Special Servicing Fee": With respect to any Specially Serviced
Mortgage Loan or REO Mortgage Loan and for any Distribution Date, an amount per
calendar month equal to the product of (i) one-twelfth of the Special Servicing
Fee Rate and (ii) the Scheduled Principal Balance of such Specially Serviced
Mortgage Loan or REO Mortgage Loan, as applicable, as of the Due Date in the
month preceding the month in which such Distribution Date occurs.
"Special Servicing Fee Rate": A rate equal to %.
"Special Servicing Period": Any Interest Accrual
Period during which a Mortgage Loan is at any time a Specially
Serviced Mortgage Loan.
"Specially Serviced Mortgage Loan": Subject to Section
3.24, any Mortgage Loan with respect to which:
(i) the related Borrower is 60 or more days delinquent (without
giving effect to any grace period permitted by the related
Note) in the payment of a Monthly Payment (regardless of
whether, in respect thereof, P&I Advances have been
reimbursed);
(ii) such Borrower has expressed to the Servicer an inability to
pay or a hardship in paying such Mortgage Loan in accordance
with its terms;
(iii) the Servicer has received notice that such Borrower has become
the subject of any bankruptcy, insolvency or similar
proceeding, admitted in writing the inability to pay its debts
as they come due or made an assignment for the benefit of
creditors;
(iv) the Servicer has received notice of a
foreclosure or threatened foreclosure of any
lien on the related Mortgaged Property;
(v) a default of which the Servicer has notice
(other than a failure by such Borrower to pay
principal or interest) and which materially and
adversely affects the interests of the
Certificateholders has occurred and remained
unremedied for the applicable grace period
specified in such Mortgage Loan (or, if no grace
period is specified, 60 days); provided,
--------
however, that a default requiring a Property
Advance shall be deemed to materially and
adversely affect the interests of the
Certificateholders;
(vi) such Borrower has failed to make a Balloon
Payment as and when due; or
(vii) the Servicer proposes to commence foreclosure or
other workout arrangements;
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provided, however, that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan:
(a) with respect to the circumstances described
in clause (i) and (vi) above, when the
related Borrower has brought such Mortgage
Loan current (with respect to the
circumstances described in clause (vi),
pursuant to any workout implemented by the
Special Servicer) and thereafter made three
consecutive full and timely Monthly Payments;
(b) with respect to the circumstances described in clauses (ii)
and (iv) above, when such circumstances cease to exist in
the good faith judgment of the Special Servicer and with
respect to the circumstances described in clauses (iii) and
(vii), when such circumstances cease to exist; or
(c) with respect to the circumstances described
in clause (v) above, when such default is
cured;
provided, however, that at the time no circumstance identified in clauses (i)
through (vii) above exists that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
"Startup Day": The day designated as such pursuant to
Section 2.6(a).
"Subordinate Certificates": Any one or more of the
Class B, Class C, [Class [EC], Class [PO], Class [O],]Class R and
Class LR Certificates.
"Tax Returns": The federal income tax return on IRS Form 1066, U.S.
Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q
thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income
or Net Loss Allocation, or any successor forms, to be filed on behalf of each of
the Upper-Tier REMIC and Lower-Tier REMIC under the REMIC Provisions, together
with any and all other information, reports or returns that may be required to
be furnished to the Certificateholders or filed with the IRS or any other
governmental taxing authority under any applicable provisions of federal, state
or local tax laws.
"Termination Date": The Distribution Date on which the
Trust Fund is terminated pursuant to Section 9.1.
"Transfer": Any direct or indirect transfer or other
form of assignment of any Ownership Interest in a Class R or Class
LR Certificate.
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"Transferee Affidavit": As defined in Section 5.2(j).
"Transferor Letter": As defined in Section 5.2(j).
"Trust Fund": The corpus of the trust created hereby and to be
administered hereunder, consisting of: (i) such Mortgage Loans as from time to
time are subject to this Agreement, together with the Mortgage Files relating
thereto; (ii) all payments on or collections in respect of such Mortgage Loans
due after the Cut-off Date; (iii) any REO Property; (iv) all revenues received
in respect of REO Property; (v) the Servicer's, the Special Servicer's and the
Trustee's rights under the insurance policies with respect to such Mortgage
Loans required to be maintained pursuant to this Agreement and any proceeds
thereof; (vi) any Assignments of Leases, Rents and Profits and any security
agreements; (vii) any indemnities or guaranties given as additional security for
such Mortgage Loans; (viii) the Trustee's right, title and interest in and to
the Reserve Accounts; (ix) the Collection Account; (x) the Distribution Account
and the REO Account, including reinvestment income, if any, thereon; (xi) any
environmental indemnity agreements relating to such Mortgaged Properties; (xii)
the rights and remedies under the Mortgage Loan Purchase and Sale Agreement; and
(xiii) the proceeds of any of the foregoing (other than any interest earned on
deposits in any Reserve Account, to the extent such interest belongs to the
related Borrower).
"Trust REMICs": The Lower-Tier REMIC and the
Upper-Tier REMIC.
"Trustee": , in its capacity as
trustee, or its successor in interest, or any successor trustee
appointed as herein provided.
"Trustee Fee": With respect to each Mortgage Loan and for any
Distribution Date, an amount per calendar month equal to the product of (i)
one-twelfth of the Trustee Fee Rate and (ii) the Scheduled Principal Balance of
such Mortgage Loan as of the Due Date in the month preceding the month in which
such Distribution Date occurs. The Trustee Fee shall be paid by the Servicer on
each Distribution Date.
"Trustee Fee Rate": A rate equal to %.
"Trustee Mortgage File": With respect to any Mortgage Loan, the
mortgage documents listed in Section 2.1(i) through (xii) pertaining to such
Mortgage Loan, the documents listed in the third paragraph of Section 2.1 and
any additional documents required to be deposited with the Trustee pursuant to
the express provisions of this Agreement.
"Uncovered Prepayment Interest Shortfall": For any
Distribution Date, any Prepayment Interest Shortfall not covered
by the Servicing Fee or the Special Servicing Fee pursuant to
Section 3.25.
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"Underwritten Cash Flow": With respect to any Mortgage
Loan, the cash flow available for debt service on the related
Mortgage Loan for a 12-month period, as determined by
in accordance with the
standards of a prudent commercial mortgage lender based upon recent information
supplied by the related Borrower prior to the origination of such Mortgage Loan,
and adjusted, if determined appropriate by , to: (a) deduct any non-cash items
such as depreciation or amortization; (b) deduct capital expenditures; (c)
reflect a more appropriate occupancy rate; (d) reflect replacement, capital
expenditure and other reserves required by the related Mortgage Loan Documents;
(e) reflect a market rate management fee; (f) reflect a market rate rental fee
(g) exclude certain percentage rent, delinquent rents and non-recurring income;
(h) reflect an allowance for tenant improvements and leasing commissions; and
(i) reflect such other adjustments determined appropriate by .
"Unscheduled Payments": With respect to a Mortgage Loan and a
Collection Period, all Liquidation Proceeds, Condemnation Proceeds and Insurance
Proceeds payable under such Mortgage Loan, the Repurchase Price of such Mortgage
Loan if it is repurchased or purchased pursuant to Sections 2.3(d) or 2.3(e) and
the price specified in Section 9.1 if such Mortgage Loan is purchased or
repurchased pursuant thereto, draws on any letters of credit issued with respect
to such Mortgage Loan and any other payments under or with respect to such
Mortgage Loan not scheduled to be made, including Principal Prepayments (but
excluding Prepayment Premiums) received during such Collection Period.
"Updated Appraisal": As defined in Section 3.10(a).
"Upper-Tier REMIC": A segregated asset pool within the Trust Fund
consisting of the Lower-Tier Regular Interests and amounts held from time to
time in the Distribution Account.
"Voting Right": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate or Class of Certificates. At
all times during the term of this Agreement, the percentage of the Voting Rights
assigned to each Class shall be [describe Voting Rights of each Class]. The
Voting Rights of any Class of Certificates shall be allocated among Holders of
Certificates of such Class in proportion to their respective Percentage
Interests, except that any Certificate registered in the name of the Depositor,
the Servicer, any Borrower, the Trustee, a Manager or any of their respective
Affiliates shall be deemed not to be outstanding for purposes of giving any
consent (unless such consent is to an action which would materially adversely
affect in any material respect the interests of the Certificateholders of any
Class, while the Servicer or any Affiliate thereof is the holder of Certificates
aggregating not less than 66-2/3% of the Percentage Interest of any such Class).
The aggregate Voting Rights of Holders of more than one Class of Certificates
shall be equal to the sum of the products of each such Holder's Voting Rights
and the percentage of Voting Rights allocated to the related Class of
Certificates.
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"Weighted Average Net Mortgage Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the weighted average of the Net
Mortgage Rates, as of the related Due Date (weighted on the basis of the
Scheduled Principal Balance of each Mortgage Loan).
"Yield Maintenance Loan": Any Mortgage Loan as to
which the related Note requires the payment of Prepayment Premiums
calculated with reference to a yield maintenance formula.
"Yield Maintenance Period": With respect to each Yield Maintenance
Loan, the period following the origination thereof during which the related Note
requires the payment of Prepayment Premiums calculated with reference to a yield
maintenance formula.
SECTION 1.2.Certain Calculations.
Unless otherwise specified herein, the following provisions shall
apply:
(a) All calculations of interest (excluding interest on the Mortgage
Loans, which shall be calculated pursuant to the related Mortgage Loan
Documents) provided for herein shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
(b) The portion of any Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds or Net REO Proceeds in respect of a Mortgage Loan allocable
to principal and Prepayment Premiums shall equal the total amount of such
proceeds minus (a) first any portion thereof payable to the Servicer, the
Special Servicer, the Trustee [or the Fiscal Agent] pursuant to the provisions
of this Agreement and (b) second any portion thereof equal to interest on the
unpaid principal balance of such Mortgage Loan at the related Mortgage Rate less
the related Servicing Fee from the Due Date as to which interest was last paid
by the related Borrower up to but not including the Due Date in the Collection
Period in which such proceeds are received. Allocation of such amount between
principal and Prepayment Premium shall be made first to principal and second to
Prepayment Premium.
(c) Any Mortgage Loan payment is deemed to be received on the date
such payment is actually received by the Servicer, the Special Servicer or the
Trustee; provided, however, that for purposes of calculating distributions on
the Certificates, Principal Prepayments with respect to any Mortgage Loan are
deemed to be received on the date they are applied in accordance with Section
3.1(b) to reduce the outstanding principal balance of such Mortgage Loan on
which interest accrues.
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SECTION 1.3. Certain Constructions.
For purposes of Section 3.10, Section 3.23, Section 3.26 and Section
4.6(c), references to the most or next most subordinate Class of Certificates
outstanding at any time shall mean the most or next most subordinate Class of
Certificates then outstanding as among the Class A, Class B, Class C, [Class
[EC], Class [PO] and Class [IO]] Certificates [(and the Class [PO] and Class
[IO] Certificates shall be considered to be one Class)], and references to the
next most subordinate Class of Lower-Tier Regular Interests outstanding at any
time shall mean the most or next most subordinate Class of Lower-Tier Regular
Interests then outstanding as among the Class A-L, Class B-L, Class C-L and
Class [PO] interests, subject in each case to the rules of construction set
forth in the following sentences of this Section 1.3. Each Class of
Certificates, shall be deemed to be outstanding only to the extent its
respective Certificate Balance has not been reduced to zero [or, with respect to
the Class [EC] Certificates, to the extent that the EC Maturity Date has not
occurred] [or with respect to the Class [IO] Certificates, to the extent the
Class [IO] Notional Balance has not been reduced to zero].
Unless the context clearly indicates otherwise, references to section
numbers are to sections of this Agreement.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1. Conveyance and Assignment of Mortgage
Loans;.
The Depositor, concurrently with the execution and delivery hereof,
does hereby sell, transfer, assign, set over and otherwise convey to the Trustee
without recourse (except to the extent herein provided) all the right, title and
interest of the Depositor in and to the Mortgage Loans, including all rights to
payment in respect thereof, except as set forth below, and any security interest
thereunder (whether in real or personal property and whether tangible or
intangible) in favor of the Depositor, and all Reserve Accounts and all other
assets included or to be included in the Trust Fund for the benefit of the
Certificateholders. Such transfer and assignment includes all scheduled payments
of interest and principal due after the Cut-off Date (whether or not received)
and all payments of interest and principal received by the Depositor or the
Servicer on or with respect to the Mortgage Loans after the Cut-off Date. In
connection with such transfer and assignment of all interest and principal due
with respect to the Mortgage Loans after the Cut-off Date, the Depositor shall
make a cash deposit to the Collection Account on the Closing Date in an amount
equal to the Cash Deposit. The Depositor, concurrently with the execution and
delivery hereof, does also hereby sell, transfer, assign, set over and otherwise
convey to the Trustee without recourse (except to the extent provided herein)
all the right, title and interest of the Depositor in, to and under the Mortgage
Loan Purchase and Sale Agreement (other than its rights to indemnification
pursuant to Section 4 thereof and rights to recovery of
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costs under Section 7 thereof). The Depositor shall cause the Reserve Accounts
to be transferred to and held in the name of the Servicer on behalf of the
Trustee as successor to the Mortgage Loan Seller.
In connection with the transfer and assignment of Mortgage Loans, the
Depositor does hereby deliver to, and deposit with, the Trustee, with a copy to
the Servicer, the following documents or instruments with respect to each
Mortgage Loan so assigned:
(i) the original of the related Note, endorsed by
the Mortgage Loan Seller in blank in the
following form: "Pay to the order of
________________, without recourse" which the
Trustee or its designee is authorized to
complete and which Note and all endorsements
thereof shall show a complete chain of
endorsement from the Originator to the Mortgage
Loan Seller;
(ii) the related original recorded Mortgage or a copy
thereof certified by the related title insurance
company, public recording office or closing
agent to be in the form in which executed or
submitted for recording, the related original
recorded Assignment of Mortgage to the Mortgage
Loan Seller or a copy thereof certified by the
related title insurance company, public
recording office or closing agent to be in the
form in which executed or submitted for
recording and the related original Assignment of
Mortgage executed by the Mortgage Loan Seller in
blank which the Trustee or its designee is
authorized to complete (and but for the
insertion of the name of the assignee and any
related recording information which is not yet
available to the Mortgage Loan Seller, is in
suitable form for recordation in the
jurisdiction in which the related Mortgaged
Property is located);
(iii) if the related security agreement is separate
from the Mortgage, the original security
agreement or a counterpart thereof, and if the
security agreement is not assigned under the
Assignments of Mortgage described in clause (ii)
above, the related original assignment of such
security agreement to the Mortgage Loan Seller
or a counterpart thereof and the related
original assignment of such security agreement
executed by the Mortgage Loan Seller in blank
which the Trustee or its designee is authorized
to complete;
(iv) a copy of each Form UCC-1 financing statement,
if any, filed with respect to personal property
constituting a part of the related Mortgaged
Property, together with a copy of each Form
UCC-2 or UCC-3 assignment, if any, of such
financing statement to the Mortgage Loan Seller
and a copy of each Form UCC-2 or UCC-3
assignment,
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if any, of such financing statement executed by the Mortgage Loan Seller in
blank which the Trustee or its designee is authorized to complete (and but for
the insertion of the name of the assignee and any related filing information
which is not yet available to the Mortgage Loan Seller, is in suitable form for
filing in the filing office in which such financing statement was filed);
(v) the related original of the Loan Agreement, if
any, relating to such Mortgage Loan or a
counterpart thereof;
(vi) the related original lender's title insurance policy (or the
original pro forma title insurance policy), together with any
endorsements thereto;
(vii) if any related Assignment of Leases, Rents and
Profits is separate from the Mortgage, the
original recorded Assignment of Leases, Rents
and Profits or a copy thereof certified by the
related title insurance company, public
recording office or closing agent to be in the
form in which executed or submitted for
recording, the related original recorded
reassignment of such instrument, if any, to the
Mortgage Loan Seller or a copy thereof certified
by the related title insurance company, public
recording office or closing agent to be in the
form in which executed or submitted for
recording and the related original reassignment
of such instrument, if any, executed by the
Mortgage Loan Seller in blank which the Trustee
or its designee is authorized to complete (and
but for the insertion of the name of the
assignee and any related recording information
which is not yet available to the Mortgage Loan
Seller, is in suitable form for recordation in
the jurisdiction in which the related Mortgaged
Property is located) (any of which
reassignments, however, may be included in a
related Assignment of Mortgage and need not be a
separate instrument);
(viii) copies of the original Environmental Reports with respect to
the Mortgaged Property made in connection with origination of
such Mortgage Loan;
(ix) if any related assignment of contracts is
separate from the Mortgage, the original
assignment of contracts or a counterpart
thereof, and if the assignment of contracts is
not assigned under the Assignments of Mortgage
described in clause (ii) above, the related
original reassignment of such instrument to the
Mortgage Loan Seller or a counterpart thereof
and the related original reassignment of such
instrument executed by the Mortgage Loan Seller
in blank which the Trustee or its designee is
authorized to complete;
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(x) with respect to the related Reserve Accounts, if any, a copy
of the original of any separate agreement with respect thereto
between the related Borrower and the Originator;
(xi) the original letter of credit, if any, with
respect thereto, together with any and all
amendments thereto, including, without
limitation, any amendment which entitles the
Servicer to draw upon such letter of credit on
behalf of the Trustee for the benefit of the
Certificateholders, and the original of each
instrument or other item of personal property
given as security for a Mortgage Loan possession
of which by a secured party is necessary to a
secured party's valid, perfected, first priority
security interest therein, together with all
assignments or endorsements thereof necessary to
entitle the Servicer to enforce a valid,
perfected, first priority security interest
therein on behalf of the Trustee for the benefit
of the Certificateholders;
(xii) with respect to the related Reserve Accounts, if
any, a copy of the UCC-1 financing statements,
if any, submitted for filing with respect to the
Mortgage Loan Seller's security interest in such
Reserve Accounts and all funds contained
therein, together with a copy of each Form UCC-2
or UCC-3 assignment, if any, of such financing
statement to the Mortgage Loan Seller and a copy
of each Form UCC-2 or UCC- 3 assignment, if any,
of such financing statement executed by the
Mortgage Loan Seller in blank which the Trustee
or its designee is authorized to complete (and
but for the insertion of the name of the
assignee and any related filing information
which is not yet available to the Mortgage Loan
Seller is in suitable form for filing in the
filing office in which such financing statement
was filed); and
(xiii) copies of any and all amendments, modifications
and supplements to, and waivers related to, any
of the foregoing.
On or promptly following the Closing Date, the Trustee or Custodian,
as applicable, shall, to the extent possession thereof has been delivered to it,
complete any Assignment of Mortgage delivered pursuant to clause (ii) above, any
assignment of security agreement delivered pursuant to clause (iii) above, any
Form UCC-2 or UCC-3 assignment delivered pursuant to clause (iv) and (xii)
above, any reassignment of Assignment of Leases, Rents and Profits delivered
pursuant to clause (vii) above and any reassignment of assignment of contracts
delivered pursuant to clause (ix) above, in each case, by inserting the name of
the Trustee as assignee and delivering to the Servicer (1) for recordation, (a)
each Assignment of Mortgage referred to in Section 2.1(ii) which has not yet
been submitted for recordation and (b) each reassignment of Assignment of
Leases, Rents and Profits referred to in Section 2.1(vii) (if not otherwise
included in the related Assignment of Mortgage) which has not yet been submitted
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for recordation; and (2) for filing, each UCC-2 or UCC-3 financing statement
assignment referred to in Section 2.1(iv) and (xii) which has not yet been
submitted for filing. On or promptly following the Closing Date, the Trustee or
Custodian, as applicable, shall, to the extent possession thereof has been
delivered to it, complete the endorsement of the Note by inserting the name of
the Trustee as endorsee. The Servicer shall, upon receipt, promptly submit for
recording or filing, as the case may be, in the appropriate public recording or
filing office, each such document. In the event that any such document is lost
or returned unrecorded because of a defect therein, the Servicer shall use its
best efforts to promptly prepare a substitute document for signature by the
Depositor or Mortgage Loan Seller, as applicable, and thereafter the Servicer
shall cause each such document to be duly recorded. The Servicer shall, promptly
upon receipt of the original of each such recorded document, deliver such
original to the Custodian. Notwithstanding anything to the contrary contained in
this Section 2.1, in those instances where the public recording office retains
the original Assignment of Mortgage or reassignment of Assignment of Leases,
Rents and Profits, if applicable, after any such document has been recorded, the
obligations hereunder of the Depositor shall be deemed to have been satisfied
upon delivery to the Custodian of a copy of such Assignment of Mortgage or
reassignment of Assignment of Leases, Rents and Profits, if applicable,
certified by the public recording office to be a true and complete copy of the
recorded original thereof. If a pro forma title insurance policy has been
delivered to the Custodian in lieu of an original title insurance policy, the
Depositor or the Servicer will promptly deliver to the Custodian the related
original title insurance policy upon receipt thereof. The Depositor shall
promptly cause the UCC-1s, UCC-2s and UCC-3s referred to in Section 2.1(iv) and
(xii) to be filed in the applicable public recording or filing office and upon
filing will promptly deliver to the Custodian the related UCC-1, UCC-2 or UCC-3
with evidence of filing thereon.
All original documents relating to the Mortgage Loans which are not
delivered to the Custodian are and shall be held by the Trustee or the Servicer,
as the case may be, in trust for the benefit of the Certificateholders. In the
event that any such original document is required pursuant to the terms of this
Section to be a part of a Trustee Mortgage File, such document shall be
delivered promptly to the Custodian.
If the Depositor cannot deliver any original or certified recorded
document described in Section 2.1 on the Closing Date, the Depositor shall use
its best efforts, promptly upon receipt thereof and in any case not later than
45 days from the Closing Date, to deliver or cause to be delivered such original
or certified recorded documents to the Custodian (unless the Depositor is
delayed in making such delivery by reason of the fact that such documents shall
not have been returned by the appropriate recording office, in which case the
Depositor or the Servicer shall notify the Custodian and the Trustee in writing
of such delay and shall deliver such documents to the Custodian promptly upon
the Depositor's or the Servicer's receipt thereof).
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SECTION 2.2. Acceptance by the Custodian and the
Trustee.
By its execution and delivery of this Agreement, the Trustee
acknowledges the assignment to it of the Mortgage Loans in good faith without
notice of adverse claims and declares that the Custodian holds and will hold
such documents and all others delivered to it constituting the Trustee Mortgage
File (to the extent the documents constituting the Trustee Mortgage File are
actually delivered to the Custodian) for any Mortgage Loan assigned to the
Trustee hereunder in trust, upon the conditions herein set forth, for the use
and benefit of all present and future Certificateholders. The Trustee agrees to
review each Trustee Mortgage File within 45 days after the later of (a) the
Trustee's receipt of such Trustee Mortgage File or (b) execution and delivery of
this Agreement, to ascertain that all documents referred to in Section 2.1 above
(as identified to it in writing by the Depositor or the Servicer) and any
original recorded documents referred to in the last sentence of Section 2.1 to
be included in the delivery of a Trustee Mortgage File, have been received, have
been executed, appear on their face to be what they purport to be, purport to be
recorded or filed (as applicable) and have not been torn, mutilated or otherwise
defaced, and that such documents relate to the Mortgage Loans identified in the
Mortgage Loan Schedule. In so doing, the Trustee may rely on the purported due
execution and genuineness of any such document and on the purported genuineness
of any signature thereon. If, at the conclusion of such review, any document or
documents constituting a part of a Trustee Mortgage File have not been executed
or received, have not been recorded or filed (if required), are unrelated to the
Mortgage Loans identified in the Mortgage Loan Schedule, appear on their face
not to be what they purport to be or have been torn, mutilated or otherwise
defaced, the Trustee shall promptly so notify the Depositor and the Mortgage
Loan Seller by providing a written report, setting forth, for each affected
Mortgage Loan, with particularity, the nature of the defective or missing
document. Neither the Servicer nor the Trustee shall be responsible for any
loss, cost, damage or expense to the Trust Fund resulting from any failure to
receive any document constituting a portion of a Trustee Mortgage File noted on
such a report or for any failure by the Depositor to use its best efforts to
deliver any such document.
In reviewing any Trustee Mortgage File pursuant to the preceding
paragraph or Section 2.1, the Trustee will have no responsibility to determine
whether any document or opinion is legal, valid, binding or enforceable, whether
the text of any assignment or endorsement is in proper or recordable form
(except, if applicable, to determine whether the Trustee is the assignee or
endorsee), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, whether a blanket assignment is
permitted in any applicable jurisdiction, or whether any Person executing any
document or rendering any opinion is authorized to do so or whether any
signature thereon is genuine.
The Trustee shall hold that portion of the Trust Fund delivered to
the Trustee consisting of "instruments"(as such term is defined in Section
9-105(i) of the Uniform Commercial Code as in effect in on the date hereof) in
and, except as set forth in Section 3.11 or as otherwise specifically provided
in this Agreement, shall not remove
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such instruments from unless it receives an Opinion of Counsel (obtained and
delivered at the expense of the Person requesting the removal of such
instruments from ) that in the event the transfer of the Mortgage Loans to the
Trustee is deemed not to be a sale, after such removal, the Trustee will possess
a first priority perfected security interest in such instruments.
SECTION 2.3. Representations and Warranties of the
Depositor.
(a) The Depositor hereby represents and warrants
that:
(i) The Depositor is a corporation duly organized
validly existing and in good standing under the
laws of the State of ;
(ii) The Depositor has taken all necessary action to
authorize the execution, delivery and
performance of this Agreement by it, and has the
power and authority to execute, deliver and
perform this Agreement and all the transactions
contemplated hereby, including, but not limited
to, the power and authority to sell, assign and
transfer the Mortgage Loans in accordance with
this Agreement;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the
Depositor and assuming the due authorization,
execution and delivery of this Agreement by each
other party hereto, this Agreement and all of
the obligations of the Depositor hereunder are
the legal, valid and binding obligations of the
Depositor, enforceable in accordance with the
terms of this Agreement, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, liquidation,
receivership, moratorium or other laws relating
to or affecting creditors' rights generally, or
by general principles of equity (regardless of
whether such enforceability is considered in a
proceeding in equity or at law);
(iv) The execution and delivery of this Agreement and
the performance of its obligations hereunder by
the Depositor will not conflict with any
provision of its certificate of incorporation or
bylaws, or any law or regulation to which the
Depositor is subject, or conflict with, result
in a breach of or constitute a default under (or
an event which, with notice or lapse of time or
both, would constitute a default under) any of
the terms, conditions or provisions of any
agreement or instrument to which the Depositor
is a party or by which it is bound, or any order
or decree applicable to the Depositor, or result
in the creation or imposition of any lien on any
of the Depositor's assets or property which
would materially and adversely affect the
ability of the Depositor
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to carry out the transactions contemplated by this Agreement. The Depositor has
obtained any consent, approval, authorization or order of any court or
governmental agency or body required for the execution, delivery and performance
by the Depositor of this Agreement;
(v) The certificate of incorporation of the Depositor provides
that the Depositor is permitted to engage in only the
following activities:
(A)To acquire, own, hold, sell, transfer, assign, pledge,
finance, refinance and otherwise deal with (i) loans
secured by (A) first or second mortgages, deeds of trust or
similar liens on multi-family residential, commercial or
mixed commercial and multi-family residential properties,
and (B) related assets, and (ii) any participation interest
in, security (in bond or pass-through form) or funding
agreement based on, backed or collateralized by, directly
or indirectly, any of the foregoing (the loans and related
assets described in clause (a)(i) and the participation
interests, securities and funding agreements described in
clause (a)(ii), collectively, "Mortgage Loans");
(B) To establish and fund one or more trusts
(the "Trusts") and to authorize such Trusts
to engage in one or more of the activities
described in immediately preceding clause
(A) and to issue certificates (the
"Certificates") in one or more classes
pursuant to pooling and servicing
agreements (each, a "Pooling and Servicing
Agreement"), with each class having the
characteristics specified in the related
Pooling and Servicing Agreement,
representing ownership interests in the
Mortgage Loans;
(C) To acquire, own, hold, invest in, offer, sell, transfer,
assign, pledge, finance and deal in and with any
Certificates issued by a Trust established by the
corporation pursuant to immediately preceding clause (B);
and
(D) To engage in any other acts and activities and to
exercise any powers permitted to corporations under the
laws of the State of Missouri which are incidental to, or
connected with the foregoing, and necessary, suitable or
convenient to accomplish any of the foregoing.
(vi) There is no action, suit or proceeding pending
against the Depositor in any court or by or
before any other governmental agency or
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instrumentality which would materially and
adversely affect the ability of the Depositor to
carry out its obligations under this Agreement;
and
(vii) The Trustee, if not the owner of the Mortgage Loans, will have
a valid and perfected security interest of first priority in
each of the Mortgage Loans and any proceeds thereof.
(b) The Depositor hereby represents and warrants with respect to each
Mortgage Loan that:
(i) Immediately prior to the transfer and assignment
to the Trustee, the related Note and the related
Mortgage were not subject to an assignment or
pledge, and the Depositor had good title to, and
was the sole owner of, such Mortgage Loan and
had full right to transfer and sell such
Mortgage Loan to the Trustee free and clear of
any encumbrance, lien, pledge, charge, claim or
security interest;
(ii) The Depositor is transferring such Mortgage Loan free and
clear of any and all liens, pledges, charges or security
interests of any nature encumbering such Mortgage Loan ;
(iii) The related Assignment of Mortgage constitutes
the legal, valid and binding assignment of the
related Mortgage from the Depositor to the
Trustee, and any related reassignment of
Assignment of Leases, Rents and Profits
constitutes the legal, valid and binding
assignment of any related Assignment of Leases,
Rents and Profits from the Depositor to the
Trustee;
(iv) No claims have been made by the Depositor under the related
lender's title insurance policy, and the Depositor has not
done, by act or omission, anything which would impair the
coverage of such lender's title insurance policy; and
(v) To the best of the Depositor's knowledge, all of the
representations and warranties of the Mortgage Loan Seller
contained in the Mortgage Loan Purchase and Sale Agreement are
true and correct as of the date made.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive delivery of the
respective Trustee Mortgage Files to the Trustee until the termination of this
Agreement, and shall inure to the benefit of the Certificateholders, the
Servicer and the Special Servicer.
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(d) Upon discovery by the Custodian, the Servicer, the Special
Servicer or the Trustee of a breach of the representation and warranty set forth
in Section 2(c)(xli) of the Mortgage Loan Purchase and Sale Agreement or that
any Mortgage Loan otherwise fails to constitute a Qualified Mortgage, such
Person shall give prompt notice thereof to the Mortgage Loan Seller and the
Mortgage Loan Seller shall correct such condition or repurchase such Mortgage
Loan at the Repurchase Price within 85 days of discovery of such failure; it
being understood and agreed that none of such Persons has an obligation to
conduct any investigation with respect to such matters.
(e) Upon discovery by the Custodian, the Servicer, the Special
Servicer or the Trustee of a breach of any representation or warranty of the
Mortgage Loan Seller in the Mortgage Loan Purchase and Sale Agreement (other
than the representation set forth in Section 2(c)(xli) thereof, but including
without limitation the representation as to Loan-to-Value Ratio and Debt Service
Coverage Ratio set forth in Section 2(c)(xxiii) thereof), with respect to any
Mortgage Loan, or that any document required to be included in the Trustee
Mortgage File with respect to a Mortgage Loan does not conform to the
requirements of Section 2.1, such Person shall give prompt notice thereof to the
Mortgage Loan Seller and the Mortgage Loan Seller shall, to the extent the
Mortgage Loan Seller is obligated to cure such breach or repurchase the related
Mortgage Loan under the terms of the Mortgage Loan Purchase and Sale Agreement,
either cure such breach or repurchase such Mortgage Loan at the Repurchase Price
within 85 days of the receipt of notice of such breach, as the same may be
extended, all pursuant to and as more particularly described in the Mortgage
Loan Purchase and Sale Agreement; it being understood and agreed that none of
the Custodian, the Servicer, the Special Servicer and the Trustee has an
obligation to conduct any investigation with respect to such matters (except, in
the case of the Trustee Mortgage Files, to the extent provided in Sections 2.1
and 2.2).
(f) Upon receipt by the Servicer from the Depositor or the Mortgage
Loan Seller of the Repurchase Price for a repurchased Mortgage Loan, the
Servicer shall deposit such amount in the Collection Account, and the Trustee,
pursuant to Section 3.11, shall, upon receipt of a certificate of a Servicing
Officer certifying as to the receipt by the Servicer of the Repurchase Price and
the deposit of the Repurchase Price into the Collection Account pursuant to this
Section 2.3(f), release or cause to be released to the Mortgage Loan Seller the
related Trustee Mortgage File and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, representation or
warranty, as shall be prepared by the Servicer to vest in the Mortgage Loan
Seller any Mortgage Loan released pursuant hereto, and any rights of the
Depositor in, to and under the Mortgage Loan Purchase and Sale Agreement as it
related to such Mortgage Loan that were initially transferred to the Trust Fund
under Section 2.1, and the Trustee and the Servicer shall have no further
responsibility with regard to such Trustee Mortgage File or the related Mortgage
Loan.
(g) In the event that the Mortgage Loan Seller incurs any expense in
connection with curing a breach of a representation or warranty pursuant to
Section 2.3(d) and (e) which also constitutes a default under the related
Mortgage Loan, the Mortgage Loan Seller
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shall have a right, and the Mortgage Loan Seller shall be subrogated to the
rights of the Trustee, as successor to the mortgagee, to recover the amount of
such expenses from the related Borrower. The Servicer shall use reasonable
efforts in recovering, or assisting the Mortgage Loan Seller in recovering, from
such Borrower the amount of any such expenses.
(h) In the event that any litigation is commenced which alleges facts
which, in the judgment of the Depositor, could constitute a breach of any of the
Depositor's representations and warranties relating to the Mortgage Loans, the
Depositor hereby reserves the right to conduct the defense of such litigation at
its expense.
(i) The Servicer shall use its best efforts, in accordance with the
Servicing Standard, to enforce the obligations of the Mortgage Loan Seller to
cure or repurchase any Mortgage Loan which is discovered to be a "Defective
Mortgage Loan" (as such term is defined in the Mortgage Loan Purchase and Sale
Agreement) under the terms of the Mortgage Loan Purchase and Sale Agreement.
SECTION 2.4.Representations, Warranties and Covenants of the
Servicer and the Special Servicer.
(a) The Servicer hereby represents, warrants and covenants that as of
the Closing Date, or as of such date specifically provided herein:
(i) The Servicer is a limited partnership, duly
organized, validly existing and in good standing
under the laws of the State of Missouri and has
all licenses necessary to carry on its business
as now being conducted or is in compliance with
the laws of each state in which any Mortgaged
Property is located to the extent necessary to
ensure the enforceability of each Mortgage Loan
in accordance with the terms of this Agreement;
(ii) The Servicer has the full partnership power,
authority and legal right to execute and deliver
this Agreement and to perform in accordance
herewith; the execution and delivery of this
Agreement by the Servicer and its performance
and compliance with the terms of this Agreement
do not violate the Servicer's certificate of
limited partnership or constitute a default (or
an event which, with notice or lapse of time, or
both, would constitute a default) under, or
result in the breach of, any material contract,
agreement or other instrument to which the
Servicer is a party or which may be applicable
to the Servicer or any of its assets, which
default or breach would have consequences that
would materially and adversely affect the
financial condition or operations of the
Servicer or its properties taken as a whole or
impair the ability of the Trust Fund to realize
on the Mortgage Loans;
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(iii) This Agreement has been duly and validly
authorized, executed and delivered by the
Servicer and, assuming due authorization,
execution and delivery by the other parties
hereto, constitutes a legal, valid and binding
obligation of the Servicer, enforceable against
it in accordance with the terms of this
Agreement, except as such enforcement may be
limited by bankruptcy, insolvency,
reorganization, liquidation, receivership,
moratorium or other laws relating to or
affecting creditors' rights generally, or by
general principles of equity (regardless of
whether such enforceability is considered in a
proceeding in equity or at law);
(iv) The Servicer is not in violation of, and the
execution and delivery of this Agreement by the
Servicer and its performance and compliance with
the terms of this Agreement will not constitute
a violation with respect to, any order or decree
of any court or any order or regulation of any
federal, state, municipal or governmental agency
having jurisdiction, or result in the creation
or imposition of any lien, charge or encumbrance
which, in any such event, would have
consequences that would materially and adversely
affect the financial condition or operations of
the Servicer or its properties taken as a whole
or impair the ability of the Trust Fund to
realize on the Mortgage Loans;
(v) There is no action, suit or proceeding pending
or, to the knowledge of the Servicer,
threatened, against the Servicer which, either
in any one instance or in the aggregate, would
result in any material adverse change in the
business, operations or financial condition of
the Servicer or would, if adversely determined,
materially impair the ability of the Servicer to
perform under the terms of this Agreement or
which would draw into question the validity of
this Agreement or the Mortgage Loans or of any
action taken or to be taken in connection with
the obligations of the Servicer contemplated
herein; and
(vi) No consent, approval, authorization or order of,
or registration or filing with, or notice to any
court or governmental agency or body is required
for the execution, delivery and performance by
the Servicer of, or compliance by the Servicer
with, this Agreement or, if required, such
approval has been obtained prior to the Cut-off
Date, except to the extent that the failure of
the Servicer to be qualified as a foreign
limited partnership or licensed in one or more
states is not necessary for the enforcement of
the Mortgage Loans.
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(b) The Special Servicer hereby represents, warrants and covenants
that as of the Closing Date, or as of such date specifically provided herein:
(i) The Special Servicer is a [corporation], duly
organized, validly existing and in good standing
under the laws of the State of and has
--------
all licenses necessary to carry on its business as now being
conducted or is in compliance with the laws of each state in
which any Mortgaged Property is located to the extent
necessary to ensure the enforceability of each Specially
Serviced Mortgage Loan in accordance with the terms of this
Agreement;
(ii) The Special Servicer has the full corporate
power, authority and legal right to execute and
deliver this Agreement and to perform in
accordance herewith; the execution and delivery
of this Agreement by the Special Servicer and
its performance and compliance with the terms of
this Agreement do not violate the Special
Servicer's [certificate of incorporation] or
constitute a default (or an event which, with
notice or lapse of time, or both, would
constitute a default) under, or result in the
breach of, any material contract, agreement or
other instrument to which the Special Servicer
is a party or which may be applicable to the
Special Servicer or any of its assets, which
default or breach would have consequences that
would materially and adversely affect the
condition (financial or otherwise) or operations
of the Special Servicer or its properties, taken
as a whole, or impair the ability of the Trust
Fund to realize on the Specially Serviced
Mortgage Loans;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the
Special Servicer and, assuming due
authorization, execution and delivery by the
other parties hereto, constitutes a legal, valid
and binding obligation of the Special Servicer,
enforceable against it in accordance with the
terms of this Agreement, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, liquidation,
receivership, moratorium or other laws relating
to or affecting creditors' rights generally, or
by general principles of equity (regardless of
whether such enforceability is considered in a
proceeding in equity or at law);
(iv) The Special Servicer is not in violation of, and
the execution and delivery of this Agreement by
the Special Servicer and its performance and
compliance with the terms of this Agreement will
not constitute a violation with respect to, any
order or decree of any court or any order or
regulation of any federal, state, municipal or
governmental agency having jurisdiction, or
result in the creation or imposition of any lien,
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charge or encumbrance which, in any such event, would have
consequences that would materially and adversely affect the
condition (financial or otherwise) or operations of the
Special Servicer or its properties taken as a whole or impair
the ability of the Trust Fund to realize on the Specially
Serviced Mortgage Loans;
(v) There is no action, suit or proceeding pending
or, to the knowledge of the Special Servicer,
threatened, against the Special Servicer which,
either in any one instance or in the aggregate,
would result in any material adverse change in
the business, operations or financial condition
of the Special Servicer or would, if adversely
determined, materially impair the ability of the
Special Servicer to perform under the terms of
this Agreement or which would draw into question
the validity of this Agreement or the Specially
Serviced Mortgage Loans or of any action taken
or to be taken in connection with the
obligations of the Special Servicer contemplated
herein; and
(vi) No consent, approval, authorization or order of,
or registration or filing with, or notice to any
court or governmental agency or body is required
for the execution, delivery and performance by
the Special Servicer of, or compliance by the
Special Servicer with, this Agreement or, if
required, such approval has been obtained prior
to the Cut-off Date, except to the extent that
the failure of the Special Servicer to be
qualified as a foreign limited partnership or
licensed in one or more states is not necessary
for the enforcement of the Specially Serviced
Mortgage Loans.
(c) It is understood and agreed that the representations and
warranties set forth in this Section shall survive delivery of the Trustee
Mortgage Files to the Trustee or the Custodian on behalf of the Trustee until
the termination of this Agreement, and shall inure to the benefit of the Trustee
and the Depositor. Upon discovery by the Depositor, the Servicer, the Special
Servicer or a Responsible Officer of the Trustee (or upon written notice thereof
from any Certificateholder) of a breach of any of the representations and
warranties set forth in this Section which materially and adversely affects the
interests of the Certificateholders, the Servicer, the Special Servicer or the
Trustee with respect to any Mortgage Loan, the party discovering such breach
shall give prompt written notice to the other parties hereto.
SECTION 2.5.Execution and Delivery of Certificates;
Issuance of Lower-Tier Regular Interests.
The Trustee acknowledges the assignment to it of the Mortgage Loans
and the delivery to it of the Trustee Mortgage Files to the Custodian (to the
extent the documents constituting the Trustee Mortgage Files are actually
delivered to the Custodian), subject to the
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provisions of Section 2.1 and Section 2.2 and, concurrently with such delivery,
(i) acknowledges the issuance of and hereby declares that it holds the
Lower-Tier Regular Interests on behalf of the Upper-Tier REMIC and the Holders
of the Regular Certificates and the Class R Certificates and (ii) has caused to
be executed and caused to be authenticated and delivered to or upon the order of
the Depositor, or as directed by the terms of this Agreement, Class A, Class B,
Class C, [Class [EC], Class [PO], Class [IO]], Class R and Class LR Certificates
in authorized denominations, in each case registered in the names set forth in
such order of the Depositor or as so directed in this Agreement and duly
authenticated by the Authenticating Agent, which Certificates (described in the
preceding clause (ii)) evidence ownership of the entire Trust Fund.
SECTION 2.6.Miscellaneous REMIC Provisions.
(a) The Class A-L, Class B-L, Class C-L and [Class [PO]-L] Interests
are hereby designated as "regular interests" in the Lower-Tier REMIC within the
meaning of Section 860G(a)(1) of the Code, and the Class LR Certificates are
hereby designated as the sole class of "residual interests" in the Lower-Tier
REMIC within the meaning of Section 860G(a)(2) of the Code. The Class A, Class
B, Class C, [Class [EC], Class [PO] and Class [IO]] Certificates are hereby
designated as "regular interests" in the Upper-Tier REMIC within the meaning of
Section 860G(a)(1) of the Code and the Class R Certificates are hereby
designated as the sole class of "residual interests" in the Upper-Tier REMIC
within the meaning of Section 860G(a)(2) of the Code. The Closing Date is hereby
designated as the "Startup Day" of the Lower-Tier REMIC and the Upper-Tier REMIC
within the meaning of Section 860G(a)(9) of the Code. The "latest possible
maturity date" of the Lower-Tier Regular Interests and the Regular Certificates
for purposes of Code Section 860G(a)(1) is the Scheduled Final Distribution
Date. The initial Certificate Balance of each Class of Lower-Tier Regular
Interests is equal to the Certificate Balance of the Related Class of
Certificates. The pass-through rate of each Class of Lower-Tier Regular
Interests is a per annum rate equal to the Lower-Tier Pass-Through Rate.
(b) None of the Mortgage Loan Seller, Depositor, Trustee or Servicer
shall enter into any arrangement by which the Trust Fund will receive a fee or
other compensation for services other than as specifically contemplated herein.
SECTION 2.7.Documents Not Delivered to Custodian.
All original documents relating to the Mortgage Loans which are part
of the Servicer Mortgage File are and shall be held by the Servicer, in trust
for the benefit of the Trustee on behalf of the Certificateholders. The legal
ownership of all records and documents with respect to each Mortgage Loan
prepared by or which come into the possession of the Servicer shall immediately
vest in the Trustee, in trust for the benefit of the Certificateholders.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.1.Servicer to Act as Servicer; Special Servicer to Act
as Special Servicer; Administration of the Mortgage
Loans.
(a) The Servicer and the Special Servicer, each as an independent
contractor, shall service and administer the Mortgage Loans (or in the case of
the Special Servicer, the Specially Serviced Mortgaged Loans and the REO
Mortgage Loans) on behalf of the Trust Fund solely in the best interests of, and
for the benefit of, all of the Certificateholders and the Trustee (as trustee
for the Certificateholders) in accordance with the terms of this Agreement and
the respective Mortgage Loans. In furtherance of, and to the extent consistent
with, the foregoing, and except to the extent that this Agreement provides for a
contrary specific course of action, each of the Servicer and the Special
Servicer shall service and administer each Mortgage Loan in the same manner in
which, and with the same care, skill, prudence and diligence with which, it
services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage loan servicers used with
respect to loans comparable to the Mortgage Loans, and taking into account its
other obligations hereunder, but without regard to:
(i) any other relationship that the Servicer, the Special
Servicer, any sub- servicer or any Affiliate of the Servicer,
the Special Servicer or any subservicer may have with the
related Borrower or any Affiliate of such Borrower;
(ii) the ownership of any Certificate by the
Servicer, the Special Servicer or any Affiliate
of either;
(iii) the Servicer's, the Trustee's [or the Fiscal Agent's]
obligation to make P&I Advances or Property Advances or to
incur servicing expenses with respect to such Mortgage Loan;
(iv) the Servicer's, the Special Servicer's or any sub-servicer's
right to receive compensation for its services hereunder or
with respect to any particular transaction; or
(v) the ownership or servicing or management for others by the
Servicer, the Special Servicer or any sub-servicer, of any
other mortgage loans or property.
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The standards set forth above with respect to the conduct of the
Servicer and the Special Servicer in the performance of their respective
obligations under this Agreement is herein referred to as the "Servicing
Standard."
The Servicer's or the Special Servicer's liability for actions and
omissions in its capacity as Servicer or Special Servicer, as the case may be,
hereunder is limited as provided herein (including, without limitation, pursuant
to Section 6.3). To the extent consistent with the foregoing and subject to any
express limitations set forth in this Agreement, the Servicer and the Special
Servicer shall seek to maximize the timely and complete recovery of principal
and interest on the Notes; provided, however, that nothing herein contained
shall be construed as an express or implied guarantee by the Servicer or the
Special Servicer of the collectability of the Mortgage Loans. Subject only to
the above-described Servicing Standard and the terms of this Agreement and of
the respective Mortgage Loans, the Servicer and the Special Servicer shall have
full power and authority, acting alone or through sub-servicers (subject to
paragraph (d) of this Section 3.1 and to Section 3.2), to do or cause to be done
any and all things in connection with such servicing and administration which
they may deem necessary or desirable. Without limiting the generality of the
foregoing, the Servicer and the Special Servicer shall, and each is hereby
authorized and empowered by the Trustee to, with respect to each Mortgage Loan
and the related Mortgaged Property, prepare, execute and deliver, on behalf of
the Certificateholders and the Trustee or any of them, any and all financing
statements, continuation statements and other documents or instruments necessary
to maintain the lien on the related Mortgaged Property and related collateral;
any modifications, waivers, consents or amendments to or with respect to any
Mortgage Loan or any documents contained in the related Mortgage File; and any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, if, in its
reasonable judgment, such action is in the best interests of the
Certificateholders and is in accordance with, or is required by, this Agreement.
Notwithstanding the foregoing, neither the Servicer nor the Special Servicer
shall modify, amend, waive or otherwise consent to the change of the stated
Maturity Date of any Mortgage Loan, the payment of principal of, or interest or
Default Interest on, any Mortgage Loan, or any other term of a Mortgage Loan,
unless (a) such modification, amendment, waiver or consent is not a "significant
modification" under Section 1001 of the Code, including proposed, temporary or
final Treasury regulations thereunder, or Treasury Regulations Section
1.860G-2(b)(3) (other than clause (i) thereof), (b) to the extent such
modification, amendment, waiver or consent would constitute a "significant
modification" under the preceding clause (a), such Mortgage Loan is in default
or a default with respect thereto is reasonably foreseeable or (c) permitted by
Section 3.10. The Servicer and the Special Servicer shall service and administer
the Mortgage Loans in accordance with applicable state and federal law and shall
provide to the Borrowers any reports required to be provided to them thereby.
Subject to Section 3.11, the Trustee shall, upon the receipt of a written
request of a Servicing Officer, execute and deliver to the Servicer and the
Special Servicer any powers of attorney and other documents prepared by the
Servicer or the Special Servicer and necessary or appropriate (as certified in
such written request) to enable the Servicer and the Special Servicer to carry
out
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their servicing and administrative duties hereunder; provided, however, that the
Trustee shall not be liable for any actions of the Servicer or Special Servicer
under any such powers of attorney.
(b) Unless otherwise provided in the related Note, the Servicer shall
apply any partial Principal Prepayment received on a Mortgage Loan on a date
other than a Due Date to the principal balance of such Mortgage Loan as of the
Due Date immediately following the date of receipt of such partial Principal
Prepayment.
(c) With respect to each Mortgage Loan that provides for prepayment
at the option of the mortgagee, the Servicer or the Special Servicer, as
applicable, shall exercise such option at the earliest possible date as provided
in the related Note and Mortgage Loan Documents.
(d) The Servicer or the Special Servicer may enter into sub-servicing
agreements with third parties with respect to any of its respective obligations
hereunder, provided that (1) any such agreement shall be consistent with the
provisions of this Agreement and (2) no sub-servicer retained by the Servicer or
the Special Servicer shall grant any modification, waiver or amendment to any
Mortgage Loan without the approval of the Servicer or the Special Servicer, as
applicable, and (3) such agreement shall be consistent with the standards set
forth in Section 3.1(a). Any such sub-servicing agreement may permit the
sub-servicer to delegate its duties to agents or subcontractors so long as the
related agreements or arrangements with such agents or subcontractors are
consistent with the provisions of this Section 3.1(d).
Any sub-servicing agreement entered into by the Servicer or the
Special Servicer, shall provide that it may be assumed or terminated by the
Trustee if the Trustee or a successor Servicer or Special Servicer has assumed
the duties of the Servicer or the Special Servicer, as applicable, without cost
or obligation to the assuming or terminating party or the Trust Fund, upon the
assumption by the Trustee or a successor Servicer or Special Servicer of the
obligations of the Servicer or the Special Servicer, as applicable, pursuant to
Section 7.2.
Any sub-servicing agreement, and any other transactions or services
relating to the Mortgage Loans involving a sub-servicer, shall be deemed to be
between the Servicer or the Special Servicer, as applicable, and such
sub-servicer alone, and the Trustee and the Certificateholders shall not be
deemed parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the sub-servicer, including the Depositor acting in
such capacity, except as set forth in Section 3.1(e).
(e) If the Trustee or any successor Servicer or Special Servicer
assumes the obligations of the Servicer or the Special Servicer, as applicable,
in accordance with Section 7.2, the Trustee or such successor Servicer or
Special Servicer, to the extent necessary to permit the Trustee or such
successor Servicer or Special Servicer to carry out the provisions of Section
7.2,
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shall, without act or deed on the part of the Trustee or such successor Servicer
or Special Servicer, succeed to all of the rights and obligations of the
Servicer or Special Servicer under any sub-servicing agreement entered into by
the Servicer or Special Servicer pursuant to Section 3.1(d), subject to the
right of termination by the Trustee set forth in Section 3.1(d). In such event,
the Trustee or such successor Servicer or Special Servicer shall be deemed to
have assumed all of the Servicer's or Special Servicer's interest therein (but
not any liabilities or obligations in respect of acts or omissions of the
Servicer or Special Servicer prior to such deemed assumption) and to have
replaced the Servicer or the Special Servicer, as applicable, as a party to such
sub-servicing agreement to the same extent as if such sub-servicing agreement
had been assigned to the Trustee or such successor Servicer, except that the
Servicer or the Special Servicer shall not thereby be relieved of any liability
or obligations under such sub-servicing agreement that accrued prior to the
assumption of duties hereunder by the Trustee or such successor Servicer or
Special Servicer.
In the event that the Trustee or any successor Servicer or Special
Servicer assumes the servicing obligations of the Servicer or the Special
Servicer, as the case may be, upon request of the Trustee or such successor
Servicer or Special Servicer, as the case may be, the Servicer or Special
Servicer shall, at its own expense, deliver to the Trustee or such successor
Servicer or Special Servicer (as the case may be) all documents and records
relating to any sub-servicing agreement and the Mortgage Loans then being
serviced thereunder and an accounting of amounts collected and held by it, if
any, and the Servicer will otherwise use its best efforts to effect the orderly
and efficient transfer of any sub-servicing agreement to the Trustee or such
successor Servicer.
SECTION 3.2.Liability of the Servicer.
Notwithstanding any sub-servicing agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer or
Special Servicer and any Person acting as sub-servicer (or its agents or
subcontractors) or any reference to actions taken through any Person acting as
sub-servicer or otherwise, the Servicer or the Special Servicer, as applicable,
shall remain obligated and primarily liable to the Trustee and
Certificateholders for the servicing and administering of the Mortgage Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such sub-servicing agreements or
arrangements or by virtue of indemnification from the Depositor or any Person
acting as sub-servicer (or its agents or subcontractors) to the same extent and
under the same terms and conditions as if the Servicer or Special Servicer, as
applicable, were servicing and administering the Mortgage Loans alone. The
Servicer or the Special Servicer, as applicable, shall be entitled to enter into
an agreement with any sub-servicer providing for indemnification of the Servicer
or the Special Servicer, as applicable, by such sub-servicer, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification, but no such agreement for indemnification shall be deemed to
limit or modify this Agreement.
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SECTION 3.3.Collection of Certain Mortgage Loan
Payments.
The Servicer and the Special Servicer shall make reasonable efforts
to collect all payments called for under the terms and provisions of the
Mortgage Loans when the same shall be due and payable, and shall follow such
collection procedures as are consistent with the Servicing Standard, including
using its best efforts in accordance with the Servicing Standard to collect
income statements and rent rolls from the related Borrowers as required by the
related Mortgage Loan Documents and providing (in the case of the Servicer only)
reasonable advance notice to such Borrowers of Balloon Payments due with respect
to such Mortgage Loans. Consistent with the foregoing, the Servicer or the
Special Servicer, as applicable, may in its discretion waive any late payment
charge or penalty fees in connection with any delinquent Monthly Payment or
Balloon Payment with respect to any Mortgage Loan.
SECTION 3.4.Collection of Taxes, Assessments and Similar Items.
(a) With respect to each Mortgage Loan (other than REO Mortgage
Loans), the Servicer shall maintain accurate records with respect to each
related Mortgaged Property reflecting the status of taxes, assessments and other
similar items that are or may become a lien on such related Mortgaged Property,
the status of insurance premiums payable with respect thereto and the amounts of
Escrow Payments, if any, required in respect thereof. From time to time, the
Servicer shall (i) obtain all bills for the payment of such items (including
renewal premiums), and (ii) effect payment of all such bills with respect to
each such Mortgaged Property prior to the applicable penalty or termination
date, in each case employing for such purpose Escrow Payments as allowed under
the terms of such Mortgage Loan. If a Borrower fails to make any such Escrow
Payment on a timely basis or collections from such Borrower are insufficient to
pay any such item before the applicable penalty or termination date, the
Servicer shall (in accordance with Section 3.8 with respect to the payment of
insurance premiums) advance the amount necessary to effect payment of any such
item, unless the Servicer, in its good faith business judgment, determines that
such Advance would be a Nonrecoverable Advance. With respect to any Mortgage
Loan as to which the related Borrower is not required to make Escrow Payments,
if such Borrower fails to effect payment of any such bill, then, the Servicer
shall (in accordance with Section 3.8 with respect to the payment of insurance
premiums) advance the amount necessary to effect payment of any such bill on or
before the applicable penalty or termination date; provided, that, with respect
to the payment of taxes and assessments the Servicer shall make such advance
within five Business Days after the Servicer has received confirmation that such
item has not been paid, the Servicer determines, in its good faith business
judgment, that such Property Advance would be a Nonrecoverable Advance. The
Servicer shall be entitled to reimbursement of Property Advances that it makes
pursuant to the preceding sentence, with interest thereon at the Advance Rate,
from amounts received on or in respect of the Mortgage Loan respecting which
such Property Advance was made or if such Property Advance has become a
Nonrecoverable Advance, to the extent permitted by Section 3.6 of this
Agreement. No costs incurred by the Servicer in effecting the payment of taxes
and assessments on the Mortgaged Properties shall, for the purpose of
calculating distributions to
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Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
(b) The Servicer shall segregate and hold all funds collected and
received pursuant to any Mortgage Loan constituting Escrow Payments separate and
apart from any of its own funds and general assets and shall establish and
maintain one or more custodial accounts (each, an "Escrow Account") into which
all Escrow Payments shall be deposited within one (1) Business Day after
receipt. The Servicer shall also deposit into each Escrow Account any amounts
representing losses on Permitted Investments in which amounts on deposit in such
Escrow Account have been invested pursuant to Section 3.7(b) and any Insurance
Proceeds, Condemnation Proceeds or Liquidation Proceeds which are required to be
applied to the restoration or repair of the related Mortgaged Property pursuant
to the related Mortgage Loan. Escrow Accounts shall be entitled, "Midland Loan
Services, L.P., as Servicer, in trust for , as Trustee in trust for Holders of
Commercial Mortgage Pass-Through Certificates, Series
, and Various Borrowers." Withdrawals from an Escrow Account may
be made by the Servicer only:
(i) to effect timely payments of items with respect
to which Escrow Payments are required pursuant
to the related Mortgage;
(ii) to transfer funds to the Collection Account to reimburse the
Servicer, the Trustee [or the Fiscal Agent], as applicable,
for any Advance relating to Escrow Payments, but only from
amounts received with respect to the related Mortgage Loan
which represent late collections of Escrow Payments
thereunder;
(iii) for application to the restoration or repair of the related
Mortgaged Property in accordance with the related Mortgage
Loan and the Servicing Standard;
(iv) to clear and terminate such Escrow Account upon
the termination of this Agreement;
(v) to pay from time to time to the Servicer any
interest or investment income earned on funds
deposited in such Escrow Account pursuant to
Section 3.7(b) to the extent (a) permitted by
law and (b) not required to be paid to the
related Borrower under the terms of the related
Mortgage Loan or by law, or to pay such interest
or income to the related Borrower if such income
is required to paid to the related Borrower
under law or by the terms of the related
Mortgage Loan;
(vi) to remit to the related Borrower the Financial
and Lease Reporting Fee as and when required
pursuant to the related Mortgage; and
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(vii) to remove any funds deposited in such Escrow Account that were
not required to be deposited therein.
SECTION 3.5.Collection Account; Distribution Account.
(a) The Servicer shall establish and maintain the Collection Account
in the Trustee's name, for the benefit of the Certificateholders and the Trustee
as the Holder of the Lower-Tier Regular Interests. The Collection Account shall
be established and maintained as an Eligible Account. The Servicer shall deposit
or cause to be deposited in the Collection Account within one Business Day
following receipt the following payments and collections received or made by it
on or with respect to the Mortgage Loans:
(i) all payments on account of principal on the
Mortgage Loans, including the principal
component of Unscheduled Payments on the
Mortgage Loans;
(ii) all payments on account of interest and Default Interest on
the Mortgage Loans and the interest portion of all Unscheduled
Payments and all Prepayment Premiums;
(iii) any amounts required to be deposited pursuant to Section
3.7(b) in connection with losses realized on Permitted
Investments with respect to funds held in the Collection
Account and pursuant to Section 3.25 in connection with
Prepayment Interest Shortfalls;
(iv) (x) all Net REO Proceeds transferred from an REO Account
pursuant to Section 3.17(b) and (y) all Condemnation Proceeds,
Insurance Proceeds and Net Liquidation Proceeds not required
to be applied to the restoration or repair of the related
Mortgaged Property;
(v) any amounts received from Borrowers which represent recoveries
of Property Protection Expenses or Property Advances made
pursuant to Section 3.4; and
(vi) any other amounts required by the provisions of this Agreement
to be deposited into the Collection Account by the Servicer or
the Special Servicer, including, without limitation, proceeds
of any purchase or repurchase of a Mortgage Loan pursuant to
Section 2.3(d) or (e), Section 3.18 or Section 9.1.
The foregoing requirements for deposits in the Collection Account
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing,
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payments in the nature of late payment charges, late fees, Assumption Fees, loan
modification fees, loan service transaction fees, extension fees, demand fees,
beneficiary statement charges and similar fees need not be deposited in the
Collection Account by the Servicer and, to the extent permitted by applicable
law, the Servicer or the Special Servicer, as applicable, shall be entitled to
retain any such charges and fees received with respect to the Mortgage Loans. In
the event that the Servicer deposits in the Collection Account any amount not
required to be deposited therein, the Servicer may at any time withdraw such
amount from the Collection Account, any provision herein to the contrary
notwithstanding.
(b) The Trustee shall establish and maintain the Distribution Account
in the name of the Trustee, in trust for the benefit of the Certificateholders.
The Distribution Account shall be established and maintained as an Eligible
Account.
(c) Funds in the Collection Account and the Distribution Account may
be invested in Permitted Investments in accordance with the provisions of
Section 3.7. The Servicer shall give written notice to the Trustee of the
location and account number of the Collection Account and shall notify the
Trustee in writing prior to any subsequent change thereof.
SECTION 3.6.Permitted Withdrawals from the Collection Account.
The Servicer may make withdrawals from the Collection Account only as
described below (the order set forth below not constituting an order of priority
for such withdrawals):
(i) to remit to the Trustee, for deposit in the
Distribution Account, the amounts required to be
deposited in the Distribution Account pursuant
to Section 4.6;
(ii) to pay or reimburse the Servicer, the Trustee
[or the Fiscal Agent] for Advances, the right of
the Servicer, the Trustee [or the Fiscal Agent]
to reimburse itself pursuant to this clause (ii)
being limited to either (x) any collections on
or in respect of the particular Mortgage Loan or
REO Property respecting which each such Advance
was made, or (y) any other amounts in the
Collection Account in the event that such
Advances have been deemed to be Nonrecoverable
Advances or are not recovered from recoveries in
respect of the related Mortgage Loan or REO
Property after a Final Recovery Determination;
(iii) to pay to the Servicer, the Trustee [or the
Fiscal Agent] the Advance Interest Amount;
(iv) to pay on or before each Remittance Date to the
Servicer and the Special Servicer, as
applicable, as compensation, the unpaid Servicing
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Fee and Special Servicing Fee, respectively, in respect of the
related Distribution Date (in each case, reduced up to the
amount of any Prepayment Interest Shortfalls with respect to
such Distribution Date, in accordance with Section 3.25), to
be paid, in the case of the Servicing Fee, from interest
received on the related Mortgage Loans, and to pay from time
to time, to the Servicer any interest or investment income
earned on funds deposited in the Collection Account, and to
pay to the Servicer as additional Servicing Compensation any
Prepayment Interest Surplus received in the preceding
Collection Period and to pay to the Servicer or the Special
Servicer, as applicable, any other amounts constituting
Servicing Compensation;
(v) to pay on or before each Distribution Date to
the Depositor, the Mortgage Loan Seller or the
purchaser of any Specially Serviced Mortgage
Loan or REO Property, as the case may be, with
respect to each Mortgage Loan or REO Property
that has previously been purchased or
repurchased by it pursuant to Section 2.3(d),
2.3(e), Section 3.18 or Section 9.1, all amounts
received thereon during the related Collection
Period and subsequent to the date as of which
the amount required to effect such purchase or
repurchase was determined;
(vi) to the extent not reimbursed or paid pursuant to
any other clause of this Section 3.6, to
reimburse or pay the Servicer, the Special
Servicer, the Trustee, the Depositor [and/or the
Fiscal Agent] for unpaid items incurred by or on
behalf of such Person pursuant to the second
sentence of Section 3.7(c), Section 3.8(a),
Section 3.10, Section 3.12(d), Section 3.17(a),
(b) and (c), Section 3.18(a), 6.3, 7.4, 8.5(d),
9.1(d) or Section 10.7, or any other provision
of this Agreement pursuant to which such Person
is entitled to reimbursement or payment from the
Trust Fund, in each case only to the extent
reimbursable under such Section, it being
acknowledged that this clause (vi) shall not be
deemed to modify the substance of any such
Section, including the provisions of such
Section that set forth the extent to which one
of the foregoing Persons is or is not entitled
to payment or reimbursement;
(vii) to deposit in one or more separate, non-interest bearing
accounts any amount reasonably determined by the Trustee to be
necessary to pay any applicable federal, state or local taxes
imposed on the Lower-Tier REMIC under the circumstances and to
the extent described in Section 4.5;
(viii) to withdraw any amount deposited into the
Collection Account that was not required to be
deposited therein; and
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(ix) to clear and terminate the Collection Account
pursuant to Section 9.1.
The Servicer shall keep and maintain separate accounting, on a
Mortgage Loan- by-Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to subclauses (ii) - (viii)
above.
The Servicer shall pay to the Trustee or the Special Servicer from
the Collection Account (to the extent permitted by clauses (i)-(viii) above)
amounts permitted to be paid to the Trustee or the Special Servicer therefrom,
promptly upon receipt of a certificate of a Responsible Officer of the Trustee
or a Servicing Officer of the Special Servicer, as applicable, describing the
item and amount to which the Trustee or the Special Servicer is entitled. The
Servicer may rely conclusively on any such certificate and shall have no duty to
recalculate the amounts stated therein.
The Trustee, the Special Servicer and the Servicer shall in all cases
have a right prior to the Certificateholders to any funds on deposit in the
Collection Account from time to time for the reimbursement or payment of
Servicing Compensation, Advances (subject to the limitation set forth in Section
3.6(ii)) and their respective expenses (including Advance Interest Amounts)
hereunder to the extent such expenses are to be reimbursed or paid from amounts
on deposit in the Collection Account pursuant to this Agreement.
SECTION 3.7.Investment of Funds in the Collection
Account, the Distribution Account and the
Reserve Accounts.
(a) The Servicer (or with respect to any REO Account, the Special
Servicer) may direct (or, with respect to the Distribution Account, cause the
Trustee to direct) any depository institution maintaining the Collection
Account, the Distribution Account, any REO Account or (subject to applicable
laws and the related Mortgage Loan Documents) any Reserve Accounts (each, for
purposes of this Section 3.7, an "Investment Account") to invest the funds in
such Investment Account in one or more Permitted Investments that bear interest
or are sold at a discount, and that mature, unless payable on demand, no later
than the Business Day preceding the date on which such funds are requited to be
withdrawn from such Investment Account pursuant to this Agreement; provided,
however, that all investments in the Distribution Account, including those
payable on demand, shall mature no later than the Business Day prior to the next
Distribution Date. Any direction by the Servicer (or with respect to an REO
Account, the Special Servicer) to invest funds on deposit in an Investment
Account shall be in writing and shall certify that the requested investment is a
Permitted Investment which matures at or prior to the time required hereby or is
payable on demand. In the case of any Reserve Account, the Servicer shall act
upon the written request of the related Borrower or Manager to the extent the
Servicer is required to do so under the terms of the related Mortgage Loan,
provided that in the absence of appropriate written instructions from such
Borrower or Manager meeting the requirements of this Section 3.7, the Servicer
shall have no obligation to, but will
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be entitled to, direct the investment of funds in such Reserve Accounts. All
such Permitted Investments shall be held to maturity, unless payable on demand.
Any investment of funds in an Investment Account shall be made in the name of
the Trustee (in its capacity as such) or in the name of a nominee of the
Trustee. The Trustee shall have sole control (except with respect to investment
direction which shall be in the sole control of the Servicer or the Special
Servicer, as applicable, as an independent contractor to the Trust Fund) over
each such investment and any certificate or other instrument evidencing any such
investment shall be delivered directly to the Trustee or its agent (which shall
initially be the Servicer), together with any document of transfer, if any,
necessary to transfer title to such investment to the Trustee or its nominee.
The Trustee shall have no responsibility or liability with respect to the
investment directions of the Servicer or the Special Servicer or any losses
resulting therefrom, whether from Permitted Investments or otherwise. In the
event amounts on deposit in an Investment Account are at any time invested in a
Permitted Investment payable on demand, the Servicer or the Special Servicer, as
applicable, shall:
(x)consistent with any notice required to be given thereunder,
demand that payment thereon be made on the last day such
Permitted Investment may otherwise mature hereunder in an
amount equal to the lesser of (1) all amounts then payable
thereunder and (2) the amount required to be withdrawn on
such date; and
(y)demand payment of all amounts due thereunder promptly upon
determination by the Servicer or the Special Servicer, as
applicable, that such Permitted Investment would not
constitute a Permitted Investment in respect of funds
thereafter on deposit in the related Investment Account.
(b) All income and gain realized from investment of funds deposited
in the Collection Account, the Distribution Account and any Reserve Account as
to which the related Borrower is not entitled to interest thereon shall be for
the benefit of the Servicer (other than income or gain realized from investment
of funds on deposit in the Distribution Account made by the Trustee on the
Business Day prior to any Distribution Date that matures on such Distribution
Date) and all income and gain realized from investment of funds deposited in any
REO Account shall be for the benefit of the Special Servicer and, other than
with respect to the Distribution Account, may be withdrawn by the Servicer or
the Special Servicer, as applicable, from time to time in accordance with
Section 3.6 and Section 3.17(b), as applicable. The Servicer may request that
the Trustee withdraw and remit to the Servicer all amounts due to it with
respect to the Distribution Account pursuant to the preceding sentence. The
Servicer shall deposit from its own funds in the Collection Account and the
Distribution Account, as the case may be, the amount of any loss incurred in
respect of any such Permitted Investment immediately upon realization of such
loss and the Special Servicer shall deposit from its own funds in any REO
Account the amount of any loss incurred in respect of any such Permitted
Investment immediately upon realization of such loss. The Servicer shall also
deposit into each
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Reserve Account any amounts representing losses on Permitted Investments in
which such Reserve Accounts have been invested, except to the extent that
amounts are invested for the benefit of the Borrower under applicable law or the
terms of the related Mortgage Loan. The income and gain realized from investment
of funds deposited in any Reserve Account shall be paid from time to time to the
related Borrower to the extent required under the Mortgage Loan or applicable
law.
(c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may, and upon the request of Holders of Certificates
representing at least 51% of the aggregate Voting Rights of any Class shall,
take such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate proceedings. In the
event the Trustee takes any such action, the Trust Fund shall pay or reimburse
the Trustee for all reasonable out-of-pocket expenses, disbursements and
advances incurred or made by the Trustee in connection therewith. In the event
that the Trustee does not take any such action, the Servicer may take such
action at its own cost and expense.
SECTION 3.8.Maintenance of Insurance Policies and Errors and
Omissions and Fidelity Coverage.
(a) The Servicer on behalf of the Trustee, as mortgagee, shall use
its reasonable efforts in accordance with the Servicing Standard to cause the
related Borrower to maintain for each Mortgage Loan (other than REO Mortgage
Loans), and if the Borrower does not so maintain, shall itself maintain (subject
to the provisions of this Agreement concerning Nonrecoverable Advances) to the
extent the Trustee as mortgagee has an insurable interest and to the extent
available at commercially reasonable rates, (A) fire and hazard insurance with
extended coverage on the related Mortgaged Property in an amount which is at
least equal to the lesser of (i) 100% of the then "full replacement cost" of the
improvements and equipment (excluding foundations, footings and excavation
costs), without deduction for physical depreciation, and (ii) the outstanding
principal balance of the related Mortgage Loan or such other amount as is
necessary to prevent any reduction in such policy by reason of the application
of co-insurance and to prevent the Trustee thereunder from being deemed to be a
co-insurer, (B) insurance providing coverage against 12 months of rent
interruptions and (C) such other insurance (including public liability
insurance) as provided in the related Mortgage Loan. The Special Servicer shall
maintain, to the extent available at commercially reasonable rates, fire and
hazard insurance from a Qualified Insurer with extended coverage on each REO
Property in an amount which is at least equal to 100% of the then "full
replacement cost" of the improvements and equipment (excluding foundations,
footings and excavation costs), without deduction for physical depreciation. The
Special Servicer shall maintain, to the extent available at commercially
reasonable rates, from a Qualified Insurer, with respect to each REO Property
(A) public liability insurance providing such coverage against such risks as the
Servicer or the Special Servicer, as applicable, determines, consistent with the
related Mortgage and the
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Servicing Standard, to be in the best interests of the Trust Fund, and shall
cause to be maintained with respect to each REO Property (B) insurance providing
coverage against 12 months of rent interruptions, and (C) such other insurance
as provided in the related Mortgage Loan. In the case of any insurance otherwise
required to be maintained pursuant to this section that is not being so
maintained because the Servicer or the Special Servicer, as applicable, has
deemed that it is not available at commercially reasonable rates, the Servicer
or the Special Servicer, as applicable, shall deliver an Officer's Certificate
to the Trustee detailing the steps that the Servicer or the Special Servicer, as
applicable, took in seeking such insurance and the factors which led to its
determination that such insurance is not so available. Any amounts collected by
the Servicer or the Special Servicer, as applicable, under any such policies
(other than amounts to be applied to the restoration or repair of the related
Mortgaged Property or amounts to be released to the Borrower in accordance with
the terms of the related Mortgage) shall be deposited into the Collection
Account pursuant to Section 3.5, subject to withdrawal pursuant to Section 3.6.
Any cost incurred by the Servicer in maintaining any such insurance shall not,
for the purpose of calculating distributions to Certificateholders, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance other than flood insurance is to be
required of any Borrower or to be maintained by the Servicer or the Special
Servicer other than pursuant to the terms of the related Mortgage Loan Documents
and pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. If the Mortgaged Property
is located in a federally designated special flood hazard area, the Servicer
will use its reasonable efforts in accordance with the Servicing Standard to
cause the related Borrower to maintain or will itself obtain (subject to the
provisions of this Agreement concerning Nonrecoverable Advances) flood insurance
in respect thereof to the extent available at commercially reasonable rates.
Such flood insurance shall be in an amount equal to the lesser of (i) the unpaid
principal balance of the related Mortgage Loan and (ii) the maximum amount of
such insurance required by the terms of the related Mortgage and as is available
for the related property under the national flood insurance program (assuming
that the area in which such property is located is participating in such
program). If an REO Property is located in a federally designated special flood
hazard area, the Special Servicer will obtain flood insurance in respect thereof
providing substantially the same coverage as described in the preceding
sentences. If at any time during the term of this Agreement a recovery under a
flood or fire and hazard insurance policy in respect of an REO Property is not
available but would have been available if such insurance were maintained
thereon in accordance with the standards applied to Mortgaged Properties
described herein, the Special Servicer shall either (i) immediately deposit into
the Collection Account from its own funds the amount that would have been
recovered or (ii) apply to the restoration and repair of the property from its
own funds the amount that would have been recovered, if such application would
be consistent with the servicing standard set forth in Section 3.1(a); provided,
however, that the Special Servicer shall not be responsible for any shortfall in
insurance proceeds resulting from an insurer's refusal or inability to pay a
claim. Costs to the Servicer of maintaining insurance policies pursuant to this
Section 3.8 shall be paid by the Servicer as a Property Advance and shall be
reimbursable to the Servicer with interest at the Advance Rate, which
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reimbursement may be effected under Section 3.6(vi); and costs to the Special
Servicer of maintaining insurance policies pursuant to this Section 3.8 shall be
paid and reimbursed in accordance with Section 3.17(b).
The Servicer and the Special Servicer agree to prepare and present,
on behalf of itself, the Trustee and the Certificateholders, claims under each
related insurance policy maintained pursuant to this Section 3.8(a) in a timely
fashion in accordance with the terms of such policy and to take such reasonable
steps as are necessary to receive payment or to permit recovery thereunder.
The Servicer (or with respect to any REO Property, the Special
Servicer) shall require that all insurance policies required hereunder shall
name the Trustee or the Servicer (or with respect to any REO Property, the
Special Servicer), on behalf of the Trustee as the mortgagee, as loss payee and
that all such insurance policies require that 30 days' notice be given to the
Servicer before termination to the extent required by the related Mortgage Loan
Documents.
(b) (I) If the Servicer or Special Servicer, as applicable, obtains
and maintains a blanket insurance policy with a Qualified Insurer at its own
expense insuring against fire and hazard losses, 12-month rent interruptions or
other required insurance on all of the Mortgage Loans, it shall conclusively be
deemed to have satisfied its obligations concerning the maintenance of such
insurance coverage set forth in Section 3.8(a), it being understood and agreed
that such policy may contain a deductible clause, in which case the Servicer or
Special Servicer, as applicable, shall, in the event that (i) there shall not
have been maintained on one or more of the related Mortgaged Properties a policy
otherwise complying with the provisions of Section 3.8(a), and (ii) there shall
have been one or more losses which would have been covered by such a policy had
it been maintained, immediately deposit into the Collection Account from its own
funds the amount not otherwise payable under the blanket policy because of such
deductible clause to the extent that any such deductible exceeds the deductible
limitation that pertained to the related Mortgage Loan, or, in the absence of
such deductible limitation, the deductible limitation which is consistent with
the Servicing Standard. In connection with its activities as Servicer or Special
Servicer hereunder, as applicable, the Servicer and the Special Servicer each
agrees to prepare and present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy which it maintains in a
timely fashion in accordance with the terms of such policy and to take such
reasonable steps as are necessary to receive payment or permit recovery
thereunder.
(II) If the Servicer or the Special Servicer, as applicable,
causes any Mortgaged Property or REO Property to be covered by a master force
placed insurance policy, which policy is issued by a Qualified Insurer and
provides no less coverage in scope and amount for such Mortgaged Property or REO
Property than the insurance required to be maintained pursuant to Section
3.8(a), the Servicer or Special Servicer shall conclusively be deemed to have
satisfied its obligations to maintain insurance pursuant to Section 3.8(a). Such
policy may contain
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a deductible clause, in which case the Servicer or Special Servicer, as
applicable, shall, in the event that (i) there shall not have been maintained on
the related Mortgaged Property or REO Property a policy otherwise complying with
the provisions of Section 3.8(a), and (ii) there shall have been one or more
losses which would have been covered by such a policy had it been maintained,
immediately deposit into the Collection Account from its own funds the amount
not otherwise payable under such policy because of such deductible to the extent
that any such deductible exceeds the deductible limitation that pertained to the
related Mortgage Loan, or, in the absence of any such deductible limitation, the
deductible limitation which is consistent with the Servicing Standard.
(c) Each of the Servicer and the Special Servicer shall maintain a
fidelity bond in the form and amount that would meet the servicing requirements
of prudent institutional commercial mortgage loan servicers. The Servicer or the
Special Servicer, as applicable, shall be deemed to have complied with this
provision if one of its respective Affiliates has such fidelity bond coverage
and, by the terms of such fidelity bond, the coverage afforded thereunder
extends to the Servicer or the Special Servicer, as applicable. In addition,
each of the Servicer and the Special Servicer shall keep in force during the
term of this Agreement a policy or policies of insurance covering loss
occasioned by the errors and omissions of its officers and employees in
connection with its obligations to service the Mortgage Loans hereunder in the
form and amount that would meet the servicing requirements of prudent
institutional commercial mortgage loan servicers. Each of the Servicer and the
Special Servicer shall cause each and every sub-servicer for it to maintain, or
cause to be maintained by any agent or contractor servicing any Mortgage Loan on
behalf of such subservicer, a fidelity bond and an errors and omissions
insurance policy which satisfy the requirements for the fidelity bond and the
errors and omissions policy to be maintained by the Servicer or the Special
Servicer pursuant to this Section 3.8(c). All fidelity bonds and policies of
errors and omissions insurance obtained under this Section 3.8(c) shall be
issued by a Qualified Insurer.
SECTION 3.9.Enforcement of Due-On-Sale
Clauses; Assumption Agreements.
(a) If any Mortgage Loan contains a provision in the nature of a
"due-on- sale" clause, which, by its terms:
(i) provides that such Mortgage Loan shall (or may at the related
mortgagee's option) become due and payable upon the sale or
other transfer of an interest in the related Mortgaged
Property, or
(ii) provides that such Mortgage Loan may not be assumed without
the consent of the related mortgagee in connection with any
such sale or other transfer,
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then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer or the Special Servicer, as applicable, on behalf of the Trust Fund,
shall enforce such provision to the extent permitted under the terms of such
Mortgage Loan, applicable law and governmental regulations, unless such
provision is not enforceable under applicable law or enforcement thereof would
result in a loss of insurance coverage under any related insurance policy or
such enforcement is reasonably likely to result in meritorious legal action by
the related Borrower or except to the extent that the Servicer or the Special
Servicer, as applicable, acting in accordance with the Servicing Standard,
determines that such enforcement would not be in the best interests of the Trust
Fund. Subject to the foregoing, the Servicer or the Special Servicer, as
applicable, is authorized to take or enter into an assumption agreement from or
with the Person to whom such Mortgaged Property has been or is about to be
conveyed, or to release the original related Borrower from liability upon such
Mortgage Loan and substitute the new Borrower as obligor thereon. To the extent
permitted by law, the Servicer or the Special Servicer, as applicable, shall
enter into an assumption or substitution agreement only if the credit status of
the prospective new Borrower is in compliance with the Servicer's or the Special
Servicer's, as applicable, regular commercial mortgage origination or servicing
standards and criteria and the terms of the related Mortgage Loan. The Servicer
or the Special Servicer, as applicable, shall notify the Trustee that any such
assumption or substitution agreement has been completed by forwarding to the
Trustee the original of such agreement, which document shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. In connection with any such assumption or
substitution agreement, the Mortgage Rate, principal amount and other material
payment terms (including any cross-collateralization and cross-default
provisions) of such Mortgage Loan pursuant to the related Note and Mortgage
shall not be changed, other than in connection with a default or reasonably
foreseeable default with respect to the Mortgage Loan. Assumption Fees collected
by the Servicer or the Special Servicer, as applicable, for entering into an
assumption or substitution agreement will be retained by the Servicer or the
Special Servicer, as applicable, as additional servicing compensation.
Notwithstanding the foregoing, the Servicer or Special Servicer may consent to
the assumption of a Mortgage Loan by a prospective new Borrower in a bankruptcy
proceeding involving the related Mortgaged Property.
(b) If any Mortgage Loan contains a provision in the nature of a
"due-on-encumbrance" clause, which, by its terms:
(i) provides that such Mortgage Loan shall (or may at the related
mortgagee's option) become due and payable upon the creation
of any lien or other encumbrance on such Mortgaged Property,
or
(ii) requires the consent of the related mortgagee to
the creation of any such lien or other
encumbrance on such Mortgaged Property,
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then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer or the Special Servicer, as applicable, on behalf of the Trust Fund,
shall enforce such provision and in connection therewith shall (x) accelerate
the payments due on such Mortgage Loan, or (y) withhold its consent to the
creation of any such lien or other encumbrance, as applicable, except, in each
case, to the extent that the Servicer or the Special Servicer, as applicable,
acting in accordance with the Servicing Standard, determines that such
enforcement would not be in the best interests of the Trust Fund and receives
written confirmation from [S&P] that forbearance to enforce such provision shall
not result, in and of itself, in a downgrading, withdrawal or qualification of
the rating then assigned by [S&]P to any Class of Certificates. Notwithstanding
the foregoing, the Servicer or the Special Servicer, as applicable, may forbear
from enforcing any due-on-encumbrance provision in connection with any junior or
senior lien on the Mortgaged Property imposed in connection with any bankruptcy
proceeding involving the Mortgaged Property.
(c) Nothing in this Section 3.9 shall constitute a waiver of the
Trustee's right, as the mortgagee of record, to receive notice of any assumption
of a Mortgage Loan, any sale or other transfer of the related Mortgaged Property
or the creation of any lien or other encumbrance with respect to such Mortgaged
Property.
(d) In connection with the taking of, or the failure to take, any
action pursuant to this Section 3.9, the Servicer or the Special Servicer, as
applicable, shall not agree to modify, waive or amend, and no assumption or
substitution agreement entered into pursuant to Section 3.9(a) shall contain any
terms that are different from, any term of any Mortgage Loan or the related Note
or Mortgage.
SECTION 3.10Realization Upon Mortgage Loans.
(a) With respect to any Specially Serviced Mortgage Loan, the Special
Servicer shall determine, in accordance with the Servicing Standard, whether to
grant a modification, waiver or amendment of the terms of such Specially
Serviced Mortgage Loan, commence foreclosure proceedings or attempt to sell such
Specially Serviced Mortgage Loan with reference to which course of action is
reasonably likely to produce a greater recovery on a present value basis with
respect to such Specially Serviced Mortgage Loan. Contemporaneously with the
earliest of (i) the effective date of any modification, amendment, waiver or
consent to a change of the stated maturity, Mortgage Rate, principal balance or
amortization terms of any Specially Serviced Mortgage Loan, or any other term of
a Mortgage Loan to the extent such modification, amendment, waiver or consent
would constitute a "significant" modification under Section 1001 of the Code,
including proposed Treasury regulations thereunder, as to which Mortgage Loan a
default has occurred or is reasonably foreseeable, (ii) ____ days after the
occurrence of any uncured payment delinquency, (iii) the date _____ days after a
receiver is appointed in respect of a Mortgaged Property, or (iv) the date a
Mortgaged Property becomes an REO Property, the Special Servicer shall obtain an
appraisal of the Mortgaged Property securing any Mortgage Loan referred to in
clause (i) or (ii) or such
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Mortgaged Property or REO Property, as the case may be, from an independent
appraiser who is a member of the American Institute of Real Estate Appraisers
(an "Updated Appraisal"), which appraisal shall be conducted in accordance with
MAI standards.
Following a default by a Borrower in the payment of a Balloon
Payment, the Special Servicer may grant successive extensions of up to 12 months
each of the related Specially Serviced Mortgage Loan; provided that the Special
Servicer shall not grant any such successive extension if, during the previous
12-month period (or the period since the beginning of the first such extension,
if shorter), such Borrower was 60 days or more delinquent in the payment of any
principal or interest required to be paid in any month; and provided further
that if any extension is requested after the third successive extension has been
granted, such further extension shall only be granted with the consent of the
Extension Advisor in accordance with Section 3.26. The Special Servicer shall
consider, among all relevant factors, any appraisal obtained in accordance with
the preceding paragraph in determining whether to grant any such extension. The
Special Servicer shall not grant any extension that permits such Borrower to
make payments of interest only for a period, in the aggregate, of greater than
___ months.
(b) In connection with any foreclosure or other acquisition, the
Servicer shall, at the direction of the Special Servicer, pay the costs and
expenses in any such proceedings as an Advance unless the Servicer determines,
in its good faith judgment, that such Advance would constitute a Nonrecoverable
Advance. The Servicer shall be entitled to reimbursement of Advances (with
interest at the Advance Rate) made pursuant to the preceding sentence to the
extent permitted by Section 3.6(ii) (or Section 3.6(iii), in the case of
interest at the Advance Rate).
If the Special Servicer elects to proceed with a non-judicial
foreclosure in accordance with the laws of the state where the related Mortgaged
Property is located, the Special Servicer shall not be required to pursue a
deficiency judgment against the related Borrower or any other liable party if
the laws of such state do not permit such a deficiency judgment after a
non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will not
be sufficient to warrant the cost, time, expense and/or exposure of pursuing
such a deficiency judgment and such determination is evidenced by an Officer's
Certificate delivered to the Trustee.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee (which shall not include the
Servicer or the Special Servicer) or a separate trustee or co-trustee on behalf
of the Trustee as holder of the Lower-Tier Regular Interests and
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall (except for
purposes of Section 9.1) be considered to be a Mortgage Loan held in the Trust
Fund until such time as the related REO Property shall be sold by the Trust Fund
and the Scheduled Principal Balance of each REO Mortgage Loan shall be reduced
by any Net REO Proceeds allocated to principal. Consistent with the foregoing,
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for purposes of all calculations hereunder, so long as such Mortgage Loan shall
be considered to be an outstanding Mortgage Loan:
(i) it shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Note shall have been
discharged, such Note and, for purposes of determining the
Scheduled Principal Balance thereof, the related amortization
schedule in effect at the time of any such acquisition of
title, remain in effect; and
(ii) Net REO Proceeds received in any month shall be applied to
amounts that would have been payable under the related Note in
accordance with the terms of such Note. In the absence of such
terms, Net REO Proceeds shall be deemed to have been received
first in payment of the accrued
-----
interest that remained unpaid on the date that the related REO
Property was acquired by the Trust Fund; second in respect of
the delinquent
------
principal installments that remained unpaid on such date; and
thereafter, Net REO Proceeds received in any month shall be
applied to the payment of installments of principal and
accrued interest on such Mortgage Loan deemed to be due and
payable in accordance with the terms of such Note and such
amortization schedule. If such Net REO Proceeds exceed the
Monthly Payment then payable, the excess shall be treated as a
Principal Prepayment received in respect of such Mortgage
Loan.
(c) Notwithstanding any provision to the contrary, the Special
Servicer shall not acquire for the benefit of the Trust Fund any personal
property pursuant to this Section 3.10 unless either:
(i) such personal property is incident to real property (within
the meaning of Section 856(e)(1) of the Code) so acquired by
the Special Servicer for the benefit of the Trust Fund; or
(ii) the Special Servicer shall have requested and
received an Opinion of Counsel (which opinion
shall be an expense of the Trust Fund) to the
effect that the holding of such personal
property by the Lower-Tier REMIC will not cause
the imposition of a tax on the Lower-Tier REMIC
or the Upper-Tier REMIC under the REMIC
Provisions or cause the Lower-Tier REMIC or the
Upper-Tier REMIC to fail to qualify as a REMIC
at any time that any Certificate is outstanding.
(d) Notwithstanding any provision to the contrary in this Agreement,
the Special Servicer shall not, on behalf of the Trust Fund, obtain title to any
direct or indirect partnership interest or other equity interest in any Borrower
pledged pursuant to any pledge
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agreement unless the Special Servicer shall have requested and received an
Opinion of Counsel (which opinion shall be an expense of the Trust Fund) to the
effect that the holding of such partnership or other equity interest by the
Trust Fund will not cause the imposition of a tax on the Lower-Tier REMIC or the
Upper-Tier REMIC under the REMIC Provisions or cause the Lower-Tier REMIC or the
Upper-Tier REMIC to fail to qualify as a REMIC at any time that any Certificate
is outstanding.
(e) Notwithstanding any provision to the contrary contained in this
Agreement, the Special Servicer shall not, on behalf of the Trust Fund, obtain
title to a Mortgaged Property as a result of or in lieu of foreclosure or
otherwise obtain title to any direct or indirect partnership interest or other
equity interest in any Borrower pledged pursuant to a pledge agreement and
thereby be the beneficial owner of a Mortgaged Property, and shall not otherwise
acquire possession of, or take any other action with respect to, any Mortgaged
Property if, as a result of any such action, the Trustee, for the Trust Fund or
the Certificateholders, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
or any comparable law, unless the Special Servicer has previously determined in
accordance with the Servicing Standard, based on an updated environmental
assessment report prepared by an Independent Person who regularly conducts
environmental audits, that:
(A) such Mortgaged Property is in compliance with applicable
environmental laws or, if not after consultation with an environmental
consultant, that it would be in the best economic interest of the Trust
Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith, and
(B) there are no circumstances present at such 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 currently effective
federal, state or local law or regulation, or that, if any such Hazardous
Materials are present for which such action could be required, after
consultation with an environmental consultant, it would be in the best
economic interest of the Trust Fund to take such actions with respect to
such Mortgaged Property.
In the event that the environmental assessment list obtained by the
Special Servicer with respect to a Mortgaged Property indicates that such
Mortgaged Property may not be in compliance with applicable environmental laws
or that Hazardous Materials may be present but does not definitively establish
such fact, the Special Servicer shall cause such further environmental tests as
the Special Servicer shall deem prudent to protect the interests of
Certificateholders to be conducted by an Independent Person who regularly
conducts such tests. Any such tests shall be deemed part of the environmental
assessment obtained by the Special Servicer for purposes of this Section 3.10.
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(f) The environmental assessment contemplated by Section 3.10(f)
shall be prepared by any Independent Person who regularly conducts environmental
audits for purchasers of commercial properties located in the same general area
as the Mortgaged Property with respect to which the Special Servicer is ordering
such environmental assessment, as determined by the Special Servicer in a manner
consistent with the Servicing Standard. The Servicer shall at the direction of
the Special Servicer advance the cost of preparation of such environmental
assessments unless the Servicer determines, in its good faith judgment, that
such Advance would be a Nonrecoverable Advance. The Servicer shall be entitled
to reimbursement of Advances (with interest at the Advance Rate) made pursuant
to the preceding sentence to the extent permitted pursuant to Section 3.6.
(g) If the Special Servicer determines pursuant to Section 3.10(f)(A)
that a Mortgaged Property is not in compliance with applicable environmental
laws but that it is in the best economic interest of the Trust Fund to take such
actions as are necessary to bring such Mortgaged Property into compliance
therewith, or if the Special Servicer determines pursuant to Section 3.10(f)(B)
that the circumstances referred to therein relating to Hazardous Materials are
present but that it is in the best economic interest of the Trust Fund to take
such action with respect to the containment, clean-up or remediation of
Hazardous Materials affecting such Mortgaged Property as is required by law or
regulation, the Special Servicer shall take such action as it deems to be in the
best economic interest of the Trust Fund (with due consideration to the
avoidance of "mortgagee-in-possession," "owner" or "operator" status, as set
forth in Section 3.10(f)), but only if the Trustee has mailed notice to the
Holders of the Regular Certificates of such proposed action, which notice shall
be prepared by the Special Servicer, and only if the Trustee does not receive,
within ____ days of such notification, instructions from the Holders of at least
___1% of the aggregate Voting Rights of such Classes directing the Special
Servicer not to take such action. None of the Trustee, the Servicer or the
Special Servicer shall be obligated to take any action or not take any action
pursuant to this Section 3.10(h) at the direction of the Certificateholders
unless the Certificateholders agree to indemnify the Trustee, the Servicer and
the Special Servicer with respect to such action or inaction. None of the
Special Servicer, Servicer or the Trustee shall be required to advance the cost
of any such compliance, containment, clean-up or remediation and such expense
shall be an expense of the Trust Fund.
(h) The Special Servicer shall report to the IRS and to the related
Borrower, in the manner required by applicable law, the information required to
be reported regarding any Mortgaged Property which is abandoned or foreclosed.
The Special Servicer shall deliver a copy of any such report to the Trustee.
(i) The costs of any appraisal obtained pursuant to this Section 3.10
shall be paid by the Servicer as an Advance and shall be reimbursable (with
interest thereon at the Advance Rate) from the Collection Account pursuant to
Section 3.6.
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SECTION 3.11Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Servicer of a notification that payment in full has been escrowed in a manner
customary for such purposes, the Servicer shall immediately notify the Trustee
and the Custodian by a certification (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the
Collection Account pursuant to Section 3.5(a) have been or will be so deposited)
of a Servicing Officer and shall request delivery to it of the Mortgage File. No
expenses incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Trust Fund.
From time to time upon request of the Servicer or the Special
Servicer, and delivery to the Trustee and the Custodian of a Request for
Release, the Trustee shall promptly cause the Custodian to release the Mortgage
File (or any portion thereof) designated in such Request for Release to the
Servicer or the Special Servicer, as applicable. Upon receipt of (a) such
Mortgage File (or portion thereof) by the Custodian from the Servicer or the
Special Servicer, as applicable, or (b) in the event of a liquidation or
conversion of the related Mortgage Loan into an REO Property, a certificate of a
Servicing Officer stating that such Mortgage Loan was liquidated and that all
amounts received or to be received in connection with such liquidation which are
required to be deposited into the Collection Account or Distribution Account
have been so deposited, or that such Mortgage Loan has become an REO Property,
the Custodian shall return the Request for Release to the Servicer or the
Special Servicer, as applicable.
Upon written certification of a Servicing Officer, the Trustee shall
execute and deliver to the Special Servicer any court pleadings, requests for
trustee's sale or other documents prepared by the Special Servicer, its agents
or attorneys, necessary to the foreclosure or trustee's sale in respect of the
Mortgaged Property or to any legal action brought to obtain judgment against any
Borrower on the related Note or Mortgage or to obtain a deficiency judgment, or
to enforce any other remedies or rights provided by such Note or Mortgage or
otherwise available at law or in equity. Each such certification shall include a
request that such pleadings or documents be executed by the Trustee and a
statement as to the reason such documents or pleadings are required and that the
execution and delivery thereof by the Trustee will not invalidate or otherwise
affect the lien of the related Mortgage, except for the termination of such a
lien upon completion of the foreclosure or trustee's sale.
SECTION 3.12. Servicing Compensation and Trustee Fees.
(a) As compensation for its activities hereunder, the Servicer shall
be entitled to the Servicing Fee, which shall be payable solely from receipts on
the related Mortgage Loans, and may be withheld from payments on account of
interest prior to deposit in the Collection Account, or may be withdrawn from
amounts on deposit in the Collection Account as set forth in Section 3.6(iv).
The Servicer's rights to the Servicing Fee may not be
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transferred in whole or in part except in connection with the transfer of all of
the Servicer's responsibilities and obligations under this Agreement. In
addition, the Servicer shall be entitled to receive, as additional servicing
compensation, any Prepayment Interest Surplus (subject to Section 3.25) and, to
the extent permitted by applicable law and the related Notes and Mortgages, any
late payment charges, late fees, Assumption Fees, loan modification fees,
extension fees, [Financial and Lease Reporting Fees (to the extent such fees are
not required to be remitted to the related Borrower pursuant to the related
Note)], loan service transaction fees, beneficiary statement charges, or similar
items (but not including any Default Interest or Prepayment Premiums), in each
case to the extent received, with respect to any Mortgage Loan that is not a
Specially Serviced Mortgage Loan and not required to be deposited or retained in
the Collection Account pursuant to Section 3.5. The Servicer shall also be
entitled pursuant to, and to the extent provided in, Section 3.7(b) to withdraw
from the Collection Account and to receive from the Reserve Accounts (to the
extent not required to be paid to the related Borrower pursuant to the related
Mortgage Loan Documents or applicable law) any interest or other income earned
on deposits therein.
As compensation for its activities hereunder, the Trustee shall be
entitled to the Trustee Fee with respect to each Mortgage Loan, which shall be
paid by the Servicer from its own funds without reimbursement therefor. The
Trustee shall pay the routine fees and expenses of the Certificate Registrar,
the Paying Agent, the Custodian and the Authenticating Agent. The Trustee's
rights to the Trustee Fee may not be transferred in whole or in part except in
connection with the transfer of all of the Trustee's responsibilities and
obligations under this Agreement.
Except as otherwise provided herein, the Servicer shall pay all
expenses incurred by it in connection with its servicing activities hereunder
and the Trustee shall pay all expenses incurred by it in connection with its
activities hereunder.
(b) As compensation for its activities hereunder, the Special
Servicer shall be entitled to the Special Servicing Fee with respect to each
Specially Serviced Mortgage Loan, which shall be payable from amounts on deposit
in the Collection Account as set forth in Section 3.6(iv). The Special
Servicer's rights to the Special Servicing Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Special
Servicer's responsibilities and obligations under this Agreement. The Special
Servicer shall also be entitled pursuant to, and to the extent provided in,
Section 3.7(b) to withdraw from any REO Account any interest or other income
earned on deposits therein.
In addition, the Special Servicer shall be entitled to receive, as
additional Servicing Compensation, to the extent permitted by applicable law and
the related Notes and Mortgages, any late payment charges, late fees, Assumption
Fees, loan modification fees, extension fees, Financial and Lease Reporting Fees
(to the extent such fees are not required to be remitted to the related Borrower
pursuant to the related Note), loan service transaction fees, beneficiary
statement charges, or similar items (but not including any Default Interest or
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Prepayment Premiums), in each case to the extent received with respect to any
Specially Serviced Mortgage Loan and not required to be deposited or retained in
the Collection Account pursuant to Section 3.5.
Except as otherwise provided herein, the Special Servicer shall pay
all expenses incurred by it in connection with its servicing activities
hereunder.
[(c) In addition to other Special Servicer compensation provided for
in this Agreement, and not in lieu thereof, the Special Servicer shall be
entitled to the Disposition Fee payable out of the Liquidation Proceeds prior to
the deposit of the related Net Liquidation Proceeds in the Collection Account.]
(d) The Servicer, the Special Servicer and the Trustee shall be
entitled to reimbursement from the Trust Fund for the unanticipated costs and
expenses incurred by them in the performance of their duties under this
Agreement which are "unanticipated expenses incurred by the REMIC" within the
meaning of Treasury Regulations Section 1.860G-1(b)(3)(ii). Such expenses shall
include, by way of example and not by way of limitation, environmental
assessments, appraisals in connection with foreclosure, the fees and expenses of
any administrative or judicial proceeding and expenses expressly identified as
reimbursable in Section 3.6(vi).
(e) No provision of this Agreement or of the Certificates shall
require the Servicer, the Special Servicer, the Trustee [or the Fiscal Agent] to
expend or risk their own funds or otherwise incur any financial liability in the
performance of any of their duties hereunder or thereunder, or in the exercise
of any of their rights or powers, if, in the good faith business judgment of the
Servicer, Special Servicer, Trustee [or the Fiscal Agent], as the case may be,
repayment of such funds would not be ultimately recoverable from late payments,
Insurance Proceeds, Condemnation Proceeds, Net Liquidation Proceeds and other
collections on or in respect of the Mortgage Loans, or from adequate indemnity
from other assets comprising the Trust Fund against such risk or liability.
If the Servicer, the Special Servicer or the Trustee receives a
request or inquiry from a Borrower, any Certificateholder or any other Person
the response to which would, in the Servicer's, the Special Servicer's or the
Trustee's good faith business judgment, require the assistance of Independent
legal counsel or other consultant to the Servicer, the Special Servicer or the
Trustee, the cost of which would not be an expense of the Trust Fund hereunder,
then the Servicer, the Special Servicer or the Trustee, as the case may be,
shall not be required to take any action in response to such request or inquiry
unless such Borrower or such Certificateholder or such other Person, as
applicable, makes arrangements for the payment of the Servicer's, the Special
Servicer's or Trustee's expenses associated with such counsel or other
consultant (including, without limitation, posting an advance payment for such
expenses) satisfactory to the Servicer, the Special Servicer or the Trustee, as
the case may be, in its sole discretion. Unless such arrangements have been
made, the Servicer, the Special Servicer or the Trustee, as the case
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may be, shall have no liability to any Person for the failure to
respond to such request or inquiry.
SECTION 3.13. Reports to the Trustee; Collection
Account Statements.
(a) The Servicer shall deliver to the Paying Agent, with a copy to
the Trustee, [the Fiscal Agent] and each Rating Agency, no later than the third
Business Day following each Determination Date, but in any event no later than
the third Business Day prior to the related Distribution Date, (i) the Servicer
Remittance Report with respect to such Determination Date (which shall include,
without limitation, the amount of Pooled Available Funds for the related
Distribution Date) and (ii) a written statement of required P&I Advances for the
related Determination Date together with the certificate and documentation
required by the definition of Nonrecoverable Advance related to any
determination that any such P&I Advance would constitute a Nonrecoverable
Advance made as of such Determination Date.
(b) For so long as the Servicer makes deposits into and withdrawals
from the Collection Account, not later than [fifteen] days after each
Distribution Date, the Servicer shall forward to the Trustee a statement
prepared by the Servicer setting forth the status of the Collection Account as
of the close of business on the last Business Day of the related Collection
Period showing the aggregate amount of deposits into and withdrawals from the
Collection Account for each category of deposit specified in Section 3.5 and
each category of withdrawal specified in Section 3.6 for such Collection Period.
(c) The Trustee shall be entitled to rely conclusively on and shall
not be responsible for the content or accuracy of any information provided to it
by the Servicer or the Special Servicer pursuant to this Agreement.
SECTION 3.14. Annual Statement as to Compliance.
The Servicer and the Special Servicer shall deliver to the Trustee
and to the Depositor on or before March 31 of each year, beginning with March
31, , an Officer's Certificate stating, as to each signatory thereof, (i) that a
review of the activities of the Servicer or the Special Servicer, as applicable,
during the preceding calendar year (or such shorter period from the Closing Date
to the end of the related calendar year) and of its performance under this
Agreement has been made under such officer's supervision, (ii) that, to the best
of such officer's knowledge, based on such review, it has fulfilled all of its
obligations under this Agreement throughout such year (or such shorter period),
or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer, the nature and status
thereof and what action it proposes to take with respect thereto, (iii) that, to
the best of such officer's knowledge, each sub-servicer has fulfilled its
obligations under its sub-servicing agreement in all material respects, or, if
there has been a material default in the fulfillment of such obligations,
specifying each such default known to such officer and the nature and status
thereof, and (iv) whether it has received any notice regarding qualification, or
challenging the
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status, of the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC from the IRS or
any other governmental agency or body.
SECTION 3.15Annual Independent Public Accountants'
Servicing Report.
On or before ___________ of each year, beginning with _________, ,
the Servicer and the Special Servicer at its expense shall cause a nationally
recognized firm of Independent public accountants (who may also render other
services to the Servicer or the Special Servicer, as applicable) to furnish to
the Trustee, the Depositor and each Rating Agency a statement to the effect that
such firm has examined certain documents and records relating to the servicing
of the Mortgage Loans under this Agreement for the preceding twelve (12) months
and that: their examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, disclosed no exceptions or errors in records
relating to the Servicing of the Mortgage Loans under this Agreement in
accordance with the terms of this Agreement that in their opinion are material,
except for such exceptions as set forth in their statement.
SECTION 3.16. Access to Certain Documentation.
(a) The Servicer and the Special Servicer shall provide to any
Certificateholders that are federally insured financial institutions, the
Federal Reserve Board, the FDIC and the OTS and the supervisory agents and
examiners of such boards and such corporations, and any other governmental or
regulatory body to the jurisdiction of which any Certificateholder is subject,
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the Federal Reserve Board, FDIC, OTS or any such governmental or
regulatory body, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer or the Special Servicer, as applicable.
[(b) In connection with the solicitation of bids to purchase the
Mortgage Loans pursuant to Section 9.1(d), the Servicer and the Special Servicer
shall provide each Qualified Offeror who has paid the non-refundable deposit
required pursuant to Section 9.1(d)(vi) with access to all documents that the
Auction Agent considers material to prospective purchasers in connection with
their evaluation of the purchase of the Mortgage Loans and shall cooperate with
the Auction Agent in order to facilitate prospective purchasers' due diligence
in accordance with the Auction Procedures, including without limitation the
provision of facilities in which copies of each Mortgage File may be reviewed,
provision of facilities for the photocopying of documents relating to Mortgages
in return for payment of expenses of such photocopying, cooperation in arranging
access to Mortgaged Properties and such other matters as the Auction Agent may
reasonably request; provided, however, that the Servicer or the Special
Servicer, as applicable, shall be entitled to be compensated by Qualified
Offerors for its costs of providing such access, cooperation and facilities.]
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(c) Nothing in this Section 3.16 shall detract from the obligation of
the Servicer or the Special Servicer to observe any applicable law or any
provisions of the Mortgage Loan Documents prohibiting disclosure of information
with respect to the Borrowers or the Mortgage Loans, and the failure of the
Servicer or the Special Servicer, as applicable, to provide access as provided
in this Section 3.16 as a result of such obligation shall not constitute a
breach of this Section 3.16.
SECTION 3.17. Title and Management of REO Properties.
(a) In the event that title to any Mortgaged Property is acquired for
the benefit of Certificateholders in foreclosure, by deed in lieu of foreclosure
or upon abandonment or reclamation from bankruptcy, the deed or certificate of
sale shall be taken in the name of the Trustee, or its nominee (which shall not
include the Servicer), or a separate trustee or co-trustee, on behalf of the
Trust Fund. The Special Servicer shall maintain accurate records with respect to
each related REO Property reflecting the status of taxes, assessments and other
similar items that are or may become a lien on such REO Property and the status
of insurance premiums payable with respect thereto. The Special Servicer, on
behalf of the Trust Fund, shall use its best efforts to dispose of any REO
Property within two years after the Trust Fund acquires ownership of such REO
Property for purposes of Section 860G(a)(8) of the Code, unless (i) the Special
Servicer, on behalf of the Lower-Tier REMIC, has applied for and received an
extension of such two-year period pursuant to Sections 856(e)(3) and
860G(a)(8)(A) of the Code, in which case the Special Servicer shall sell such
REO Property within the applicable extension period or (ii) the Special Servicer
seeks and subsequently receives an Opinion of Counsel (which opinion shall be an
expense of the Trust Fund), addressed to the Special Servicer and the Trustee,
to the effect that the holding by the Trust Fund of such REO Property for an
additional specified period will not cause such REO Property to fail to qualify
as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) at any time that any Certificate is outstanding, in which
case the Special Servicer shall sell such REO Property within such two-year
period as extended by such additional specified period subject to any conditions
set forth in such Opinion of Counsel. The Special Servicer, on behalf of the
Trust Fund, shall use its best efforts to dispose of any REO Property held by
the Trust Fund prior to the last day of the period (taking into account
extensions) within which such REO Property is required to be disposed of
pursuant to the provisions of the immediately preceding sentence in a manner
provided under Section 3.18. The Special Servicer shall manage, conserve,
protect and operate each REO Property for the Certificateholders solely for the
purpose of its disposition and sale in a manner which does not cause such REO
Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code (determined without regard to the exception
applicable for purposes of Section 860D(a)) of the Code.
(b) The Special Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection with any REO Property as are consistent with the
manner in which the Special
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Servicer manages and operates similar property owned or managed by the Special
Servicer or any of its Affiliates, all on such terms and for such period as the
Special Servicer deems to be in the best interests of Certificateholders, and,
in connection therewith, the Special Servicer shall agree to the payment of
management fees that are consistent with general market standards. The Special
Servicer shall segregate and hold all revenues received by it with respect to
any REO Property separate and apart from its own funds and general assets and
shall establish and maintain with respect to any REO Property a custodial
account (each, an "REO Account"), each of which shall be an Eligible Account and
shall be entitled " , as Trustee, in trust for Holders of
, Commercial
Mortgage Pass-Through Certificates, Series , REO Account." The Special Servicer
shall be entitled to any interest or investment income earned on funds deposited
in an REO Account to the extent provided in Section 3.7(b). The Special Servicer
shall deposit or cause to be deposited in the related REO Account within one
Business Day after receipt all REO Proceeds received by it with respect to any
REO Property (other than Liquidation Proceeds), and shall withdraw therefrom
funds necessary for the proper operation, management and maintenance of such REO
Property and for other Property Protection Expenses with respect to such REO
Property, including:
(i) all insurance premiums due and payable in
respect of such REO Property;
(ii) all real estate taxes and assessments in respect of such REO
Property that may result in the imposition of a lien thereon;
and
(iii) all costs and expenses reasonable and necessary to protect,
maintain, manage, operate, repair and restore such REO
Property, including any property management fees.
To the extent that such REO Proceeds are insufficient for the
purposes set forth in clauses (i) through (iii) above, the Servicer shall make
an Advance equal to the amount of such shortfall unless the Servicer determines,
in its good faith judgment, that such Advance would be a Nonrecoverable Advance.
The Servicer shall be entitled to reimbursement of such Advances (with interest
at the Advance Rate) made pursuant to the preceding sentence, to the extent
permitted pursuant to Section 3.6. The Special Servicer shall remit to the
Servicer from each REO Account for deposit in the Collection Account on a
monthly basis prior to the related Remittance Date the Net REO Proceeds received
or collected from the related REO Property, except that in determining the
amount of such Net REO Proceeds, the Special Servicer may retain in such REO
Account reasonable reserves for repairs, replacements and necessary capital
improvements and other related expenses.
Notwithstanding the foregoing, the Special Servicer shall not:
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(i) permit the Trust Fund to enter into, renew or extend any New
Lease if the New Lease, by its terms, will give rise to any
income that does not constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under any New
Lease other than amounts that will constitute Rents from Real
Property;
(iii) authorize or permit any construction on any REO
Property, other than the repair or maintenance
thereof or the completion of a building or other
improvement thereon, and then only if more than
10% of the construction of such building or
other improvement was completed before default
on the related Mortgage Loan became imminent,
all within the meaning of Section 856(e)(4)(B)
of the Code; or
(iv) Directly Operate or perform any construction work on, or allow
any Person (other than an Independent Contractor) to Directly
Operate or perform any construction work on, any REO Property
on, any date more than 90 days after its date of acquisition
by the Trust Fund;
unless, in any such case, the Special Servicer has requested and received an
Opinion of Counsel addressed to the Special Servicer and the Trustee (which
opinion shall be an expense of the Trust Fund) to the effect that such action
will not cause such REO Property to fail to qualify as "foreclosure property"
within the meaning of Section 860G(a)(8) of the Code (determined without regard
to the exception applicable for purposes of Section 860D(a) of the Code) at any
time that it is held by the Trust Fund, in which case the Special Servicer may
take such actions as are specified in such Opinion of Counsel.
The Special Servicer shall be required to contract with an
Independent Contractor for the operation and management of any REO Property
within 90 days of the Trust Fund's acquisition thereof (unless the Special
Servicer shall have provided the Trustee with an Opinion of Counsel that the
operation and management of such REO Property other than through an Independent
Contractor shall not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Code Section 860G(a)(8)) (which opinion shall be
an expense of the Trust Fund), provided that:
(i) the terms and conditions of any such contract
shall be reasonable and customary for the area
and type of property and shall not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered to
require, that the Independent Contractor pay all costs and
expenses incurred in connection with the operation and
management of such REO Property, including those listed above,
and remit all related revenues (net of such
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costs and expenses) to the Special Servicer as soon as practicable, but in no
event later than thirty days following the receipt thereof by such Independent
Contractor;
(iii) none of the provisions of this Section 3.17(b)
relating to any such contract or to actions
taken through any such Independent Contractor
shall be deemed to relieve the Special Servicer
of any of its duties and obligations to the
Trust Fund or the Trustee on behalf of the
Certificateholders with respect to the operation
and management of any such REO Property; and
(iv) the Special Servicer shall be obligated with respect thereto
to the same extent as if it alone were performing all duties
and obligations in connection with the operation and
management of such REO Property.
The Special Servicer shall be entitled to enter into any agreement
with any Independent Contractor performing services for it related to its duties
and obligations hereunder for indemnification of the Special Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification.
(c) Promptly following any acquisition by the Trust Fund of an REO
Property, the Special Servicer shall obtain (i) an update of any appraisal
performed pursuant to Section 3.10 which is more than ____ months old, or (ii)
to the extent that an appraisal has not been obtained pursuant to such Section,
an appraisal of such REO Property by an Independent appraiser familiar with the
area in which such REO Property is located in order to determine the fair market
value of such REO Property and shall notify the Depositor and the Trustee of the
results of such appraisal. Any such appraisal shall be conducted in accordance
with MAI standards and the cost thereof shall be an expense of the Trust Fund.
(d) When and as necessary, the Special Servicer shall send to the
Trustee a statement prepared by the Special Servicer setting forth the amount of
net income or net loss, as determined for federal income tax purposes, resulting
from the operation and management of a trade or business on, the furnishing or
rendering of a non-customary service to the tenants of, or the receipt of any
other amount not constituting Rents from Real Property in respect of, any REO
Property in accordance with Section 3.17(b).
SECTION 3.18Sale of Specially Serviced Mortgage Loans and REO
Properties.
(a) With respect to any Specially Serviced Mortgage Loan or REO
Property which the Special Servicer has determined to sell in accordance with
Section 3.10 or otherwise, the Special Servicer shall deliver to the Trustee an
Officer's Certificate to the effect that the Special Servicer has determined to
sell such Specially Serviced Mortgage Loan or REO Property in accordance with
this Section 3.18. The Special Servicer may then offer to sell to any Person
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such Specially Serviced Mortgage Loan or such REO Property but shall, in any
event, so offer to sell such REO Property no later than the time determined by
the Special Servicer to be sufficient to result in the sale of such REO Property
within the period specified in Section 3.17(a). The Special Servicer shall
deliver such Officer's Certificate and give the Trustee not less than [ten]
Business Days prior written notice of its intention to sell such Specially
Serviced Mortgage Loan or REO Property, in which case the Special Servicer shall
accept any offer received from any Person that is determined by the Special
Servicer to be a fair price, as determined in accordance with Section 3.18(b),
for such Specially Serviced Mortgage Loan or REO Property if the offeror is a
Person other than an Interested Person, or is determined to be such a price by
the Trustee if the offeror is an Interested Person; provided, however, that the
Trustee shall be entitled to engage at the expense of the Trust Fund, an
Independent appraiser to determine whether the offer is a fair price.
Notwithstanding anything to the contrary herein, neither the Trustee in its
individual capacity nor any of its Affiliates, may make an offer or purchase any
Specially Serviced Mortgage Loan or any REO Property pursuant hereto.
In addition, in the event that the Special Servicer receives more
than one fair offer with respect to any Specially Serviced Mortgage Loan or REO
Property, the Special Servicer may accept an offer that is not the highest fair
offer if it determines, in accordance with the Servicing Standard, that
acceptance of such offer would be in the best interests of the
Certificateholders (for example, if the prospective buyer making the lower offer
is more likely to perform its obligations, or the terms offered by the
prospective buyer making the lower offer are more favorable). In the event that
the Special Servicer determines with respect to any REO Property that the offers
being made with respect thereto are not in the best interests of the
Certificateholders and that the end of the two-year period referred to in
Section 3.17(a) with respect to such REO Property is approaching, the Special
Servicer shall seek an extension of such two-year period in the manner described
in Section 3.17(a); provided, however, that the Special Servicer shall use its
best efforts in accordance with the Servicing Standard, to sell any REO Property
no later than the day prior to the Determination Date immediately prior to the
Scheduled Final Distribution Date.
(b) In determining whether any offer received represents a fair price
for any Specially Serviced Mortgage Loan or any REO Property, the Special
Servicer or the Trustee may conclusively rely on the opinion of an Independent
appraiser or other expert in real estate matters retained by the Special
Servicer or the Trustee at the expense of the Trust Fund. In determining whether
any offer constitutes a fair price for any Specially Serviced Mortgage Loan or
any REO Property, the Special Servicer or the Trustee (or, if applicable, such
appraiser) shall take into account, and any appraiser or other expert in real
estate matters shall be instructed to take into account, the appraisal obtained
pursuant to Section 3.10(a) and, as applicable, among other factors, the period
and amount of any delinquency on such Specially Serviced Mortgage Loan, the
physical (including environmental) condition of the related Mortgaged Property
or such REO Property, the state of the local economy and the Trust Fund's
obligation to dispose of any REO Property within the time period specified in
Section 3.17(a).
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(c) Subject to the provisions of Section 3.17, the Special Servicer
shall act on behalf of the Trust Fund in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Specially Serviced
Mortgage Loan or REO Property, including the collection of all amounts payable
in connection therewith. Any sale of a Specially Serviced Mortgage Loan or any
REO Property shall be without recourse to, or representation or warranty by, the
Trustee, the Depositor, the Servicer, the Special Servicer or the Trust Fund
(except that any contract of sale and assignment and conveyance documents may
contain customary warranties of title and condition, so long as the only
recourse for breach thereof is to the Trust Fund), and, if such sale is
consummated in accordance with the duties of the Special Servicer, the Servicer,
the Depositor and the Trustee pursuant to the terms of this Agreement, no such
Person who so performed shall have any liability to the Trust Fund or any
Certificateholder with respect to the purchase price therefor accepted by the
Special Servicer or the Trustee.
(d) Net Liquidation Proceeds related to any such sale shall be
promptly, and in any event within one Business Day following receipt thereof,
deposited in the Collection Account in accordance with Section 3.5(a)(iv).
SECTION 3.19Inspections.
The Servicer (or, with respect to Specially Serviced Mortgage Loans
and REO Properties, the Special Servicer) shall inspect or cause to be inspected
(at its own expense) each Mortgaged Property at such times and in such manner as
are consistent with the Servicing Standard, but in any event (i) inspect each
Mortgaged Property at least once every 12 months commencing in unless each of
the Rating Agencies has confirmed in writing that a longer period between
inspections shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
the Certificates; [(ii) if the Servicer or the Special Servicer retains any
Financial and Lease Reporting Fees pursuant to Section 3.12, each related
Mortgaged Property shall be inspected by the Servicer or the Special Servicer,
as applicable, as soon as practicable thereafter, except to the extent such
Mortgaged Property has been inspected by the Servicer or the Special Servicer
within the immediately preceding ____ days;] and (iii) if any Monthly Payment
becomes more than 60 days delinquent (without giving effect to any grace period
permitted under the related Note or Mortgage), each related Mortgaged Property
shall be inspected by the Special Servicer (at its own expense) as soon as
practicable thereafter.
SECTION 3.20Available Information and Notices.
The Servicer or the Special Servicer, if applicable, shall promptly
give notice to the Trustee, who will copy each Certificateholder, each Rating
Agency, the Depositor and the Mortgage Loan Seller of (a) any notice from a
Borrower or insurance company regarding an upcoming voluntary or involuntary
prepayment (including that resulting from a casualty or condemnation) of all or
part of the related Mortgage Loan (provided that a request by a Borrower or
other party for a quotation of the amount necessary to satisfy all obligations
with
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respect to a Mortgage Loan shall not, in and of itself, be deemed to be such
notice); and (b) of any other occurrence known to it with respect to a Mortgage
Loan or REO Property that the Servicer or the Special Servicer determines, in
accordance with the Servicing Standard, would have a material effect on such
Mortgage Loan or REO Property, which notice shall include an explanation as to
the reason for such material effect (provided that any extension of the term of
any Mortgage Loan shall be deemed to have a material effect).
Neither the Servicer nor the Special Servicer shall be responsible
for the accuracy or completeness of any information supplied to it by a Borrower
or otherwise for inclusion in any such notice, and the Servicer, the Special
Servicer and the Trustee shall be indemnified and held harmless by the Trust
Fund against any loss, liability or expense incurred in connection with any
legal action relating to any statement or omission or alleged statement or
omission therein, including any liability related to the inclusion of such
information in any report filed with the Commission.
In addition to the other reports and information made available and
distributed to the Depositor, the Trustee or the Certificateholders pursuant to
other provisions of this Agreement, the Servicer and the Special Servicer shall,
in accordance with such reasonable rules and procedures as it may adopt (which
may include the requirement that an agreement governing the availability, use
and disclosure of such information, and which may provide indemnification to the
Servicer or the Special Servicer as applicable, for any liability or damage that
may arise therefrom, be executed to the extent the Servicer or the Special
Servicer, as applicable, deems such action to be necessary or appropriate), also
make available any information relating to the Mortgage Loans, the Mortgaged
properties or the Borrower for review by the Depositor, the Trustee, the
Certificateholders and any other Persons to whom the Servicer or the Special
Servicer, as the case may be, believes such disclosure is appropriate, in each
case except to the extent doing so is prohibited by applicable law or by any
documents related to a Mortgage Loan.
The Trustee shall also make available at its offices primarily
responsible for administration of the Trust Fund, during normal business hours,
for review by the Depositor, any Certificateholder, any Person identified to the
Trustee by a Certificateholder as a prospective transferee of a Certificate and
any other Persons to whom the Trustee believes such disclosure is appropriate,
the following items: (i) this Agreement, (ii) all monthly statements to
Certificateholders delivered since the Closing Date pursuant to Section 4.2(a),
(iii) all annual statements as to compliance delivered to the Trustee and the
Depositor pursuant to Section 3.14 and (iv) all annual Independent accountants'
reports delivered to the Trustee and the Depositor pursuant to Section 3.15. The
Servicer or the Special Servicer, as appropriate, shall make available at its
offices during normal business hours, for review by the Depositor, the Trustee,
any Certificateholder, any Person identified to the Servicer or the Special
Servicer, as applicable, by a Certificateholder as a prospective transferee of a
Certificate and any other Persons to whom the Servicer or the Special Servicer,
as applicable, believes such disclosure is appropriate, the following items: (i)
the inspection reports prepared by or on behalf of the Servicer or the Special
Servicer, as applicable, in connection with the property inspections
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conducted by the Servicer or the Special Servicer, as applicable, pursuant to
Section 3.19, (ii) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Servicer or the Special Servicer
and (iii) any and all Officer's Certificates and other evidence delivered to the
Trustee and the Depositor to support the Servicer's determination that any
Advance was, or if made would be, a Nonrecoverable Advance, in each case except
to the extent doing so is prohibited by applicable laws or by any documents
related to a Mortgage Loan. Copies of any and all of the foregoing items shall
be available from the Servicer, the Special Servicer or the Trustee, as
applicable, upon request (subject to the exception in the preceding sentence).
The Servicer, the Special Servicer and the Trustee shall be permitted to require
payment (other than from any Rating Agency) of a sum sufficient to cover the
reasonable costs and expenses incurred by it in providing copies of or access to
any information requested in accordance with the previous sentence.
The Servicer shall, on behalf of the Trust Fund, prepare, sign and
file with the Commission any and all reports, statements and information
respecting the Trust Fund which the Servicer or the Trustee determines are
required to be filed with the Commission pursuant to Sections 13(a) or 15(d) of
the 1934 Act, each such report, statement and information to be filed on or
prior to the required filing date for such report, statement or information.
Notwithstanding the foregoing, the Depositor shall file with the Commission,
within fifteen days of the Closing Date, a Current Report on Form 8-K together
with this Agreement.
Neither the Servicer not the Trustee shall be responsible for the
accuracy or completeness of any information supplied to it by a Borrower or a
third party that is included in any report, statement or information filed with
the Commission, and both the Servicer and the Trustee shall be indemnified and
held harmless by the Trust Fund against any loss, liability or expense incurred
in connection with any legal action relating to any statement or omission or
alleged statement or omission therein resulting from such information.
SECTION 3.21. Reserve Accounts.
The Servicer shall administer each Reserve Account in accordance with
the related Mortgage Loan Documents.
SECTION 3.22. Property Advances.
(a) The Servicer (or, to the extent provided in Section 3.22(b), the
Trustee [or the Fiscal Agent]) shall make any Property Advances as and to the
extent otherwise required pursuant to the terms hereof. For purpose of
calculating distributions to the Certificateholders, Property Advances shall not
be considered to increase the principal balance of any Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so provide.
(b) The Servicer shall notify the Trustee [and the Fiscal Agent] in
writing promptly upon, and in any event within one Business Day after, becoming
aware that it will be
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financially unable to make any Property Advance required to be made pursuant to
the terms hereof, and in connection therewith, shall set forth in such notice
the amount of such Property Advance, the Person to whom it should be paid, and
the circumstances and purpose of such Property Advance, and shall set forth
therein information and instructions for the payment of such Property Advance,
and, on the date specified in such notice for the payment of such Property
Advance, or, if no such date is specified, then within one Business Day
following such notice, the Trustee shall pay the amount of such Property Advance
in accordance with such information and instructions. [If the Trustee fails to
make any Property Advance required to be made under this Section 3.22, the
Fiscal Agent shall make such Advance on the same day the Trustee was required to
make such Property Advance and, thereby, the Trustee shall not be in default
under this Agreement.]
(c) Notwithstanding anything herein to the contrary, none of the
Servicer, the Trustee [or the Fiscal Agent] shall be obligated to make a
Property Advance as to any Mortgage Loan or REO Property if the Servicer, the
Trustee [or the Fiscal Agent] as applicable, determines that such Property
Advance, if made, would be a Nonrecoverable Advance. The Trustee [and the Fiscal
Agent] shall be entitled to rely, conclusively, on any determination by the
Servicer that a Property Advance, if made, would be a Nonrecoverable Advance.
The Trustee [and the Fiscal Agent,] in determining whether or not a Property
Advance previously made is, or a proposed Property Advance, if made, would be, a
Nonrecoverable Advance shall be subject to the standards applicable to the
Servicer hereunder.
(d) The Servicer, the Trustee [and/or the Fiscal Agent], as
applicable, shall be entitled to, and the Servicer hereby covenants and agrees
to promptly seek and effect, the reimbursement of Property Advances to the
extent permitted pursuant to Section 3.6(ii) of this Agreement, together with
any related Advance Interest Amount in respect of such Property Advances.
(e) The Servicer, the Trustee [and/or the Fiscal Agent] shall not be
required to make a Property Advance for any amounts required to cure any failure
of any Mortgaged Property to comply with the Americans with Disabilities Act of
1990, as amended, and all rules and regulations promulgated pursuant thereto, or
any applicable Environmental Law, and such amounts shall be paid as an expense
of the Trust Fund.
SECTION 3.23. Appointment of Special Servicer.
(a) is hereby appointed
as the initial Special Servicer to service each Specially Serviced
Mortgage Loan.
(b) Certificateholders representing greater than [50]% of the Voting
Rights of the most subordinate Class of Regular Certificates outstanding at any
time shall be entitled to remove the Special Servicer with or without cause and
to appoint a successor Special Servicer, provided that each Rating Agency
confirms to the Trustee in writing that such
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appointment shall not, in and of itself, cause a withdrawal, downgrading or
qualification of the then-current ratings assigned to any Class of Certificates.
(c) The appointment of any such successor Special Servicer shall not
relieve the Servicer, the Trustee [or the Fiscal Agent] of their respective
obligations to make Advances as set forth herein.
(d) No termination of the Special Servicer and appointment of a
successor Special Servicer shall be effective until the successor Special
Servicer has assumed all of its responsibilities, duties and liabilities
hereunder pursuant to a writing satisfactory to the Trustee and each of the
Rating Agencies confirms to the Trustee in writing that such assumption shall
not result, in and of itself, in a downgrading, withdrawal or qualification of
the rating then assigned by such Rating Agency to any Class of the Certificates.
SECTION 3.24. Transfer of Servicing Between Servicer
and Special Servicer; Record Keeping.
(a) Upon determining that any Mortgage Loan has become a Specially
Serviced Mortgage Loan, the Servicer shall immediately give notice thereof,
together with a copy of the related Mortgage File, to the Special Servicer and
shall use its best efforts to provide the Special Servicer with all information,
documents (but excluding the original documents constituting such Mortgage File)
and records (including records stored electronically on computer tapes, magnetic
discs and the like) relating to such Mortgage Loan and reasonably requested by
the Special Servicer to enable it to assume its duties hereunder with respect
thereto without acting through a sub-servicer. The Servicer shall use its best
efforts to comply with the preceding sentence within five Business Days of the
date such Mortgage Loan became a Specially Serviced Mortgage Loan and in any
event shall continue to act as Servicer and administrator of such Mortgage Loan
until the Special Servicer has commenced the servicing of such Mortgage Loan,
which shall occur upon the receipt by the Special Servicer of the information,
documents and records referred to in the preceding sentence. With respect to
each Mortgage Loan that becomes a Specially Serviced Mortgage Loan, the Servicer
shall instruct the related Borrower to continue to remit all payments in respect
of such Mortgage Loan to the Servicer. If Midland Loan Services, L.P. ceases to
be the Servicer or
ceases to be the Special Servicer, the
remaining party of the two and the successor Servicer or Special Servicer, as
applicable, may agree that, notwithstanding the preceding sentence, with respect
to each Mortgage Loan that became a Specially Serviced Mortgage Loan, the
Servicer shall instruct the related Borrower to remit all payments in respect of
such Mortgage Loan to the Special Servicer, provided that the payee in respect
of such payments shall remain the Servicer.
Upon determining that no event has occurred and is continuing with
respect to a Mortgage Loan that causes such Mortgage Loan to be a Specially
Serviced Mortgage Loan, the Special Servicer shall immediately give notice
thereof to the Servicer and upon giving such notice, such Mortgage Loan shall
cease to be a Specially Serviced Mortgage Loan pursuant to
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the proviso to the definition of Specially Serviced Mortgage Loan, the Special
Servicer's obligation to service such Mortgage Loan shall terminate and the
obligations of the Servicer to service and administer such Mortgage Loan as a
Mortgage Loan that is not a Specially Serviced Mortgage Loan shall resume. In
addition, if the related Borrower has been instructed, pursuant to the last
sentence of the preceding paragraph, to make payments to the Special Servicer,
upon such determination, the Special Servicer shall instruct such Borrower to
remit all payments in respect of such Mortgage Loan that is no longer a
Specially Serviced Mortgage Loan directly to the Servicer.
(b) In servicing any Specially Serviced Mortgage Loan, the Special
Servicer shall provide to the Trustee originals of documents included within the
definition of "Mortgage File" for inclusion in the related Mortgage File (to the
extent such documents are in the possession of the Special Servicer) and copies
of any additional related Mortgage Loan information, including correspondence
with the related Borrower, and the Special Servicer shall provide copies of all
of the foregoing to the Servicer.
(c) Not later than the Business Day preceding each date on which the
Servicer is required to furnish a report under Section 3.13 to the Trustee, the
Special Servicer shall deliver to the Servicer a written statement describing,
on a Mortgage Loan-by-Mortgage Loan basis, the amount of all payments on account
of interest received on each Specially Serviced Mortgage Loan; the amount of all
payments on account of principal, including Principal Prepayments, on each
Specially Serviced Mortgage Loan; the amount of Insurance Proceeds and
Liquidation Proceeds received with respect to each Specially Serviced Mortgage
Loan; and the amount of net income or net loss, as determined for management of
a trade or business on, or the furnishing or rendering of a non-customary
service to the tenants of, each REO Property that previously secured a Specially
Serviced Mortgage Loan, in each case in accordance with Section 3.17.
(d) Notwithstanding the provisions of the preceding subsection (c),
the Servicer shall maintain ongoing payment records with respect to each of the
Specially Serviced Mortgage Loans and shall provide the Special Servicer with
any information reasonably required by the Special Servicer to perform its
duties under this Agreement. The Special Servicer shall provide the Servicer
with any information reasonably required by the Servicer to perform its duties
under this Agreement.
SECTION 3.25Adjustment of Servicing Compensation in
Respect of Prepayment Interest Shortfalls.
(a) The aggregate amount of the Prepayment Interest Surplus and
Servicing Fees (in that order) that the Servicer shall be entitled to receive
with respect to all of the Mortgage Loans on each Distribution Date shall be
offset on such Distribution Date by an amount equal to the aggregate of the
Prepayment Interest Shortfalls for such Distribution Date with respect to all
Mortgage Loans. The Servicer shall include the amount by which the
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aggregate Servicing Fees and Prepayment Interest Surplus is offset pursuant to
this Section 3.25 as part of the Pooled Available Funds on such Distribution
Date. The amount of any offset against the aggregate Servicing Fees and
Prepayment Interest Surplus with respect to any Distribution Date under this
Section 3.25 shall be limited to the aggregate amount of the Servicing Fees and
Prepayment Interest Surplus otherwise payable to the Servicer on such
Distribution Date (without adjustment on account of Prepayment Interest
Shortfalls) and the rights of the Certificateholders to offset of the aggregate
Prepayment Interest Shortfalls shall not be cumulative. To the extent the
Servicer shall already have withdrawn or withheld Servicing Compensation
required to pay Prepayment Interest Shortfalls, the Servicer shall promptly
deposit in the Collection Amount such amounts to the extent required to pay
Prepayment Interest Shortfalls hereunder.
(b) To the extent that the Servicer and the Special Servicer are the
same Person, the aggregate amount of the Special Servicing Fees that the Special
Servicer shall be entitled to receive with respect to all of the Specially
Serviced Mortgage Loans on each Distribution Date shall be offset on such
Distribution Date by an amount equal to the excess of (X) the aggregate of the
Prepayment Interest Shortfalls for such Distribution Date with respect to all
Mortgage Loans over (Y) the amount of Servicing Fees and Prepayment Interest
Surplus offset against such Prepayment Interest Shortfalls in accordance with
Section 3.25(a). The Servicer shall include the amount by which the aggregate
Special Servicing Fee is offset pursuant to this Section 3.25 as part of the
Pooled Available Funds on such Distribution Date. The amount of any offset
against the aggregate Special Servicing Fee with respect to any Distribution
Date under this Section 3.25 shall be limited to the aggregate amount of the
Special Servicing Fees otherwise payable to the Special Servicer on such
Distribution Date (without adjustment on account of Prepayment Interest
Shortfalls) and the rights of the Certificateholders to offset of the aggregate
Prepayment Interest Shortfalls shall not be cumulative.
SECTION 3.26. Extension Advisor.
The Special Servicer shall obtain the prior written approval of the
Extension Advisor in respect of any proposed extension of a Mortgage Loan
pursuant to Section 3.10(a) with respect to which three successive extensions
shall have already been granted. The Special Servicer shall advise the Extension
Advisor in a written report (in reasonable detail) if any such extension after
the third successive previous extension of such Mortgage Loan with respect to a
Specially Serviced Mortgage Loan is proposed and the Special Servicer shall
grant such extension only if the Extension Advisor approves such extension in
writing.
The Extension Advisory Fee shall be paid to the Extension Advisor,
first from loan modification fees paid by the Borrower under the related
Mortgage Loan as to which an extension was requested, and, to the extent that
such loan modification fees are insufficient to pay the Extension Advisory Fee,
any such shortfall shall be paid from the Servicing Compensation; provided that
the reduction in Servicing Compensation shall be allocated equally between the
Servicer and the Special Servicer.
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The Extension Advisor may be replaced at any time by the Holders of
____% of the Voting Rights allocated to each Class of Regular Certificates,
other than the most subordinate such Class of Regular Certificates, by written
notice to the Extension Advisor, the Trustee and the Special Servicer.
Notwithstanding anything to the contrary contained herein, in no event shall the
Special Servicer be the Extension Advisor.
ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1.Distributions.
(a) (I) On each Remittance Date, to the extent of Pooled Available
Funds, amounts held in the Collection Account shall be withdrawn and remitted to
the Trustee for deposit in the Distribution Account in the following amounts:
(i) First, pro rata (A) to the Class A-L
Interest in respect of interest, (1) the
Interest Distribution Amount therefor, and
(2) the aggregate unpaid Interest
Shortfalls allocated to the Class A-L
Interest on any prior Distribution Date;
(B) to the Class B-L Interest in respect of
interest, (1) the portion of the Interest
Distribution Amount therefor that is in
excess of interest thereon at the Class B
Pass-Through Rate and (2) a proportionate
amount of any unpaid Interest Shortfalls
allocated to the Class B-L Interest on any
prior Distribution Date; (C) to the Class
C-L Interest in respect of interest, (1)
the portion of the Interest Distribution
Amount therefor that is in excess of
interest thereon at the Class C
Pass-Through Rate and (2) a proportionate
amount of any unpaid Interest Shortfalls
allocated to the Class C-L Interest on any
prior Distribution Date;
(ii) Second, to the Class A-L Interest, in reduction of the
Certificate Balance thereof, the Pooled Principal
Distribution Amount for such Distribution Date, until
the Certificate Balance thereof is reduced to zero;
(iii)Third, to the Class A-L Interest, for the unreimbursed
amounts of Realized Losses, if any, together with simple
interest thereon at a rate equal to % per annum from the
date on which such unreimbursed Realized Loss was
allocated (or the date on which interest was last paid)
to, but not including, the Distribution Date following
the Remittance Date on which
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distributions in respect of such unreimbursed Realized
Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such Lower-Tier
Regular Interest and interest thereon, provided that any
distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such
interest and then in respect of any such unreimbursed
Realized Loss;
(iv) Fourth, to the Class B-L Interest, in
respect of interest, (A) the portion of
the Interest Distribution Amount
therefor that is equal to interest
thereon at the Class B Pass-Through Rate
and (B) a proportionate amount of the
aggregate unpaid Interest Shortfalls
allocated to the Class B-L Interest on
any prior Distribution Date;
(v) Fifth, after the Certificate Balance of the
Class A-L Interest has been reduced to
zero, to the Class B-L Interest, in
reduction of the Certificate Balance
thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed
on such Distribution Date pursuant to any
preceding clause, until the Certificate
Balance of the Class B-L Interest is
reduced to zero;
(vi) Sixth, to the Class B-L Interest, for
the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to
% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date following the
Remittance Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to
the aggregate of such unreimbursed
Realized Losses previously allocated to
such Lower-Tier Regular Interest and
interest thereon, provided that any
distribution pursuant to this
subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(vii)Seventh, to the Class C-L Interest, in respect of
interest, (A) the portion of the Interest Distribution
Amount therefor that is equal to interest thereon at the
Class C Pass-Through Rate and (B) a proportionate amount
of the aggregate unpaid Interest
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Shortfalls allocated to the Class C-L
Interest on any prior Distribution Date;
(viiiEighth, after the Certificate Balance of the Class B-L
Interest has been reduced to zero, to the Class C-L
Interest, in reduction of the Certificate Balance
thereof, the Pooled Principal Distribution Amount less
the portion thereof distributed on such Distribution Date
pursuant to any preceding clause, until the Certificate
Balance of the Class C-L Interest is reduced to zero;
(ix) Ninth, to the Class C-L Interest, for
the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to
% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date following the
Remittance Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to
the aggregate of such unreimbursed
Realized Losses previously allocated to
such Lower-Tier Regular Interest and
interest thereon, provided that any
distribution pursuant to this
subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
[(___, to the Class [PO]-L Interest, in respect of interest,
(A) the Interest Distribution Amount therefor and (B) the
aggregate unpaid Interest Shortfalls allocated to the
Class [PO]- L Interest on any prior Distribution Date;]
[(___, after the Certificate Balance of the Class __-L
Interest has been reduced to zero, to the Class [PO]-L
Interest, in reduction of the Certificate Balance
thereof, the Pooled Principal Distribution Amount less
the portion thereof distributed on such Distribution Date
pursuant to any preceding clause, until the Certificate
Balance of the Class [PO]-L Interest is reduced to zero;]
[( ) , if such Remittance Date occurs
- -------
after the EC Maturity Date, to (i) the Class C-L
Interest, (ii) the Class B-L Interest, (iii) the Class
A-L Interest, and [(iv) the Class [PO]-L Interest], in
that order, in reduction of the Certificate Balance of
each
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thereof, any remaining portion of Pooled Available Funds
in the Collection Account, until the Certificate Balance
of each has been reduced to zero;]
[(__), to the Class [PO]-L Interest, for the unreimbursed
amounts of Realized Losses, if any, together with simple
interest thereon at a rate equal to _____% per annum from
the date on which such unreimbursed Realized Loss was
allocated (or the date on which interest was last paid)
to, but not including, the Distribution Date following
the Remittance Date on which distributions in respect of
such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to
such Lower-Tier Regular Interests and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed first in
respect of any such interest and then in respect of any
such unreimbursed Realized Loss; and]
(___) , to the Class LR Certificates,
any Pooled Available Funds remaining in the
Collection Account.
(II) On each Remittance Date, the Trustee shall receive for deposit
into the Distribution Account in respect of each Lower-Tier Regular Interest,
distributions from amounts on deposit in the Collection Account in respect of
Prepayment Premiums, if any, distributable to its Related Certificate pursuant
to Section 4.1(c)(I).
(b) (I) On each Distribution Date, to the extent of amounts remitted
to the Distribution Account pursuant to Section 4.1(a)(I), Holders of each Class
of Certificates (other than the Class LR Certificates) shall receive
distributions from amounts on deposit in the Distribution Account, up to the
Pooled Available Funds for such Distribution Date, in the amounts and in the
order of priority set forth below:
(i) First, to the Class A Certificates up to
an amount equal to the Class Interest
Distribution Amount of such Class for
such Distribution Date;
(ii) Second, to the Class A Certificates up to an amount
equal to the aggregate unpaid Class Interest
Shortfalls previously allocated to such Class on any
previous Distribution Dates and not paid;
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(iii) Third, to the Class A Certificates, in reduction of
the Certificate Balance thereof, the Pooled Principal
Distribution Amount for such Distribution Date, until
the Certificate Balance thereof is reduced to zero;
(iv) Fourth, to the Class A Certificates for
the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to
_____% per annum from the date on which
such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including,
the Distribution Date on which
distributions in respect of such
unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an
amount equal to the aggregate of such
unreimbursed Realized Losses previously
allocated to the Class A Certificates
and interest thereon, provided that any
distribution pursuant to this
subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(v) Fifth, to the Class B Certificates, up
to an amount equal to the Class Interest
Distribution Amount of such Class for
such Distribution Date;
(vi) Sixth, to the Class B Certificates, up to an amount
equal to the aggregate unpaid Class Interest
Shortfalls previously allocated to such Class on any
previous Distribution Dates and not paid;
(vii) Seventh, after the Certificate Balance
of the Class A Certificates has been
reduced to zero, to the Class B
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion
thereof distributed on such Distribution
Date pursuant to any preceding clause,
until the Certificate Balance thereof is
reduced to zero;
(viii) Eighth, to the Class B Certificates, for
the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to
_____% per annum from the date on which
such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including,
the Distribution Date on which
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distributions in respect of such unreimbursed Realized
Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class B
Certificates and interest thereon, provided that any
distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such
interest and then in respect of any such unreimbursed
Realized Loss;
(ix) Ninth, to the Class C Certificates, up to an amount
equal to the Class Interest Distribution Amount of
such Class for such Distribution Date;
(x) Tenth, to the Class C Certificates, up to an amount
equal to the aggregate unpaid Class Interest
Shortfalls previously allocated to such Class on any
previous Distribution Dates and not paid;
(xi) Eleventh, after the Certificate Balance
of the Class B Certificates has been
reduced to zero, to the Class C
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion
thereof distributed on such Distribution
Date pursuant to any preceding clause,
until the Certificate Balance thereof is
reduced to zero;
(xii) Twelfth, to the Class C Certificates,
for the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to
_____% per annum from the date on which
such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including,
the Distribution Date on which
distributions in respect of such
unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an
amount equal to the aggregate of such
unreimbursed Realized Losses previously
allocated to the Class C Certificates
and interest thereon, provided that any
distribution pursuant to this
subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
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[(___) , to the Class [IO]
Certificates, up to an amount equal to
the Class Interest Distribution Amount
of such Class for such Distribution
Date;]
[(___) , to the Class [IO] Certificates, up to an amount
equal to the aggregate unpaid Class Interest
Shortfalls previously allocated to such Class on any
previous Distribution Dates and not paid;]
[(___) , after the Certificate
-----------
Balance of the Class __ Certificates has been reduced
to zero, to the Class [PO] Certificates, in reduction
of the Certificate Balance thereof, the Pooled
Principal Distribution Amount for such Distribution
Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance thereof is reduced to
zero;]
[(___) , if such Distribution Date
-------------
occurs after the EC Maturity Date, to (i) the Class C
Certificates, (ii) the Class B Certificates, (iii) the
Class A Certificates and [(iv) the Class [PO]
Certificates, in that order], in reduction of the
Certificate Balance of each thereof, any remaining
portion of Pooled Available Funds in the Distribution
Account, until the Certificate Balance of each has
been reduced to zero;]
[(___) , to the Class [PO]
-------------
Certificates, for the unreimbursed amounts of Realized
Losses, if any, together with simple interest thereon
at a rate equal to _____% per annum from the date on
which such unreimbursed Realized Loss was allocated
(or the date on which interest was last paid) to, but
not including, the Distribution Date on which
distributions in respect of such unreimbursed Realized
Loss are made pursuant to this subparagraph, up to an
amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class [PO]
Certificates and interest thereon, provided that any
distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such
interest and then in respect of any such unreimbursed
Realized Loss;]
[(___) , to the Class [EC]
Certificates, up to an amount equal to
the aggregate unpaid Class Interest
Shortfalls
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previously allocated to such class on
any previous Distribution Dates and not
paid;]
[(___) , to the Class [EC]
Certificates, up to an amount equal to
the Class Interest Distribution Amount
of such Class for such Distribution
Date;]
[Notwithstanding anything to the contrary in this Agreement, on each
Distribution Date prior to the earlier of (i) the [Senior] Principal
Distribution Cross-Over Date and (ii) the final Distribution Date in connection
with the termination of the Trust Fund, all distributions of principal to the
Class __-1 Certificates and the Class __-2 Certificates will be paid, first, to
holders of the Class __-1 Certificates until the Certificate Balance of such
Certificates is reduced to zero, and thereafter, to holders of the Class __-2
Certificates, until the Certificate Balance of such Certificates is reduced to
zero. On each Distribution Date on and after the [Senior] Principal Distribution
Cross-Over Date, and in any event on the final Distribution Date in connection
with the termination of the Trust Fund, distributions of principal on the Class
__-1 Certificates and the Class __-2 Certificates will be paid to holders of
such two Class of Certificates, pro rata in accordance with their respective
Certificate Balances outstanding immediately prior to such Distribution Date,
until the Certificate Balance of each such Class of Certificates is reduced to
zero.]
(II) On each Distribution Date, amounts remaining in the Distribution
Account following the distributions to the Certificates pursuant to Section
4.1(b) and (c) shall be distributed to the Class R Certificates.
(c) On each Distribution Date, following the distribution from the
Collection Account to the Distribution Account pursuant to Section 4.1(a)(II),
the Paying Agent shall make distributions of Prepayment Premiums with respect to
any Principal Prepayments received in the related Collection Period from amounts
deposited in the Distribution Account pursuant to Section 4.6(b)(i) as follows:
[(I) On each Distribution Date up to and including the EC Maturity
Date, Prepayment Premiums received with respect to Yield Maintenance Loans
during the Yield Maintenance Period for such Yield Maintenance Loans, shall be
distributed to the Holders of the Certificates outstanding on such Distribution
Date, in the
following amounts and order of priority:
(i) First, to the Class of Certificates which is entitled to
distributions in respect of principal on such Distribution Date (other
than pursuant to clause of Section 4.1(b)(I)), an amount equal to (A) the
present value (discounted at the Discount Rate) of the principal and
interest distributions that would have been paid in respect of such Class
of Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of such Class of Certificates would
have
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been reduced to zero had the related prepayment not occurred (and assuming
no other prepayments were made), less (B) the present value (discounted at
the Discount Rate) of the principal and interest distributions that will
be paid in respect of such Class of Certificates from the Distribution
Date occurring in the following month until the Certificate Balance of
such Class of Certificates is reduced to zero following such prepayment
(assuming no further prepayments are made and no delinquencies or defaults
occur) less (C) the amount of such prepayment; provided that if more than
one Class of Certificates is entitled to distributions in respect of
principal on such Distribution Date (other than pursuant to clause of
Section 4.1(b)(I)), the amount set forth herein shall be calculated for
each such Class, and the amount of Prepayment Premiums shall be allocated
among such Classes, pro rata in accordance with the amounts so calculated,
up to an amount equal to the sum of such amounts so calculated; and
(ii) Second, any remaining Prepayment Premiums
following the distribution in clause above, to the
Class [EC] Certificates.
(II) With respect to each Distribution Date up to and including the
EC Maturity Date, any Prepayment Premiums received with respect to any Mortgage
Loan that is not a Yield Maintenance Loan and any Prepayment Premiums received
with respect to any Yield Maintenance Loan after the related Yield Maintenance
Period will be allocated solely to the Class [EC] Certificates.]
(III) The Servicer will be entitled to receive as additional
Servicing Compensation amount of any Prepayment Premiums received in any
Collection Period [subsequent to the Collection Period related to the EC
Maturity Date].
(IV) Notwithstanding the foregoing, Prepayment Premiums shall be
distributed on any Distribution Date only to the extent they are received in
respect of the Mortgage Loans in the related Collection Period.
(d) The Certificate Balances of the Lower-Tier Regular Interests will
be reduced without distribution on any Distribution Date as a write-off to the
extent of any Realized Losses with respect to such date. Any such write-offs
will be applied to the Lower Tier Regular Interests: first, to the Class C-L
Interest; second, to the Class B-L Interest; and third, to the Class A-L
Interest. [If Class [PO] Certificates, insert where appropriate.]
The Certificate Balances of the Certificates (other than the [Class [EC],]
[Class [IO],] Class R and Class LR Certificates) will be reduced without
distribution on any Distribution Date, as a write-off, to the extent that, after
allocation of Realized Losses in accordance with the preceding sentence, the
Certificate Balance of any Class of Certificates exceeds the Certificate Balance
of its Related Lower-Tier Regular Interest.
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(e) All amounts distributable to a Class of Certificates pursuant to
this Section 4.1 on each Distribution Date shall be allocated pro rata among the
outstanding Certificates in each such Class based on their respective Percentage
Interests. Such distributions shall be made on each Distribution Date other than
the Termination Date to each Certificateholder of record on the related Record
Date by check mailed by first class mail to the address set forth therefor in
the Certificate Register or, provided that such Certificateholder holds
Certificates with an aggregate initial Certificate Balance, [Class [EC] Notional
Balance or Class [IO] Notional Balance] in excess of $_________, and shall have
provided the Paying Agent with wire instructions in writing at least ____
Business Days prior to the related Record Date, by wire transfer of immediately
available funds to the account of such Certificateholder at a bank or other
entity located in the United States and having appropriate facilities therefor.
The final distribution on each Certificate shall be made in like manner, but
only upon presentment and surrender of such Certificate at the office of the
Trustee or its agent (which may be the Paying Agent or the Certificate Registrar
acting as such agent) maintained in the [Borough of Manhattan] that is specified
in the notice to Certificateholders of such final distribution.
(f) Except as otherwise provided in Section 9.1 with respect to an
Anticipated Termination Date, the Trustee shall, no later than the _________ day
of the month in the month preceding the Distribution Date on which the final
distribution with respect to any Class of Certificates is expected to be made or
such later day as the Trustee becomes aware that the final distribution with
respect to any Class of Certificates is expected to be made on the succeeding
Distribution Date, mail to each Holder of such Class of Certificates, on such
day a notice to the effect that:
(A) the Trustee reasonably expects, based upon information
previously provided to it, that the final distribution with
respect to such Class of Certificates will be made on such
Distribution Date, but only upon presentation and surrender of
such Certificates at the office of the Trustee therein
specified; and
(B) if such final distribution is made on such Distribution Date,
no interest shall accrue on such Certificates from and after
such Distribution Date;
provided, however, that the Class R and Class LR Certificates shall remain
outstanding until there is no other Class of Certificates or Lower-Tier Regular
Interests outstanding.
Any funds not distributed to any Holder or Holders of Certificates of
such Class on such Distribution Date because of the failure of such Holder or
Holders to tender their Certificates shall, on such Distribution Date, be set
aside and held in trust for the benefit of the appropriate non-tendering Holder
or Holders. If any Certificates as to which notice has been given pursuant to
this Section 4.1(f) shall not have been surrendered for cancellation within
_____ months after the time specified in such notice, the Trustee shall mail a
second notice to
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the remaining non-tendering Certificateholders, at their last addresses shown in
the Certificate Register, to surrender their Certificates for cancellation in
order to receive from such funds held the final distribution with respect
thereto. If, within ____ year[s] after the second notice, any of such
Certificates shall not have been surrendered for cancellation, the Trustee may,
directly or through an agent, take appropriate steps to contact the remaining
nontendering Certificateholders concerning surrender of their Certificates. The
costs and expenses of maintaining such funds in trust and of contacting such
Certificateholders shall be paid out of such funds. If, within _____ years after
the second notice, any such Certificates shall not have been surrendered for
cancellation, the Paying Agent shall pay to the Trustee all amounts
distributable to the Holders thereof, and the Trustee shall thereafter hold such
amounts for the benefit of such Holders until the earlier of (i) its termination
as Trustee hereunder and the transfer of such amounts to a successor Trustee and
(ii) the termination of the Trust Fund and distribution of such amounts to the
Class LR Certificateholders. No interest shall accrue or be payable to any
Certificateholder on any amount held in trust hereunder or by the Trustee as a
result of such Certificateholder's failure to surrender its Certificate(s) for
final payment thereof in accordance with this Section 4.1(f). Any such amounts
transferred to the Trustee may be invested in Permitted Investments and all
income and gain realized from investment of such funds shall be for the benefit
of the Trustee. In the event the Trustee is permitted or required to invest any
amounts in Permitted Investments under this Agreement, whether in its capacity
as Trustee or in the event of its assumption of the duties of, or becoming the
successor to, the Servicer in accordance with the terms of this Agreement, it
shall invest such amounts in [the following] Permitted Investments [and
priority, in each case only for so long as any such investment shall continue to
be a Permitted Investment: (1) , (2) , (3) and (4) if none of (1)-(3) above are
available, Permitted Investments under clause (i) of the definition of Permitted
Investments]. The Trustee shall indemnify the related Certificateholders against
any loss incurred in respect of any such Permitted Investment immediately upon
realization of such loss.
(g) Notwithstanding any provision in this Agreement to the contrary,
the aggregate amount distributable to each Class pursuant to this Section 4.1
shall be reduced by the aggregate amount paid to any Person pursuant to Section
6.3 or Section 8.5(d), such reduction to be allocated among such Classes pro
rata, based upon the respective amounts so distributable without taking into
account the provision of this Section 4.1(g). Such reduction of amounts
otherwise distributable to a Class shall be allocated first in respect of
interest and second in respect of principal. For purposes of determining
Interest Shortfalls and Certificate Balances, the amount of any such reduction
so allocated to a Class shall be deemed to have been distributed to such Class.
SECTION 4.2.Statements to Rating Agencies and
Certificateholders; Available Information;
Information Furnished to Financial Market
Publisher.
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(a) On each Distribution Date, the Trustee shall prepare and forward
by mail to each Rating Agency and each Holder of a Certificate, with copies to
the Depositor, Paying Agent, Servicer and Special Servicer, a statement as to
such distribution setting forth for each Class, as applicable:
[describe information to be included in statement]
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Certificate (except for a Class R or Class LR
Certificate) and to each Rating Agency a statement containing the information
set forth in subclauses (__) and (__) above, aggregated for such calendar year
or applicable portion thereof during which such Person was a Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the
extent that it provided substantially comparable information pursuant to any
requirements of the Code as from time to time in force.
On each Distribution Date, the Trustee shall forward to each Holder
of a Class R or Class LR Certificate a copy of the reports forwarded to the
other Certificateholders on such Distribution Date and a statement setting forth
the amounts, if any, actually distributed with respect to the Class R or Class
LR Certificates on such Distribution Date.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Certificate a statement setting forth the
amounts actually distributed with respect to such Certificate aggregated for
such calendar year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that it provided substantially comparable information
pursuant to any requirements of the Code as from time to time in force.
In addition to the reports required to be delivered pursuant to this
Section 4.2(a), the Trustee shall make available upon request to each proposed
transferee of a Privately Placed Certificate such additional information, if
any, in its possession as may be required to permit the proposed transfer to be
effected pursuant to Rule 144A.
[(b) On or within _____ Business Days following each Distribution
Date, the Trustee shall prepare and furnish to the Financial Market Publisher
and the Placement Agent, using the format and media mutually agreed upon by the
Trustee, the Financial Market Publisher and the Placement Agent, the following
information regarding each Mortgage Loan and any other information reasonably
requested by the Placement Agent and available to the Trustee:
(i) an identifying loan number;
(ii) the Mortgage Rate; and
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(iii) the principal balance as of such Distribution
Date.]
The Trustee shall only be obligated to deliver the statements, reports and
information contemplated by Section 4.2[(a) and 4.2(b)] to the extent it
receives the necessary underlying information from the Servicer and shall not be
liable for any failure to deliver any thereof on the prescribed Due Dates, to
the extent such failure is caused by the Servicer's failure to deliver such
underlying information in a timely manner. Nothing herein shall obligate the
Trustee, the Servicer or the Special Servicer to violate (in the reasonable
judgment of the Servicer, the Special Servicer or the Trustee, as appropriate)
any applicable law or provision of any Mortgage Loan document prohibiting
disclosure of information with respect to any Borrower and the failure of the
Trustee, the Servicer or the Special Servicer to disseminate information for
such reason shall not be a breach hereof.
SECTION 4.3.Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Paying
Agent shall comply with all federal withholding requirements with respect to
payments to Certificateholders of interest or original issue discount that the
Paying Agent reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for any such withholding. The Paying
Agent agrees that it will not withhold with respect to payments of interest or
original issue discount in the case of a Certificateholder that is a non-U.S.
Person that has furnished or caused to be furnished (i) an effective Form W-8 or
Form W-9 or an acceptable substitute form or a successor form and who has
informed the Trustee in writing that it is not a "10-percent shareholder" within
the meaning of Code Section 871(h)(3)(B) or a "controlled foreign corporation"
described in Code Section 881(c)(3)(C) with respect to the Trust Fund or the
Depositor, or (ii) an effective Form 4224 or an acceptable substitute form or a
successor form. In the event the Paying Agent or its agent withholds any amount
from interest or original issue discount payments or advances thereof to any
Certificateholder pursuant to federal withholding requirements, the Paying Agent
shall indicate the amount withheld to such Certificateholder. Any amount so
withheld shall be treated as having been distributed to such Certificateholder
for all purposes of this Agreement.
SECTION 4.4.REMIC Compliance.
(a) The parties intend that each of the Upper-Tier REMIC and the
Lower-- Tier REMIC shall constitute, and that the affairs of each of the
Upper-Tier REMIC and the Lower-Tier REMIC shall be conducted so as to qualify it
as, a "real estate mortgage investment conduit" as defined in, and in accordance
with, the REMIC Provisions, and the provisions hereof shall be interpreted
consistently with this intention. In furtherance of such intention, the Trustee
shall, to the extent permitted by applicable law, act as agent, and is hereby
appointed to act as agent, of each of the Upper-Tier REMIC and the Lower-Tier
REMIC and shall on behalf of each of the Upper-Tier REMIC and the Lower-Tier
REMIC: (i) prepare, sign and file,
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or cause to be prepared and filed, all required Tax Returns for each of the
Upper-Tier REMIC and the Lower-Tier REMIC, using a calendar year as the taxable
year for each of the Upper-Tier REMIC and the Lower-Tier REMIC, when and as
required by the REMIC Provisions and other applicable federal, state or local
income tax laws; (ii) make an election, on behalf of each of the Upper-Tier
REMIC and the Lower-Tier REMIC, to be treated as a REMIC on Form 1066 for its
first taxable year, in accordance with the REMIC Provisions; (iii) prepare and
forward, or cause to be prepared and forwarded, to the Certificateholders and
the Internal Revenue Service and applicable state and local tax authorities all
information reports as and when required to be provided to them in accordance
with the REMIC Provisions; (iv) if the filing or distribution of any documents
of an administrative nature not addressed in clauses (i) through (iii) of this
Section 4.4 is then required by the REMIC Provisions in order to maintain the
status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or is
otherwise required by the Code, prepare, sign and file or distribute, or cause
to be prepared and signed and filed or distributed, such documents with or to
such Persons when and as required by the REMIC Provisions or the Code or
comparable provisions of state and local law; (v) within thirty days of the
Closing Date, furnish or cause to be furnished to the Internal Revenue Service,
on Form 8811 or as otherwise may be required by the Code, the name, title and
address of the Person that the holders of the Certificates may contact for tax
information relating thereto (and the Trustee shall act as the representative of
each of the Upper-Tier REMIC and the Lower-Tier REMIC for this purpose),
together with such additional information as may be required by such Form, and
shall update such information at the time or times and in the manner required by
the Code (and the Depositor agrees within 10 Business Days of the Closing Date,
to provide any information reasonably requested by the Trustee and necessary to
make such filing); and (vi) maintain such records relating to each of the
Upper-Tier REMIC and the Lower-Tier REMIC as may be necessary to prepare the
foregoing returns, schedules, statements or information, such records, for
federal income tax purposes, to be maintained on a calendar year and on an
accrual basis. The Holder of the largest Percentage Interest in the Class R or
Class LR Certificates shall be the tax matters person of the Upper-Tier REMIC or
the Lower-Tier REMIC, respectively, pursuant to Treasury Regulations Section
1.860F-4(d). If more than one Holder should hold an equal Percentage Interest in
the Class R or Class LR Certificates larger than that held by any other Holder,
the first such Holder to have acquired such Class R or Class LR Certificates
shall be such tax matters person. The Trustee shall act as attorney-in-fact and
agent for the tax matters person of each of the Upper-Tier REMIC and the
Lower-Tier REMIC, and each Holder of a Percentage Interest in the Class R or
Class LR Certificates, by acceptance thereof, is deemed to have consented to the
Trustee's appointment in such capacity and agrees to execute any documents
required to give effect thereto, and any fees and expenses incurred by the
Trustee in connection with any audit or administrative or judicial proceeding
shall be paid by the Trust Fund. The Trustee shall not intentionally take any
action or intentionally omit to take any action if, in taking or omitting to
take such action, the Trustee knows that such action or omission (as the case
may be) would cause the termination of the REMIC status of the Upper-Tier REMIC
or the Lower-Tier REMIC or the imposition of tax on the Upper-Tier REMIC or the
Lower-Tier REMIC (other than a tax on income expressly permitted or contemplated
to be received by the terms of this Agreement). Notwithstanding any provision of
this paragraph to the contrary, the
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Trustee shall not be required to take any action that the Trustee in good faith
believes to be inconsistent with any other provision of this Agreement, nor
shall the Trustee be deemed in violation of this paragraph if it takes any
action expressly required or authorized by any other provision of this
Agreement, and the Trustee shall have no responsibility or liability with
respect to any act or omission of the Depositor or the Servicer or the Special
Servicer which causes the Trustee to be unable to comply with any of clauses (i)
through (vi) of the fifth preceding sentence or which results in any action
contemplated by clauses (i) or (ii) of the next succeeding sentence. In this
regard the Trustee shall (i) exercise reasonable care not to allow the
occurrence of any "prohibited transactions" with the meaning of Code Section
860F(a), unless the party seeking such action shall have delivered to the
Trustee an Opinion of Counsel (at such party's expense) that such occurrence
would not (A) result in a taxable gain, (B) otherwise subject the Upper-Tier
REMIC or the Lower-Tier REMIC to tax (other than a tax at the highest marginal
corporate tax rate on net income from foreclosure property), or (C) cause either
the Upper-Tier REMIC or the Lower-Tier REMIC to fail to qualify as a REMIC; and
(ii) exercise reasonable care not to allow the Trust Fund to receive income from
the performance of services or from assets not permitted under the REMIC
Provisions to be held by a REMIC (provided, however, that the receipt of any
income expressly permitted or contemplated by the terms of this Agreement shall
not be deemed to violate this clause). Neither the Servicer, the Special
Servicer nor the Depositor shall be responsible or liable (except in connection
with any act or omission referred to in the two preceding sentences) for any
failure by the Trustee to comply with the provisions of this Section 4.4. The
Depositor, the Special Servicer and the Servicer shall cooperate in a timely
manner with the Trustee in supplying any information within the Depositor's, the
Special Servicer's or the Servicer's control (other than any confidential
information) that is reasonably necessary to enable the Trustee to perform its
duties under this Section 4.4.
(b) The following assumptions are to be used for purposes of
determining the anticipated payments of principal and interest for calculating
the original yield to maturity and original issue discount with respect to the
Regular Certificates: (i) each Mortgage Loan will pay principal and interest in
accordance with its terms and scheduled payments will be timely received on
their Due Dates, provided that the Mortgage Loans in the aggregate will prepay
in accordance with the Prepayment Assumption; (ii) none of the Servicer, the
Depositor and the Class LR Certificateholders will exercise the right described
in Section 9.1 of this Agreement to cause early termination of the Trust Fund;
and (iii) no Mortgage Loan is repurchased by the Depositor.
SECTION 4.5.Imposition of Tax on the Trust Fund.
In the event that any tax, including interest, penalties or
assessments, additional amounts or additions to tax, is imposed on the
Upper-Tier REMIC or the Lower-Tier REMIC, such tax shall be charged against
amounts otherwise distributable to the Holders of the Certificates; provided,
that any taxes imposed on any net income from foreclosure property pursuant to
Code Section 860G(d) or any similar tax imposed by a state or local jurisdiction
shall
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instead be treated as an expense of the related REO Property in determining Net
REO Proceeds with respect to such REO Property (and until such taxes are paid,
the Servicer from time to time shall withdraw from the Collection Account
amounts reasonably determined by the Special Servicer to be necessary to pay
such taxes, which the Servicer shall maintain in a separate,
non-interest-bearing account, and the Servicer shall deposit in the Collection
Account the excess determined by the Servicer from time to time of the amount in
such account over the amount necessary to pay such taxes) and shall be paid
therefrom. Except as provided in the preceding sentence, the Trustee is hereby
authorized to and shall retain or cause to be retained from Pooled Available
Funds sufficient funds to pay or provide for the payment of, and to actually
pay, such tax as is legally owed by the Upper-Tier REMIC or the Lower-Tier REMIC
(but such authorization shall not prevent the Trustee from contesting, at the
expense of the Trust Fund, any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The Trustee is hereby authorized to and shall segregate or
cause to be segregated, in a separate non-interest bearing account, (i) the net
income from any "prohibited transaction" under Code Section 860F(a) or (ii) the
amount of any contribution to the Upper-Tier REMIC or the Lower-Tier REMIC after
the Startup Day that is subject to tax under Code Section 860G(d) and use such
income or amount, to the extent necessary, to pay such tax, such amounts to be
segregated from the Collection Account with respect to any such net income of or
contribution to the Lower-Tier REMIC and from the Distribution Account with
respect to any such net income of or contribution to the Upper-Tier REMIC (and
return the balance thereof, if any, to the Collection Account or the
Distribution Account, as the case may be). To the extent that any such tax is
paid to the Internal Revenue Service, the Trustee shall retain an equal amount
from future amounts otherwise distributable to the Holders of the Class R or the
Class LR Certificates as the case may be, and shall distribute such retained
amounts to the Holders of Regular Certificates or Lower-Tier Regular Interests,
as applicable, until they are fully reimbursed and then to the Holders of the
Class R Certificates or the Class LR Certificates, as applicable. Neither the
Servicer, the Special Servicer nor the Trustee shall be responsible for any
taxes imposed on the Upper-Tier REMIC or the Lower-Tier REMIC, in either case,
except to the extent such tax is attributable to a breach of a representation or
warranty of the Servicer or the Special Servicer or an act or omission of the
Servicer, the Special Servicer or the Trustee in contravention of this
Agreement, provided, further, that such breach, act or omission could result in
liability under Section 6.3 in the case of the Servicer or Special Servicer or
Section 4.4 or 8.1, in the case of the Trustee. Notwithstanding anything in this
Agreement to the contrary, in each such case, the Servicer and the Special
Servicer shall not be responsible for the Trustee's breaches, acts or omissions,
and the Trustee shall not be responsible for the breaches, acts or omissions of
the Servicer or the Special Servicer.
SECTION 4.6.Remittances; P&I Advances.
(a) For purposes of this Section 4.6, "Applicable Monthly Payment"
shall mean, for any Mortgage Loan with respect to any month, (A) if such
Mortgage Loan is delinquent as to its Balloon Payment (including any Mortgage
Loan as to which the related
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Mortgaged Property has become an REO Property and for any month after the
related Balloon Payment would have been due), the related Assumed Scheduled
Payment and (B) if such Mortgage Loan is not described by the preceding clause
(including any such Mortgage Loan as to which the related Mortgaged Property has
become an REO Property), the Monthly Payment.
(b) On the Remittance Date immediately preceding each Distribution
Date, the Servicer shall:
(i) remit to the Trustee from the Collection Account for
deposit in the Distribution Account an amount equal to the Prepayment
Premiums received by the Servicer in the Collection Period preceding
such Remittance Date;
(ii) remit to the Trustee from the Collection Account for
deposit in the Distribution Account an amount equal to the Pooled
Available Funds for such Distribution Date (excluding P&I Advances);
and
(iii) make an advance (each, a "P&I Advance"), by deposit into
the Collection Account, and remit such amount to the Distribution
Account in an amount equal to the sum of the Applicable Monthly
Payment for each Mortgage Loan, to the extent such amounts were not
received on such Mortgage Loans as of the close of business on the
Business Day immediately preceding the Remittance Date.
(c) With respect to each Remittance Date, the Servicer shall
determine (a) with respect to each Seriously Delinquent Loan, the excess, if
any, of (x) the sum of the following amounts with respect to such Seriously
Delinquent Loan: (i) the outstanding principal balance thereof that is due and
payable; (ii) the interest portion of any unreimbursed P&I Advances with respect
thereto; (iii) any unreimbursed Property Advances with respect thereto; and (iv)
any currently due and payable or delinquent property taxes with respect thereto
over (y) the appraised value (as reflected in the related Updated Appraisal)
thereof and (b) the sum of all amounts described in clause (a) (such sum, the
"Anticipated Loss"). Notwithstanding Section 4.6(b)(iii), with respect to any
Remittance Date, the Servicer shall make a P&I Advance with respect to any
Seriously Delinquent Loan only to the extent that Pooled Available Funds for the
related Distribution Date (exclusive of any P&I Advance with respect to any
Seriously Delinquent Loans) are insufficient to make distributions to all
Classes of Lower-Tier Regular Interests and all Classes of Certificates pursuant
to Section 4.1(a)(I) and Section 4.1(b)(I), respectively, other than, in each
case, the most subordinate Class then outstanding and any other Class as to
which the aggregate of the Certificate Balances of all Classes subordinate to
such Class does not equal or exceed the Anticipated Loss. In the event that,
with respect to any Remittance Date, more than one Mortgage Loan is a Seriously
Delinquent Loan, the Servicer shall designate on its records the specific
Seriously Delinquent Loans as to which any P&I Advance shall be deemed to have
been made. Any such designation of P&I Advances to specific Seriously Delinquent
Loans shall be made, first, among Seriously Delinquent Loans (excluding
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any REO Mortgage Loans) as to which the related Borrower is delinquent only in
the payment of Monthly Payments; second, among Seriously Delinquent Loans
(excluding REO Mortgage Loans) as to which the related Borrower is delinquent in
the payment of a Balloon Payment; and third, among Seriously Delinquent Loans
that are REO Mortgage Loans; provided, however, that any such designation shall
be made first to those Seriously Delinquent Loans in respect of which the
Servicer reasonably determines that such P&I Advance is most likely to be
recoverable.
(d) [Reserved]
(e) If, as of 5:00 p.m., New York City time, on any Remittance Date
the Servicer shall not (i) have made the P&I Advance required to have been made
on such date pursuant to Section 4.6(b)(iii) or (ii) delivered the certificate
and documentation related to a determination of nonrecoverability, [the Trustee
shall immediately notify the Fiscal Agent by telephone promptly confirmed in
writing, and] the Trustee shall no later than 10:00 a.m., New York City time, on
such Distribution Date deposit into the Distribution Account in immediately
available funds an amount equal to the P&I Advances otherwise required to have
been made by the Servicer. [If the Trustee fails to make any P&I Advance
required to be made under this Section 4.6, the Fiscal Agent shall make such P&I
Advance not later than 11:00 a.m., New York City time, on such Distribution Date
and, thereby, the Trustee shall not be in default under this Agreement.]
(f) Anything to the contrary in this Agreement notwithstanding, none
of the Servicer, the Trustee [or the Fiscal Agent] shall be obligated to make a
P&I Advance on any date on which a P&I Advance is otherwise required to be made
by this Section 4.6 if the Servicer, the Trustee [or the Fiscal Agent], as
applicable, determines that such advance will be a Nonrecoverable Advance. The
Trustee [and the Fiscal Agent] shall be entitled to rely, conclusively, on any
determination by the Servicer that a P&I Advance, if made, would be a
Nonrecoverable Advance. The Trustee [and the Fiscal Agent], in determining
whether or not a P&I Advance previously made is, or a proposed P&I Advance, if
made, would be, a Nonrecoverable Advance shall be subject to the standards
applicable to the Servicer hereunder.
(g) The Servicer, the Trustee [or the Fiscal Agent], as applicable,
shall be entitled to, and hereby covenants and agrees to promptly seek and
effect, the reimbursement of P&I Advances it makes to the extent permitted
pursuant to Section 3.6(ii) of this Agreement together with any related Advance
Interest Amount in respect of such P&I Advances to the extent permitted pursuant
to Section 3.6(iii).
ARTICLE V
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THE CERTIFICATES
SECTION 5.1.The Certificates.
The Certificates consist of the Class A Certificates, the Class B
Certificates, the Class C Certificates, the [Class [EC] Certificates,] [the
Class [IO] Certificates,] [the [Class [PO] Certificates,] the Class R
Certificates and the Class LR Certificates.
The Class A, Class B, Class C, [Class [EC], Class [IO], Class [PO],]
Class R and Class LR Certificates will be substantially in the forms annexed
hereto as Exhibits A-1, A-2, A-3, A-4, A-5, A-6, A-7 and A-8, respectively. The
Certificates of each Class will be issuable in definitive physical form only,
registered in the name of the holders thereof; [provided, however, that in
accordance with Section 5.3 beneficial ownership interests in the Class
Certificates shall initially be represented by Book-Entry Certificates held and
transferred through the book-entry facilities of the Securities Depository,] in
minimum denominations of authorized initial Certificate Balance [or notional
amount] (except with respect to the Class R and Class LR Certificates), as
described in the succeeding table. [The Book-Entry Certificates shall be in
minimum denominations of [$100,000] and multiples of [$1,000] in excess thereof
and] the Certificates [other than Book-Entry Certificates] shall be in minimum
denominations of [$100,000] and multiples of [$1] in excess thereof, except one
Certificate of each such Class may be issued which represents a different
initial Certificate Balance [or Notional Balance] to accommodate the remainder
of the initial Certificate Balance [or related Notional amount]. Each
Certificate will share ratably in all rights of the related Class. The Class R
and LR Certificates shall each be issuable in one or more registered, definitive
physical certificates in minimum denominations of [5]% Percentage Interests and
integral multiples of a [1]% Percentage Interest in excess thereof and together
aggregating the entire 100% Percentage Interest in each such Class.
Aggregate Denominations
of all Certificates of Class
Minimum (in initial Certificate Balance [or
Class Denomination initial Notional Balance])
A [$100,000] $
B [100,000] $
C [100,000] $
[EC] [100,000] $
[IO] [100,000] $
[PO] [100,000] $
Any of the Certificates may be issued with appropriate insertions,
omissions, substitutions and variations, and may have imprinted or otherwise
reproduced thereon such legend or legends, not inconsistent with the provisions
of this Agreement, as may be required
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to comply with any law or with rules or regulations pursuant thereto, or with
the rules of any securities market in which the Certificates are admitted to
trading, or to conform to general usage.
Each Certificate may be printed or in typewritten or similar form,
and each Certificate shall, upon original issue, be executed and authenticated
by the Trustee or the Authenticating Agent and delivered to the Depositor. All
Certificates shall be executed by manual or facsimile signature on behalf of the
Trustee or Authenticating Agent by an authorized officer or signatory.
Certificates bearing the signature of an individual who was at any time the
proper officer or signatory of the Trustee or Authenticating Agent shall bind
the Trustee or Authenticating Agent, notwithstanding that such individual has
ceased to hold such office or position prior to the delivery of such
Certificates or did not hold such office or position at the date of such
Certificates. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication in the form set forth in Exhibits A-1 through
A-8 executed by the Authenticating Agent by manual signature, and such
certificate of authentication upon any Certificate shall be conclusive evidence,
and the only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
SECTION 5.2.Registration, Transfer and Exchange of Certificates.
(a) The Trustee shall keep or cause to be kept at the Corporate Trust
Office books (the "Certificate Register") for the registration, transfer and
exchange of Certificates (the Trustee, in such capacity, being the "Certificate
Registrar"). The names and addresses of all Certificateholders and the names and
addresses of the transferees of any Certificates shall be registered in the
Certificate Register. The Person in whose name any Certificate is so registered
shall be deemed and treated as the sole owner and Holder thereof for all
purposes of this Agreement and the Certificate Registrar, the Servicer, the
Special Servicer, the Trustee, any Paying Agent and any agent of any of them
shall not be affected by any notice or knowledge to the contrary. An Individual
Certificate is transferable or exchangeable only upon the surrender of such
Certificate to the Certificate Registrar at the Corporate Trust Office together
with an assignment and transfer (executed by the Holder or his duly authorized
attorney), subject to the requirements of Section 5.2(c), (d), (e) and (f). Upon
request of the Trustee, the Certificate Registrar shall provide the Trustee with
the names, addresses and Percentage Interests of the Holders.
(b) Upon surrender for registration of transfer of any Individual
Certificate, subject to the requirements of Section 5.2(c), (d), (e) and (f),
the Trustee shall execute and the Authenticating Agent shall duly authenticate
in the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate Certificate
Balance. Such Certificates shall be delivered by the Certificate Registrar in
accordance with Section 5.2(e). Each Certificate surrendered for registration of
transfer shall be cancelled and subsequently destroyed by the Certificate
Registrar. Each new Certificate
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issued pursuant to this Section 5.2 shall be registered in the name of any
Person as the transferring Holder may request, subject to the provisions of
Section 5.2(c), (d), (e) and (f).
(c) The exchange, transfer and registration of transfer of Individual
Certificates that are Privately Placed Certificates shall be subject to the
restrictions set forth below (in addition to the provisions of Section 5.2(d),
(e) and (f)):
(i) The Certificate Registrar shall register the transfer of an
Individual Certificate that is a Privately Placed Certificate if
the requested transfer is being made to a transferee who has
provided the Certificate Registrar with an Investment
Representation Letter substantially in the form of Exhibit D-1
hereto (an "Investment
----------
Representation Letter"), to the effect that the
-------------- ------
transfer is being made to a Qualified
Institutional Buyer in accordance with Rule 144A;
or
(ii) The Certificate Registrar shall register the transfer of an
Individual Certificate that is a Privately Placed Certificate
(other than a Class R or Class LR Certificate), if prior to the
transfer, the transferee furnishes to the Certificate Registrar
(1) an Investment Representation Letter to the effect that the
transfer is being made to an Institutional Accredited Investor
in accordance with an applicable exemption under the Act, (2) an
Opinion of Counsel acceptable to the Certificate Registrar that
such transfer is in compliance with the Act, and (3) a written
undertaking by the transferor to reimburse the Trust for any
costs incurred by it in connection with the proposed transfer.
In addition, the Certificate Registrar may, as a condition of
the registration of any such transfer, require the transferor to
furnish such other certificates, legal opinions or other
information (at the transferor's expense) as the Certificate
Registrar may reasonably require to confirm that the proposed
transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Act and other applicable laws.
(d) Subject to the restrictions on transfer and exchange set forth in
this Section 5.2, the Holder of one or more Certificates may transfer or
exchange the same in whole or in part (with a Certificate Balance equal to any
authorized denomination) by surrendering such Certificate at the Corporate Trust
Office or at the office of any transfer agent appointed as provided under this
Agreement, together with an instrument of assignment or transfer (executed by
the Holder or its duly authorized attorney), in the case of transfer, and a
written request for exchange in the case of exchange. Subject to the
restrictions on transfer set forth in this Section 5.2, following a proper
request for transfer or exchange, the Certificate Registrar shall, within ____
Business Days of such request if made at the Corporate Trust Office, or within
____ Business Days if made at the office of a transfer agent (other than the
Certificate Registrar), execute and deliver at the Corporate Trust Office or at
the office of such transfer agent, as the
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case may be, to the transferee (in the case of transfer) or the Holder (in the
case of exchange) or send by first class mail (at the risk of the transferee in
the case of transfer or the Holder in the case of exchange) to such address as
the transferee or the Holder, as applicable, may request, an Individual
Certificate or Certificates, as the case may require, for a like aggregate
Certificate Balance and in such authorized denomination or denominations as may
be requested. The presentation for transfer or exchange of any Individual
Certificate shall not be valid unless made at the Corporate Trust Office or at
the office of a transfer agent by the registered Holder in person, or by a duly
authorized attorney-in-fact. The Certificate Registrar may decline to accept any
request for an exchange or registration of transfer of any Certificate during
the period of 15 days preceding any Distribution Date.
(e) Individual Certificates may only be transferred to Eligible
Investors as described herein. In the event the Certificate Registrar shall
determine that an Individual Certificate is being held by or for the benefit of
a Person who is not an Eligible Investor, or that such holding is unlawful under
the laws of a relevant jurisdiction, then the Certificate Registrar shall void
such transfer, if permitted under applicable law.
(f) No fee or service charge shall be imposed by the Certificate
Registrar for its services in respect of any registration of transfer or
exchange referred to in this Section 5.2 other than for transfers to
Institutional Accredited Investors, as provided herein. In connection with any
transfer to an Institutional Accredited Investor, the transferor shall reimburse
the Trust for any costs (including the cost of the Certificate Registrar's
counsel's review of the documents and any legal opinions submitted by the
transferor or transferee to the Certificate Registrar as provided herein)
incurred by the Certificate Registrar in connection with such transfer. The
Certificate Registrar may require payment by each transferor of a sum sufficient
to cover any tax, expense or other governmental charge payable in connection
with any such transfer.
(g) Subject to Section 5.2(d) and 5.2(j), transfers of the Class R
and Class LR Certificates may be made only in accordance with this Section
5.2(g). The Certificate Registrar shall register the transfer of a Class R or
Class LR Certificate if (x) the transferor has advised the Certificate Registrar
in writing that the Certificate is being transferred to a Qualified
Institutional Buyer; and (y) prior to transfer the transferor furnishes to the
Certificate Registrar an Investment Representation Letter. In addition, the
Certificate Registrar may, as a condition of the registration of any such
transfer, require the transferor to furnish such other certifications, legal
opinions or other information (at the transferor's expense) as they may
reasonably be required to confirm that the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Act and other applicable laws.
(h) Neither the Depositor, the Servicer, the Special Servicer, the
Trustee nor the Certificate Registrar is obligated to register or qualify any
Class of Certificates under the Act or any other securities law or to take any
action not otherwise required under this Agreement to permit the transfer of
such Certificates without registration or qualification. Any Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
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Depositor, the Servicer, the Special Servicer, the Trustee and the Certificate
Registrar, against any loss, liability or expense that may result if the
transfer is not exempt from the registration requirements of the Act or is not
made in accordance with such federal and state laws.
(i) No transfer of any Ownership Interest in a Subordinate
Certificate shall be made to (i) an employee benefit plan subject to the
fiduciary responsibility provisions of ERISA, or Section 4975 of the Code, or a
governmental plan subject to any federal, state or local law ("Similar Law"),
which is to a material extent, similar to the foregoing provisions of ERISA or
the Code (collectively, a "Plan") or (ii) an insurance company that is using the
assets of any insurance company separate account or general account in which the
assets of any such Plan are invested (or which are deemed pursuant to ERISA or
any Similar Law to include assets of Plans) to acquire any such Subordinate
Certificates, other than using assets of its general account in circumstances
whereby such transfer and the subsequent holding of the Certificate would not
constitute or result in a prohibited transaction within the meaning of Section
406 or 407 of ERISA, Section 4975 of the Code, or any Similar Law. Each
prospective transferee of a Subordinate Certificate shall deliver to the
Depositor, the Certificate Registrar and the Trustee, (a) a transfer or
representation letter, substantially in the form of Exhibit D-2 hereto, stating
that the prospective transferee is not a Person referred to in (i) or (ii)
above, or (b) an Opinion of Counsel which establishes to the satisfaction of the
Depositor, the Trustee and the Certificate Registrar that the purchase or
holding of the Subordinate Certificate will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the fiduciary
responsibility or prohibited transaction provisions of ERISA, the Code, or any
Similar Law will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Servicer, the Special Servicer, the Depositor, the Trustee
or the Certificate Registrar to any obligation or liability (including
obligations or liabilities under ERISA or Section 4975 of the Code), which
Opinion of Counsel shall not be an expense of the Trustee, the Trust Fund, the
Servicer, the Special Servicer, Certificate Registrar or the Depositor. Neither
the Trustee, the Servicer, the Special Servicer, nor the Certificate Registrar
will register a Class R or Class LR Certificate in any Person's name unless such
Person has provided the letter referred to in clause (a) above. Any transfer of
a Subordinate Certificate that would violate, or result in a prohibited
transaction under, ERISA or Section 4975 of the Code shall be deemed absolutely
null and void ab initio.
(j) Each Person who has or acquires any Ownership Interest in a Class
R Certificate or a Class LR Certificate shall be deemed by the acceptance or
acquisition of such Ownership Interest to have agreed to be bound by the
following provisions, and the rights of each Person acquiring any Ownership
Interest in a Class R Certificate or a Class LR Certificate are expressly
subject to the following provisions:
(i) Each Person acquiring or holding any Ownership Interest in a
Class R Certificate or a Class LR Certificate shall be a
Permitted Transferee and shall not acquire or hold such
Ownership Interest as agent (including as a broker, nominee or
other middleman) on behalf of any Person that is not
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a Permitted Transferee. Any such Person shall promptly notify
the Certificate Registrar of any change or impending change in
its status (or the status of the beneficial owner of such
Ownership Interest) as a Permitted Transferee. Any acquisition
described in the first sentence of this Section 5.2(j)(i) by a
Person who is not a Permitted Transferee or by a Person who is
acting as an agent of a Person who is not a Permitted Transferee
shall be void and of no effect, and the immediately preceding
owner who was a Permitted Transferee shall be restored to
registered and beneficial ownership of the Ownership Interest as
fully as possible.
(ii) No Ownership Interest in a Class R Certificate or a Class LR
Certificate may be transferred, and no such Transfer shall be
registered in the Certificate Register, without the express
written consent of the Certificate Registrar, and the
Certificate Registrar shall not recognize a proposed Transfer,
and such proposed Transfer shall not be effective, without such
consent with respect thereto. In connection with any proposed
Transfer of any Ownership Interest in a Class R Certificate or a
Class LR Certificate, the Certificate Registrar shall, as a
condition to such consent, (x) require delivery to it in form
and substance satisfactory to it, and the proposed transferee
shall deliver to the Certificate Registrar and to the proposed
transferor, an affidavit in substantially the form attached as
Exhibit C-1 (a "Transferee Affidavit") (A) that such proposed
transferee is a Permitted Transferee and (B) stating that (i)
the proposed transferee historically has paid its debts as they
have come due and intends to do so in the future, (ii) the
proposed transferee understands that, as the holder of an
Ownership Interest in a Class R Certificate or a Class LR
Certificate, as applicable , it may incur liabilities in excess
of cash flows generated by the residual interest, (iii) the
proposed transferee intends to pay taxes associated with holding
the Ownership Interest as they become due, (iv) the proposed
transferee will not transfer the Ownership Interest to any
Person that does not provide a Transferee Affidavit or as to
which the proposed transferee has actual knowledge that such
Person is not a Permitted Transferee or is acting as an agent
(including as a broker, nominee or other middleman) for a Person
that is not a Permitted Transferee, and (v) the proposed
transferee expressly agrees to be bound by and to abide by the
provisions of this Section 5.2(j) and (y) other than in
connection with the initial issuance of the Class R and Class LR
Certificates, require a statement from the proposed transferor
substantially in the form attached as Exhibit C-2 (the
"Transferor Letter"), that the proposed transferor has no actual
knowledge that the proposed transferee is not a Permitted
Transferee and has no actual knowledge or reason to know that
the proposed transferee's statements in the preceding clauses
(x)(B)(i) or (iii) are false.
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(iii)Notwithstanding the delivery of a Transferee Affidavit by a
proposed transferee under clause (ii) above, if a Responsible
Officer of the Certificate Registrar has actual knowledge that
the proposed transferee is not a Permitted Transferee, no
Transfer to such proposed transferee shall be effected and such
proposed Transfer shall not be registered on the Certificate
Register; provided, however, that the Certificate Registrar
shall not be required to conduct any independent investigation
to determine whether a proposed transferee is a Permitted
Transferee.
Upon notice to the Certificate Registrar that there has occurred a
Transfer to any Person that is a Disqualified Organization or an agent thereof
(including a broker, nominee, or middleman) in contravention of the foregoing
restrictions, and in any event not later than 60 days after a request for
information from the transferor of such Ownership Interest in a Class R
Certificate or a Class LR Certificate, or such agent thereof, the Certificate
Registrar and the Trustee agree to furnish to the IRS and the transferor of such
Ownership Interest or such agent thereof such information necessary to the
application of Section 860E(e) of the Code as may be required by the Code,
including, but not limited to, the present value of the total anticipated excess
inclusions with respect to such Class R or Class LR Certificate (or portion
thereof) for periods after such Transfer. At the election of the Certificate
Registrar and the Trustee, the Certificate Registrar and the Trustee may charge
a reasonable fee for computing and furnishing such information to the transferor
or to such agent thereof referred to above; provided, however, that such Persons
shall in no event be excused from furnishing such information.
[SECTION 5.3Book-Entry Certificates.
(a) The Class ___ Certificates shall, in the case of each such Class,
initially be issued as one or more Book-Entry Certificates registered in the
name of the Securities Depository or its nominees and, except as provided in
subsection (c) below, transfer of such Certificates may not be registered by the
Certificate Registrar unless such transfer is to a successor Securities
Depository that agrees to hold such Certificates for the respective Certificate
Owners with Ownership Interests therein. Such Certificate Owners shall hold and
transfer their respective Ownership Interest in and to such Certificates through
the book-entry facilities of the Securities Depository and, except as provided
in subsection (c) below, shall not be entitled to definitive, fully registered
Certificates ("Definitive Certificates") in respect of such Ownership Interests.
All transfers by Certificate Owners of their respective Ownership Interests in
the Book-Entry Certificates shall be made in accordance with the procedures
established by the Securities Depository Participant or brokerage firm
representing each such Certificate Owner. Each Securities Depository Participant
shall only transfer the Ownership Interests in the Book- Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Securities Depository's normal procedures. Neither
the Certificate Registrar nor the Trustee shall have any responsibility to
monitor or restrict the transfer of
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Ownership Interests in Book-Entry Certificates through the book-entry facilities
of the Securities Depository.
(b) The Trustee, the Servicer, the Special Servicer, [the Fiscal
Agent] and the Certificate Registrar may for all purposes, including the making
of payments due on the Book- Entry Certificates, deal with the Securities
Depository as the authorized representative of the Certificate Owners with
respect to such Certificates for the purposes of exercising the rights of
Certificateholders hereunder. The rights of Certificate Owners with respect to
the Book-Entry Certificates shall be limited to those established by law and
agreements between such Certificate Owners and the Securities Depository
Participants and brokerage firms representing such Certificate Owners. Multiple
requests and directions from, and votes of, the Securities Depository as Holder
of the Book-Entry Certificates with respect to any particular matter shall not
be deemed inconsistent if they are made with respect to different Certificate
Owners. The Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Certificateholders and shall give
notice to the Securities Depository of such record date.
(c) If (i)(A) the Depositor advises the Trustee and the Certificate
Registrar in writing that the Securities Depository is no longer willing or able
to properly discharge its responsibilities with respect to any Class of the
Book-Entry Certificates, and (B) the Depositor is unable to locate a qualified
successor, or (ii) the Depositor at its option advises the Trustee and the
Certificate Registrar in writing that it elects to terminate the book-entry
system through the Securities Depository with respect to any Class of the
Book-Entry Certificates, the Certificate Registrar shall notify all affected
Certificate Owners, through the Securities Depository, of the occurrence of any
such event and of the availability of Definitive Certificates to such
Certificate Owners requesting the same. Upon surrender to the Certificate
Registrar of any Class of the Book-Entry Certificates by the Securities
Depository, accompanied by registration instructions from the Securities
Depository for registration of transfer, the Trustee shall execute, and the
Certificate Registrar shall authenticate and deliver, the Definitive
Certificates to the Certificate Owners identified in such instructions. None of
the Depositor, the Servicer, the Special Servicer, the Trustee, [the Fiscal
Agent] or the Certificate Registrar shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates for
purposes of evidencing ownership of any of the Class ___ Certificates, the
registered holders of such Definitive Certificates shall be recognized as
Certificateholders hereunder and, accordingly, shall be entitled directly to
receive payments on, to exercise Voting Rights with respect to, and to transfer
and exchange such Definitive Certificates.]
SECTION 5.4.Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Certificate Registrar such security or indemnity as
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may be requited by it to save it, the Trustee, the Special Servicer and the
Servicer harmless, then, in the absence of actual knowledge by a Responsible
Officer of the Certificate Registrar that such Certificate has been acquired by
a bona fide purchaser, the Trustee or the Authenticating Agent shall execute and
authenticate and the Certificate Registrar shall deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of the same Class and of like tenor and Percentage Interest. Upon
the issuance of any new Certificate under this Section 5.4, the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Certificate Registrar)
connected therewith. Any replacement Certificate issued pursuant to this Section
5.4 shall constitute complete and indefeasible evidence of ownership of the
corresponding interest in the Trust Fund, as if originally issued, whether or
not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 5.5.Appointment of Paying Agent.
The Trustee may appoint a paying agent for the purpose of making
distributions to Certificateholders pursuant to Section 4.1. The Trustee shall
cause such Paying Agent, if other than the Trustee or the Servicer, to execute
and deliver to the Servicer and the Trustee an instrument in which such Paying
Agent shall agree with the Servicer and the Trustee that such Paying Agent will
hold all sums held by it for payment to Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums have been
paid to such Certificateholders or disposed of as otherwise provided herein. The
initial Paying Agent shall be the Trustee. The Paying Agent shall at all times
be an entity having a long-term unsecured debt rating of at least "BBB" by each
Rating Agency, unless each of the Rating Agencies has confirmed in writing that
a lower rating shall not result, in and of itself, in a downgrading, withdrawal
or qualification of the rating then assigned by such Rating Agency to any Class
of the Certificates.
SECTION 5.6.Access to Certificateholders' Names and Addresses.
(a) If any Certificateholder (for purposes of this Section 5.6, an
"Applicant") applies in writing to the Certificate Registrar, and such
application states that the Applicant desires to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and is accompanied by a copy of the communication which such
Applicant proposes to transmit, then the Certificate Registrar shall, at the
expense of such Applicant, within ____ Business Days after the receipt of such
application, transmit such communication to the Certificateholders as of the
most recent Record Date; provided, however, if such communication relates to
performance by the Servicer, the Special Servicer or the Trustee of its duties
hereunder, the Certificate Registrar shall furnish or cause to be furnished to
such Applicant a list of the names and addresses of the Certificateholders as of
the most recent Record Date.
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(b) Every Certificateholder, by receiving and holding its
Certificate, agrees with the Trustee that the Trustee and the Certificate
Registrar shall not be held accountable in any way by reason of the disclosure
of any information as to the names and addresses of the Certificateholders
hereunder, regardless of the source from which such information was derived.
SECTION 5.7.Actions of Certificateholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
an agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, when required, to the Depositor, the Special
Servicer or the Servicer. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Agreement and conclusive in favor of the Trustee, the Depositor, the Special
Servicer and the Servicer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Certificateholder of
any such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Certificateholder shall bind every Holder of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Trustee, the Depositor, the Special Servicer or the Servicer in reliance
thereon, whether or not notation of such action is made upon such Certificate.
(d) The Trustee or Certificate Registrar may require such additional
proof of any matter referred to in this Section 5.7 as it shall deem necessary.
ARTICLE VI
THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
SECTION 6.1.Liability of the Depositor, the Servicer and the
Special Servicer.
The Depositor, the Servicer and the Special Servicer each shall be
liable in accordance herewith only to the extent of the obligations specifically
imposed by this Agreement.
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SECTION 6.2.Merger or Consolidation of the Servicer and Special
Servicer.
Subject to the third paragraph of this Section 6.2, the Servicer will
keep in full effect its existence, rights and good standing as a limited
partnership under the laws of the State of Missouri and will not jeopardize its
ability to do business in each jurisdiction in which one or more of the
Mortgaged Properties are located or to protect the validity and enforceability
of this Agreement, the Certificates or any of the Mortgage Loans and to perform
its respective duties under this Agreement.
Subject to the following paragraph, the Special Servicer will keep in
full effect its existence, rights and good standing as a [corporation] under the
laws of the State of ________ and will not jeopardize its ability to do business
in each jurisdiction in which one or more of the Mortgaged Properties are
located or to protect the validity and enforceability of this Agreement, the
Certificates or any of the Specially Serviced Mortgage Loans and to perform its
respective duties under this Agreement.
Each of the Servicer and the Special Servicer may be merged or
consolidated with or into any Person, or transfer all or substantially all of
its assets to any Person, in which case any Person resulting from any merger or
consolidation to which it shall be a party, or any Person succeeding to its
business, shall be the successor of the Servicer or the Special Servicer, as
applicable hereunder, and shall be deemed to have assumed all of the liabilities
of the Servicer or the Special Servicer, as applicable hereunder, if each of the
Rating Agencies has confirmed in writing that such merger, consolidation or
transfer and succession shall not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of Certificates.
SECTION 6.3.Limitation on Liability of the
Depositor, the Servicer and
Others.
Neither the Depositor, the Servicer, the Special Servicer, [the
Extension Advisor] nor any of the directors, officers, employees or agents of
the Depositor or the Servicer or the Special Servicer [or the Extension Advisor]
(or any general partner of the Servicer or, if applicable, the Special Servicer
[or the Extension Advisor]) shall be under any liability to the Trust Fund or
the Certificateholders for any action taken, or for refraining from the taking
of any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Depositor
or the Servicer or the Special Servicer [or any Extension Advisor] or any such
Person against any breach of warranties or representations made herein, or
against any specific liability imposed on the Servicer or the Special Servicer
[or any Extension Advisor] for a breach of the Servicing Standard, or against
any liability which would otherwise be imposed by reason of its respective
willful misfeasance, bad faith, fraud or negligence in the performance of its
duties or by reason of reckless disregard of its respective obligations or
duties hereunder. The Depositor, the Servicer, the Special Servicer [and any
Extension Advisor] and any director, officer, employee or agent of the
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Depositor, the Servicer, the Special Servicer [and any Extension Advisor] (or
the general partner of the Servicer or, if applicable, the Special Servicer [or
any Extension Advisor]) may rely in good faith on any document of any kind
which, prima facie, is properly executed and submitted by any appropriate Person
with respect to any matters arising hereunder. The Depositor, the Servicer, the
Special Servicer [and any Extension Advisor] and any director, officer, employee
or agent of the Depositor, the Servicer or the Special Servicer [or any
Extension Advisor] (or the general partner of the Servicer or, if applicable,
the Special Servicer [or any Extension Advisor]) shall be indemnified and held
harmless by the Trust Fund against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense (i) incurred by reason of its
respective willful misfeasance, bad faith, fraud or negligence or (in the case
of the Servicer or Special Servicer [or any Extension Advisor]) a breach of the
Servicing Standard in the performance of its respective duties or by reason of
reckless disregard of its respective obligations or duties hereunder; or (ii)
imposed by any taxing authority which loss, liability or expense is not
specifically reimbursable pursuant to the terms of this Agreement and which
results from a breach (other than a breach with respect to which the Servicer or
Special Servicer [or any Extension Advisor], as applicable, would have no
liability under the standard set forth in the first sentence of this paragraph)
by the Servicer, the Special Servicer, [the Extension Advisor] or the agents of
any of them of its obligations hereunder. Neither the Depositor nor the Servicer
nor the Special Servicer shall be under any obligation to appear in, prosecute
or defend any legal action unless such action is related to its respective
duties under this Agreement and in its opinion does not expose it to any expense
or liability; provided, however, that the Depositor or the Servicer or the
Special Servicer [or any Extension Advisor] may in its discretion undertake any
action related to its obligations hereunder which it may deem necessary or
desirable with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Certificateholders hereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom (except any liability related to the Servicer's or the Special
Servicer's obligations under Section 3.1(a)) shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Servicer and the Special
Servicer shall be entitled to be reimbursed therefor from the Collection Account
as provided in Section 3.6(vi) of this Agreement.
SECTION 6.4.Limitation on Resignation of the Servicer and of the
Special Servicer.
Each of the Servicer and the Special Servicer may assign its
respective rights and delegate its respective duties and obligations under this
Agreement in connection with the sale or transfer of a substantial portion of
its mortgage servicing or asset management portfolio, provided that: (i) the
purchaser or transferee accepting such assignment and delegation (A) shall be
satisfactory to the Trustee, (B) shall be (I) an established mortgage finance
institution, bank or mortgage servicing institution, organized and doing
business under the laws of any state of the United States or the District of
Columbia, authorized under such laws to perform the duties of a servicer of
mortgage loans or (II) a Person resulting from a merger, consolidation or
succession that is permitted under Section 6.2, and (C) shall execute and
deliver to the Trustee
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an agreement, in form and substance reasonably satisfactory to the Trustee,
which contains an assumption by such Person of the due and punctual performance
and observance of each covenant and condition to be performed or observed by the
Servicer or the Special Servicer, as applicable, under this Agreement from and
after the date of such agreement; (ii) as evidenced by a letter from each Rating
Agency delivered to the Trustee, each Rating Agency's rating or ratings of the
Regular Certificates in effect immediately prior to such assignment and
delegation will not be qualified, downgraded or withdrawn as a result of such
assignment and delegation; (iii) the Servicer or the Special Servicer, as
applicable, shall not be released from its obligations under this Agreement that
arose prior to the effective date of such assignment and delegation under this
Section 6.4; and (iv) the rate at which the Servicing Fee (or any component
thereof) is calculated shall not exceed the rate in effect prior to such
assignment and delegation. Upon acceptance of such assignment and delegation,
the purchaser or transferee shall be the successor Servicer or Special Servicer
hereunder, as applicable.
Except as provided in this Section 6.4, neither the Servicer nor the
Special Servicer shall resign from the obligations and duties hereby imposed on
it except upon determination that its duties hereunder are no longer permissible
under applicable law. Any such determination permitting the resignation of the
Servicer or the Special Servicer, as applicable, shall be evidenced by an
Opinion of Counsel (obtained at the resigning Servicer's expense) to such effect
delivered to the Trustee.
No resignation or removal of the Servicer or the Special Servicer, as
applicable, as contemplated by the preceding paragraphs shall become effective
until the Trustee or a successor Servicer or the Special Servicer, as
applicable, shall have assumed the Servicer's or the Special Servicer's
responsibilities, duties, liabilities and obligations hereunder.
SECTION 6.5.Rights of the Depositor and the Trustee in
Respect of the Servicer and the Special
Servicer.
Each of the Servicer and the Special Servicer shall afford the
Depositor and the Trustee, upon reasonable notice, during normal business hours
access to all records maintained by it in respect of its rights and obligations
hereunder and access to its officers responsible for such obligations. Upon
request, each of the Servicer and the Special Servicer shall furnish to the
Depositor and the Trustee its most recent financial statements and such other
information in its possession regarding its business, affairs, property and
condition, financial or otherwise, as the party requesting such information, in
its reasonable judgment, determines to be relevant to the performance of the
obligations hereunder of the Servicer or the Special Servicer. Neither the
Depositor nor the Trustee shall have any responsibility or liability for any
action or failure to act by the Servicer or the Special Servicer and neither
such Person is obligated to supervise the performance of the Servicer or the
Special Servicer under this Agreement or otherwise.
ARTICLE VII
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DEFAULT
SECTION 7.1. Events of Default.
"Event of Default", wherever used herein, with respect to the
Servicer and the Special Servicer, as applicable (except with respect to item
(vii) in the case of the Special Servicer) means any one of the following
events:
(i) any failure by the Servicer or the Special
Servicer, as applicable, to remit to the
Collection Account or any failure by the
Servicer to remit to the Trustee for deposit
into the Distribution Account any amount
required to be so remitted by the Servicer or
the Special Servicer, as applicable, pursuant to
and in accordance with the terms of this
Agreement; or
(ii) any failure on the part of the Servicer or
Special Servicer, as applicable, duly to observe
or perform in any material respect any other of
the covenants or agreements, or the breach of
any representations or warranties provided
herein on the part of the Servicer or the
Special Servicer which materially and adversely
affects the interests of the Certificateholders,
the Servicer, the Special Servicer or the
Trustee with respect to any Mortgage Loan and
which, in either event, continues unremedied for
a period of ___ days after the date on which
written notice of such failure or breach,
requiring the same to be remedied, shall have
been given to the Servicer or Special Servicer
by the Depositor or the Trustee, or to the
Servicer or Special Servicer, the Depositor and
the Trustee by the Holders of Certificates
entitled to at least ___% of the aggregate
Voting Rights of any Class affected thereby; or
(iii) confirmation in writing by any of the Rating Agencies that the
then- current rating assigned to any Class of Certificates
will be withdrawn, downgraded or qualified if the Servicer or
Special Servicer, as applicable, is not removed as Servicer or
Special Servicer hereunder; or
(iv) a decree or order of a court or agency or
supervisory authority having jurisdiction in the
premises in an involuntary case under any
present or future federal or state bankruptcy,
insolvency or similar law for the appointment of
a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its
affairs, shall have been entered against the
Servicer or Special Servicer,
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as applicable, and such decree or order shall
have remained in force, undischarged or
unstayed, for a period of ___ days; or
(v) the Servicer or Special Servicer, as applicable,
shall consent to the appointment of a
conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of
or relating to the Servicer or the Special
Servicer, or of or relating to all or
substantially all of the property of either the
Servicer or the Special Servicer; or
(vi) the Servicer or Special Servicer, as applicable,
shall admit in writing its inability to pay its
debts generally as they become due, file a
petition to take advantage of any applicable
insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations;
or
(vii) the Servicer shall fail to make any Advance required to be
made by the Servicer hereunder (whether or not the Trustee [or
the Fiscal Agent] makes such Advance);
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Trustee may, and at the written direction of the Holders
of at least ____% of the aggregate Voting Rights of all Certificates, the
Trustee shall, by notice in writing to the Servicer or the Special Servicer, as
the case may be, terminate all of its respective rights and obligations under
this Agreement and in and to the Mortgage Loans and the proceeds thereof, other
than any rights it may have hereunder as a Certificateholder and any rights or
obligations that accrued prior to the date of such termination (including the
right to receive all amounts accrued or owing to it under this Agreement, plus
interest at the Advance Rate on such amounts until received to the extent such
amounts bear interest as provided in this Agreement, with respect to periods
prior to the date of such termination, and the right to the benefits of Section
6.3 notwithstanding any such termination); provided, however, that in the event
the Servicer and the Special Servicer is the same Person, any termination of the
Servicer shall constitute a termination of the Special Servicer and vice versa.
On or after the receipt by the Servicer or the Special Servicer, as the case may
be, of such written notice, all of its authority and power under this Agreement,
whether with respect to the Certificates or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section
(notwithstanding any failure of the Trustee to satisfy the criterion set forth
in Section 6.4) and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of and at the expense of the
defaulting Servicer or Special Servicer, as the case may be, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents, or
otherwise. Each of the Servicer and the Special Servicer, on behalf of itself,
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agrees in the event it is terminated pursuant to this Section 7.1 promptly (and
in any event no later than ____ Business Days subsequent to such notice) to
provide, at its own expense, the Trustee with all documents and records
requested by the Trustee to enable the Trustee to assume its functions
hereunder, and to cooperate with the Trustee and the successor to its
responsibilities hereunder in effecting the termination of its responsibilities
and rights hereunder, including, without limitation, the transfer to the
successor Servicer or Special Servicer or the Trustee, as applicable, for
administration by it of all cash amounts which shall at the time be or should
have been credited by the Servicer or the Special Servicer to the Collection
Account and any REO Account or Reserve Account or thereafter be received with
respect to the Mortgage Loans, and shall promptly provide the Trustee or such
successor Servicer or Special Servicer (which may include the Trustee), as
applicable, all documents and records reasonably requested by it, such documents
and records to be provided in such form as the Trustee or such successor
Servicer or Special Servicer shall reasonably request (including electromagnetic
form), to enable it to assume the Servicer's or Special Servicer's function
hereunder. All reasonable costs and expenses of the successor Servicer or
successor Special Servicer incurred in connection with transferring the Mortgage
Files to the successor Servicer (or copies of the Mortgage Files relating to
Specially Serviced Mortgage Loans to the Successor Special Servicer) and
amending this Agreement to reflect such succession as Servicer or successor
Special Servicer pursuant to this Section 7.1 shall be paid by the predecessor
Servicer or Special Servicer upon presentation of reasonable documentation of
such costs and expenses; provided, however, that if any such costs and expenses
remain unpaid by the predecessor Servicer or Special Servicer within a
reasonable time after presentation of such documentation, the Trustee may be
reimbursed from the Collection Account for such unpaid costs and expenses, which
shall be deemed to be expenses of the Trust Fund.
SECTION 7.2.Trustee to Act; Appointment of Successor.
On and after the time the Servicer or the Special Servicer receives a
notice of termination pursuant to Section 7.1, the Trustee shall be its
successor in such capacity in all respects under this Agreement and the
transactions set forth or provided for herein and, except as provided herein,
shall be subject to all the responsibilities, duties, limitations on liability
and liabilities relating thereto and arising thereafter placed on the Servicer
or Special Servicer by the terms and provisions hereof; provided, however, that
(i) the Trustee shall have no responsibilities, duties, liabilities or
obligations with respect to any act or omission of the Servicer or of the
Special Servicer and (ii) any failure to perform, or delay in performing, such
duties or responsibilities caused by the terminated party's failure to provide,
or delay in providing, records, tapes, disks, information or monies shall not be
considered a default by any successor hereunder. The appointment of a successor
Servicer or Special Servicer shall not affect any liability of the predecessor
Servicer or Special Servicer, as applicable, which may have arisen prior to its
termination as Servicer or Special Servicer. The Trustee shall not be liable for
any of the representations and warranties of the Servicer or of the Special
Servicer herein or in any related document or agreement, for any acts or
omissions of the predecessor Servicer or Special Servicer, as applicable, or for
any losses incurred in respect of any Permitted
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Investment by the Servicer pursuant to Section 3.7 hereunder nor shall the
Trustee be required to purchase any Mortgage Loan hereunder. As compensation
therefor, the Trustee as successor Servicer or Special Servicer shall be
entitled to all Servicing Compensation relating to the Mortgage Loans that
accrue after the date of the Trustee's succession to which the Servicer or
Special Servicer would have been entitled if the Servicer or Special Servicer,
as applicable, had continued to act hereunder. In the event any Advances made by
the Servicer or the Trustee shall at any time be outstanding, or any amounts of
interest thereon shall be accrued and unpaid, all amounts available to repay
Advances and interest hereunder shall be applied entirely to the Advances made
by the Trustee (and the accrued and unpaid interest thereon), until such
Advances made by the Trustee (and accrued and unpaid interest thereon) shall
have been repaid in full. Notwithstanding the above, the Trustee may, if it
shall be unwilling to so act, or shall, if it is unable to so act, or if the
Holders of Certificates entitled to at least ____% of the aggregate Voting
Rights so request in writing to the Trustee, or if (x) [neither] the Trustee
[nor the Fiscal Agent] is [not] rated by each Rating Agency in one of its two
highest long-term debt rating categories or (y) the Trustee is not listed on
[S&P]'s list of approved servicers, promptly appoint, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution, the appointment of which will not result in the downgrading,
withdrawal or qualification of the rating or ratings then assigned to any Class
of Certificates as evidenced in writing by each Rating Agency, as the successor
to the Servicer or Special Servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Servicer or Special
Servicer hereunder. No appointment of a successor to the Servicer or Special
Servicer hereunder shall be effective until the assumption by such successor of
all the Servicer's or Special Servicer's responsibilities, duties and
liabilities hereunder. Pending appointment of a successor to the Servicer or
Special Servicer hereunder, unless the Trustee shall be prohibited by law from
so acting, the Trustee shall act in such capacity as herein above provided. In
connection with such appointment and assumption described herein, the Trustee
may make such arrangements for the compensation of such successor out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
terminated party hereunder. The Depositor, the Trustee, the Servicer or Special
Servicer and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
SECTION 7.3.Notification to Certificateholders.
(a) Upon any termination pursuant to Section 7.1 above or appointment
of a successor to the Servicer or the Special Servicer, the Trustee shall give
prompt written notice thereof to Certificateholders at their respective
addresses appearing in the Certificate Register and to each Rating Agency.
(b) Within ____ days after the occurrence of any Event of Default of
which a Responsible Officer of the Trustee has actual knowledge, the Trustee
shall transmit by mail to all Holders of Certificates and to each Rating Agency
notice of such Event of Default, unless such Event of Default shall have been
cured or waived.
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SECTION 7.4.Other Remedies of Trustee.
During the continuance of any Event of Default, so long as such Event
of Default shall not have been remedied, the Trustee, in addition to the rights
specified in Section 7.1, shall have the right, in its own name as trustee of an
express trust, to take all actions now or hereafter existing at law, in equity
or by statute to enforce its rights and remedies and to protect the interests,
and enforce the rights and remedies, of the Certificateholders (including the
institution and prosecution of all judicial, administrative and other
proceedings and the filing of proofs of claim and debt in connection therewith).
In such event, the legal fees, expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust Fund, and the Trustee shall be entitled to be reimbursed therefor from the
Collection Account as provided in Section 3.6(vi). Except as otherwise expressly
provided in this Agreement, no remedy provided for by this Agreement shall be
exclusive of any other remedy, and each and every remedy shall be cumulative and
in addition to any other remedy and no delay or omission to exercise any right
or remedy shall impair any such right or remedy or shall be deemed to be a
waiver of any Event of Default.
SECTION 7.5.Waiver of Past Events of Default; Termination.
The Holders of Certificates evidencing not less than ______% of the
aggregate Voting Rights of the Certificates may, on behalf of all Holders of
Certificates, waive any default by the Servicer or Special Servicer in the
performance of its obligations hereunder and its consequences, except a default
in making any required deposits to (including P&I Advances) or payments from the
Collection Account or the Distribution Account or in remitting payments as
received, in each case in accordance with this Agreement. Upon any such waiver
of a past default, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1.Duties of Trustee.
(a) The Trustee, prior to the occurrence of an Event of Default of
which a Responsible Officer of the Trustee has actual knowledge and after the
curing or waiver of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement and no permissive right of the Trustee shall be construed as a duty.
During the continuance of an Event of Default of which a Responsible Officer of
the Trustee has actual knowledge, the Trustee shall exercise such of the rights
and powers vested in it by this Agreement, and use the same degree of care and
skill in their
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exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that, the Trustee shall not be responsible for the accuracy or content of any
such resolution, certificate, statement, opinion, report, document, order or
other instrument provided to it hereunder by the Servicer, the Special Servicer,
the Depositor, the Paying Agent [or the Auction Agent]. If any such instrument
is found not to conform on its face to the requirements of this Agreement in a
material manner, the Trustee shall take action as it deems appropriate to have
the instrument corrected.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that the foregoing
shall be subject to Section 8.2; and provided, further, that:
(i) Prior to the occurrence of an Event of Default
of which a Responsible Officer of the Trustee
has actual knowledge, and after the curing or
waiver of all such Events of Default which may
have occurred, the duties and obligations of the
Trustee shall be determined solely by the
express provisions of this Agreement, the
Trustee shall not be liable except for the
performance of such duties and obligations as
are specifically set forth in this Agreement, no
implied covenants or obligations shall be read
into this Agreement against the Trustee and, in
the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as
to the truth of the statements and the
correctness of the opinions expressed therein,
upon any resolutions, certificates, statements,
reports, opinions, documents, orders or other
instruments furnished to the Trustee that
conform on their face to the requirements of
this Agreement without responsibility for
investigating the contents thereof;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or
Responsible Officers, unless it shall be proven that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of Holders of
Certificates entitled to at least ____%
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of the aggregate Voting Rights (or such other percentage as is
specified herein) of each affected Class, or of the aggregate
Voting Rights of the Certificates, relating to the time,
method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising or omitting to
exercise any trust or power conferred upon the Trustee, under
this Agreement; and
(iv) The Trustee shall not be charged with knowledge
of any failure by the Servicer or the Special
Servicer to comply with the obligations of the
Servicer or the Special Servicer referred to in
clause (i) or (ii) of Section 7.1, or of any
breach or occurrence referred to in clause (iii)
through (viii) of Section 7.1, unless a
Responsible Officer of the Trustee obtains
actual knowledge of such failure, breach or
occurrence. The Trustee shall be deemed to have
actual knowledge of the Servicer's or the
Special Servicer's failure to comply with its
obligations listed in clause (i) of Section 7.1
or to provide scheduled reports, certificates
and statements when and as required to be
delivered to the Trustee pursuant to this
Agreement.
The Trustee, in its capacity as Trustee, shall not be required to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if in the Trustee's opinion the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer or the Special Servicer under this
Agreement, except pursuant to Sections 4.6 or 6.4 during such time, if any, as
the Trustee shall be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer or the Special Servicer in accordance
with the terms of this Agreement. The Trustee shall not be required to post any
surety or bond of any kind in connection with its performance of its obligations
under this Agreement.
SECTION 8.2.Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.1:
(i) The Trustee may request and/or rely upon and
shall be protected in acting or refraining from
acting upon any resolution, Officer's
Certificate, certificate of auditors or any
other certificate, statement, instrument,
opinion, report, notice, request, consent,
order, appraisal, bond or other paper or
document reasonably believed by it to be genuine
and to have been signed or presented by the
proper party or parties and the Trustee shall
have no responsibility to ascertain or confirm
the genuineness of any such party or parties;
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(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such Opinion of Counsel;
(iii) (A) The Trustee shall be under no obligation to
institute, conduct or defend any litigation
hereunder or in relation hereto at the request,
order or direction of any of the
Certificateholders, pursuant to the provisions
of this Agreement, unless such
Certificateholders shall have offered to the
Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be
incurred therein or thereby; (B) the right of
the Trustee to perform any discretionary act
enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not
be answerable for other than its negligence or
willful misconduct in the performance of any
such act; provided, however, that subject to the
-------- -------
foregoing clause (A), nothing contained herein shall relieve
the Trustee of the obligations, upon the occurrence of an
Event of Default (which has not been cured or waived) of which
a Responsible Officer of the Trustee has actual knowledge, to
exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in
their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own
affairs;
(iv) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and reasonably
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(v) The Trustee shall not be bound to make any
investigation into the facts or matters stated
in any resolution, certificate, statement,
instrument, opinion, report, notice, request,
consent, order, approval bond or other paper or
document, unless requested in writing to do so
by Holders of Certificates entitled to at least
___% (or such other percentage as is specified
herein) of the aggregate Voting Rights of any
affected Class; provided, however, that if the
-------- -------
payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable
expense of every such investigation shall
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be paid by the Servicer or the Special Servicer if an Event of
Default shall have occurred and be continuing relating to the
Servicer, or the Special Servicer, respectively, and otherwise
by the Certificateholders requesting the investigation; and
(vi) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or
through agents or attorneys. The Trustee shall not be liable
or responsible for the misconduct or negligence of any of the
Trustee's agents or attorneys appointed with due care by the
Trustee hereunder.
(b) Following the Start-up Day, the Trustee shall not, except as
expressly required by any provision of this Agreement, accept any contribution
of assets to the Trust Fund unless the Trustee shall have received an Opinion of
Counsel (the costs of obtaining such opinion to be borne by the Person
requesting such contribution) to the effect that the inclusion of such assets in
the Trust Fund will not cause either the Upper-Tier REMIC or the Lower-Tier
REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding or subject either the Upper-Tier REMIC or the Lower-Tier REMIC to
any tax under the REMIC Provisions or other applicable provisions of federal,
state and local law or ordinances.
(c) All rights of action under this Agreement or under any of the
Certificates, enforceable by the Trustee, may be enforced by it without the
possession of any of the Certificates, or the production thereof at the trial or
other proceeding relating thereto, and any such suit, action or proceeding
instituted by the Trustee shall be brought in its name for the benefit of all
the Holders of such Certificates, subject to the provisions of this Agreement.
The Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repurchase of
any Mortgage Loan by the Depositor pursuant to this Agreement or the eligibility
of any Mortgage Loan for purposes of this Agreement.
SECTION 8.3.Trustee Not Liable for Certificates or
Mortgage Loans.
The recitals contained herein and in the Certificates shall not be
taken as the statements of the Trustee, [the Fiscal Agent,] the Servicer or the
Special Servicer and the Trustee, [the Fiscal Agent,] the Special Servicer and
the Servicer assume no responsibility for their correctness. The Trustee, [the
Fiscal Agent,] the Servicer and the Special Servicer make no representations or
warranties as to the validity or sufficiency of this Agreement, of the
Certificates, or any private placement memorandum or prospectus used to offer
the Certificates for sale or the validity, enforceability or sufficiency of any
Mortgage Loan or related document. The Trustee [and the Fiscal Agent] shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Mortgage or any Mortgage Loan, or
the perfection and priority of any Mortgage or the maintenance of any such
perfection and
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priority, or for or with respect to the sufficiency of the Trust Fund or its
ability to generate the payments to be distributed to Certificateholders under
this Agreement. Without limiting the foregoing, [neither] the Trustee [nor the
Fiscal Agent] shall [not] be liable or responsible for: the existence, condition
and ownership of any Mortgaged Property; the existence of any hazard or other
insurance thereon (other than, with respect to the Trustee only, if the Trustee
shall assume the duties of the Servicer pursuant to Section 7.2) or the
enforceability thereof; the existence of any Mortgage Loan or the contents of
the related Mortgage File on any computer or other record thereof (other than,
with respect to the Trustee only, if the Trustee shall assume the duties of the
Servicer or the Special Servicer pursuant to Section 7.2); the validity of the
assignment of any Mortgage Loan to the Trust Fund or of any intervening
assignment; the completeness of any Mortgage File; the performance or
enforcement of any Mortgage Loan (other than, with respect to the Trustee only,
if the Trustee shall assume the duties of the Servicer or the Special Servicer
pursuant to Section 7.2); the compliance by the Depositor, the Servicer or the
Special Servicer with any warranty or representation made under this Agreement
or in any related document or the accuracy of any such warranty or
representation prior to the Trustee's receipt of notice or other discovery of
any non-compliance therewith or any breach thereof; any investment of monies by
or at the direction of the Servicer or the Special Servicer or any loss
resulting therefrom, it being understood that the Trustee only shall remain
responsible for any Trust Fund property that it may hold in its individual
capacity; the acts or omissions of any of the Depositor, the Servicer or the
Special Servicer (other than, with respect to the Trustee only, if the Trustee
shall assume the duties of the Servicer or the Special Servicer pursuant to
Section 7.2) or any subservicer or any Borrower; any action of the Servicer or
the Special Servicer (other than, with respect to the Trustee only, if the
Trustee shall assume the duties of the Servicer or the Special Servicer pursuant
to Section 7.2) or any subservicer taken in the name of the Trustee, except with
respect to the Trustee, to the extent such action is taken at the express
written direction of the Trustee; the failure of the Servicer or the Special
Servicer or any subservicer to act or perform any duties required of it on
behalf of the Trust Fund or the Trustee hereunder; or any action by or omission
of the Trustee taken at the instruction of the Servicer or the Special Servicer
(other than in each case, with respect to the Trustee only, if the Trustee shall
assume the duties of the Servicer or the Special Servicer pursuant to Section
7.2) unless the taking of such action is not permitted by the express terms of
this Agreement; provided, however, that the foregoing shall not relieve the
Trustee [or the Fiscal Agent] of its obligation to perform its duties as
specifically set forth in this Agreement. [Under no circumstances shall the
Fiscal Agent be liable under any of the circumstances described in the preceding
sentence.] The Trustee [and the Fiscal Agent] shall not be accountable for the
use or application by the Depositor, the Servicer or the Special Servicer of any
of the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor, the Servicer or the Special
Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the
Collection Account, or the Distribution Account by the Depositor, the Servicer
or the Special Servicer, other than in each case, with respect to the Trustee
only, any funds held by the Trustee. The Trustee (unless the Trustee shall have
become the successor Servicer) [or the Fiscal Agent] shall have no
responsibility for (A) filing any financing or continuation statement in any
public office at any time or to otherwise perfect or maintain the
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perfection of any security interest or lien granted to it hereunder or to record
this Agreement, (B) seeing to any insurance, (C) seeing to the payment or
discharge of any tax, assessment, or other governmental charge or any lien or
encumbrance of any kind owing with respect to, assessed or levied against any
part of the Trust Fund, or (D) confirming or verifying the contents of any
reports or certificates of the Servicer delivered to the Trustee pursuant to
this Agreement believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties. In making any calculation hereunder
which includes as a component thereof the payment or distribution of interest
for a stated period at a stated rate "to the extent permitted by applicable
law," the Trustee shall assume that such payment is so permitted unless a
Responsible Officer of the Trustee has actual knowledge, or receives an Opinion
of Counsel (at the expense of the Person asserting the impermissibility) to the
effect, that such payment is not permitted by applicable law.
SECTION 8.4.Trustee May Own Certificates.
The Trustee [and the Fiscal Agent] in their individual capacities or
any other capacity may become the owner or pledgee of Certificates, and may deal
with the Depositor, the Servicer and the Special Servicer in banking
transactions, with the same rights each would have if it were not Trustee [or
Fiscal Agent].
SECTION 8.5.Payment of Trustee's Fees and Expenses;
Indemnification.
(a) The Servicer covenants and agrees to pay to the Trustee or any
successor Trustee from time to time, and the Trustee or any successor Trustee
shall be entitled to receive from the Servicer the Trustee Fee (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by the Trustee in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee.
(b) To the extent specifically permitted by Section 3.12(d), the
Trustee shall be paid or reimbursed from the Trust Fund upon its request for
expenses, disbursements and advances incurred or made by the Trustee pursuant to
and in accordance with any of the provisions of this Agreement except any such
expense, disbursement or advance as may arise from its negligence or bad faith;
provided, however, that the Trustee shall not refuse to perform any of its
duties hereunder solely as a result of the failure to be paid the Trustee Fee
and the Trustee's expenses.
The Servicer and the Special Servicer covenant and agree to pay or
reimburse the Trustee for the reasonable expenses, disbursements and advances
incurred or made by the Trustee in connection with any transfer of the servicing
responsibilities of the Servicer or the Special Servicer, as applicable
hereunder, pursuant to or otherwise arising from the resignation or removal of
the Servicer or the Special Servicer, as applicable, in accordance with any of
the provisions of this Agreement (and including the reasonable fees and expenses
and disbursements
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of its counsel and all other persons not regularly in its employ), except any
such expense, disbursement or advance as may arise from the negligence or bad
faith of the Trustee.
(c) Each of the Paying Agent, the Certificate Registrar, the
Custodian, the Servicer and the Special Servicer shall indemnify the Trustee
[and the Fiscal Agent] and [its] [their respective] Affiliates and each of the
directors, officers, employees and agents of the Trustee, [the Fiscal Agent] and
[its] [their respective] Affiliates (each, an "Indemnified Party"), and hold
each of them harmless against any, and all claims, losses, damages, penalties,
fines, forfeitures, reasonable and necessary legal fees and related costs,
judgments, and any other costs, fees and expenses that the Indemnified Party may
sustain in connection with this Agreement related to each such party's
respective willful misconduct, bad faith, fraud and/or negligence in the
performance of its respective duties hereunder or by reason of reckless
disregard of its respective obligations and duties hereunder (including in the
case of the Servicer or the Special Servicer, any agent of the Servicer or the
Special Servicer).
(d) The Trust Fund shall indemnify each Indemnified Party from, and
hold it harmless against, any and all losses, liabilities, damages, claims or
expenses (including reasonable attorneys' fees) arising in respect of this
Agreement or the Certificates, in each case to the extent, and only to the
extent, such payments are expressly reimbursable under this Agreement or are
"unanticipated expenses incurred by the REMIC" within the meaning of Treasury
Regulations Section 1.860G-1(b)(3)(ii), other than (i) those resulting from the
negligence, fraud, bad faith or willful misconduct of the Trustee and (ii) those
as to which such Indemnified Party is entitled to indemnification pursuant to
Section 8.5(c). The term "unanticipated expenses incurred by a REMIC" shall
include any fees, expenses and disbursements of any separate trustee or
co-trustee appointed hereunder, only to the extent such fees, expenses and
disbursements were not reasonably anticipated as of the Closing Date and the
losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees) incurred or advanced by an Indemnified Party in connection with
any litigation arising out of this Agreement, including, without limitation,
under Section 2.3, Section 3.10, the third paragraph of Section 3.11, Section
8.11, Section 4.5, Section 5.1, and Section 7.1. The right of reimbursement of
the Indemnified Parties under this Section 8.5(d) shall be senior to the rights
of all Certificateholders.
(e) Notwithstanding anything herein to the contrary, this Section 8.5
shall survive the termination or maturity of this Agreement or the resignation
or removal of the Trustee as regards rights accrued prior to such resignation or
removal and (with respect to any acts or omissions during their respective
tenures) the resignation, removal or termination of the Servicer, the Special
Servicer, the Paying Agent, the Certificate Registrar or the Custodian.
(f) This Section 8.5 shall be expressly construed to include, but not
be limited to, such indemnities, compensation, expenses, disbursements,
advances, losses, liabilities, damages and the like, as may pertain or relate to
any Environmental Law or environmental matter.
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SECTION 8.6.Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of any state or the
United States of America, authorized under such laws to exercise corporate trust
powers and to accept the trust conferred under this Agreement, having a combined
capital and surplus of at least $50,000,000 and a rating on its unsecured
long-term debt of at least "BBB" [(or "AA" at any time when there is no Fiscal
Agent appointed and acting hereunder or any such Fiscal Agent so appointed has a
rating on its long-term unsecured debt that is lower than "AA" (without regard
to any plus or minus), unless each of the Rating Agencies has confirmed in
writing the appointment of such Fiscal Agent shall not result, in and of itself,
in a downgrading, withdrawal or qualification of the ratings then assigned by
such Rating Agency to any Class of the Certificates)] from each Rating Agency,
unless each of the Rating Agencies has confirmed in writing that a lower rating
shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
the Certificates and subject to supervision or examination by federal or state
authority and shall not be an Affiliate of the Servicer or the Special Servicer
(except during any period when the Trustee has assumed the duties of the
Servicer or the Special Servicer, as applicable, pursuant to Section 7.2). If a
corporation or association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for purposes of this Section the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. In the event that the
place of business from which the Trustee administers the Trust Fund is a state
or local jurisdiction that imposes a tax on the Trust Fund or the net income of
a REMIC (other than a tax corresponding to a tax imposed under the REMIC
Provisions) the Trustee shall elect, at its sole discretion, either to (i)
resign immediately in the manner and with the effect specified in Section 8.7,
(ii) pay such tax and continue as Trustee or (iii) administer the Trust Fund
from a state and local jurisdiction that does not impose such a tax. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 8.7.
SECTION 8.7.Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Depositor, the Servicer,
the Special Servicer and each Rating Agency. [Upon such notice of resignation,
the Fiscal Agent shall also be deemed to have been removed and,] accordingly,
the Servicer shall promptly appoint a successor Trustee, which appointment of
successor Trustee shall not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by the Rating Agencies
to any Class of the Certificates as confirmed in writing by each of the Rating
Agencies, [and successor Fiscal Agent, which, if the successor Trustee is not
rated by each Rating Agency in one of its two highest long-term debt rating
categories, shall be confirmed in writing by each
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of the Rating Agencies that such appointment of successor Fiscal Agent shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of the Certificates by
written instrument, in triplicate, which instrument shall be delivered to the
resigning Trustee, with a copy to the fiscal agent deemed removed, and the
successor Trustee and successor Fiscal Agent.] Notwithstanding the foregoing, if
no successor Trustee [and Fiscal Agent] shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee [and departing Fiscal Agent] may petition any
court of competent jurisdiction for the appointment of a successor Trustee [and
successor Fiscal Agent].
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.6 and shall fail to resign after written
request therefor by the Depositor or Servicer, or if at any time the Trustee [or
the Fiscal Agent] shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee [or the Fiscal Agent] or of
its property shall be appointed, or any public officer shall take charge or
control of the Trustee [or the Fiscal Agent] or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
or the Servicer may remove the Trustee [and the Fiscal Agent] and shall promptly
appoint a successor Trustee [and successor Fiscal Agent] by written instrument,
which shall be delivered to the Trustee [and the Fiscal Agent] so removed and to
the successor Trustee [and successor Fiscal Agent].
The Holders of Certificates entitled to at least [51]% of the Voting
Rights may at any time remove the Trustee [and the Fiscal Agent (and any removal
of the Trustee shall be deemed to be a removal also of the Fiscal Agent)] and
appoint a successor Trustee [and successor Fiscal Agent] ([each] meeting the
requirements of Section 8.8) by written instrument or instruments, in [eight]
originals, signed by such Holders or their attorneys-in-fact duly authorized,
one complete set of which instruments shall be delivered to the Depositor, one
complete set to the Servicer, one complete set to the Special Servicer, one
complete set to the Trustee so removed, [one complete set to the Fiscal Agent
deemed removed,] one complete set to the successor Trustee so appointed [and one
complete set to the successor Fiscal Agent so appointed].
[In the event of the resignation or removal of the Trustee, the
Fiscal Agent shall be entitled to resign, it being understood that the initial
Fiscal Agent shall not be obligated to act in such capacity hereunder at any
time that
is not the Trustee.]
Any resignation or removal of the Trustee [and Fiscal Agent] and
appointment of a successor Trustee [and, if such trustee is not rated by each
Rating Agency in one of its two highest long-term debt rating categories, a
successor Fiscal Agent] pursuant to any of the provisions of this Section 8.7
shall not become effective until acceptance of appointment by the successor
Trustee [and, if necessary, Fiscal Agent] as provided in Section 8.8.
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SECTION 8.8.Successor Trustee.
Any successor Trustee [and any successor Fiscal Agent] appointed as
provided in Section 8.7 shall execute, acknowledge and deliver to the Depositor
and to the predecessor Trustee [and predecessor Fiscal Agent], as the case may
be, instruments accepting their appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee [and predecessor Fiscal Agent]
shall become effective and such successor Trustee [and successor Fiscal Agent],
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor hereunder, with
the like effect as if originally named as Trustee herein, provided that each
Rating Agency shall have confirmed in writing that the appointment of such
successor Trustee [and successor Fiscal Agent] shall not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of the Certificates. The predecessor
Trustee shall deliver to the successor Trustee all Mortgage Files and related
documents and statements held by it hereunder, and the Depositor, the
predecessor Trustee [and predecessor Fiscal Agent] shall execute and deliver
such instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor Trustee [and
successor Fiscal Agent] all such rights, powers, duties and obligations. No
successor Trustee [or successor Fiscal Agent] shall accept appointment as
provided in this Section 8.8 unless at the time of such acceptance such
successor Trustee [or successor Fiscal Agent] shall be eligible under the
provisions of Section 8.6.
Upon acceptance of appointment by a successor Trustee [or successor
Fiscal Agent] as provided in this Section 8.8, the successor Trustee shall mail
notice of the succession of such Trustee [and Fiscal Agent] hereunder to all
Holders of Certificates at their addresses as shown in the Certificate Register.
SECTION 8.9.Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of Section
8.6, without the execution or filing of any paper or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
[Any Person into which the Fiscal Agent may be merged or converted or with which
it may be consolidated or any corporation or bank resulting from any merger,
conversion or consolidation to which the Fiscal Agent shall be a party, or any
corporation or banking association succeeding to all or substantially all of the
corporate trust business of the Fiscal Agent shall be the successor of the
Fiscal Agent hereunder, provided that such corporation or bank shall be eligible
under the provisions of Section 8.6 without the execution or filing of any paper
or any farther act on the part of any of the parties hereto, anything to the
contrary notwithstanding.]
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SECTION 8.10Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act (at the expense of the Trustee) as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
other provisions of this Section 8.10, such powers, duties, obligations, rights
and trusts as the Depositor and the Trustee may consider necessary or desirable.
If the Depositor shall no longer be in existence or shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in case an Event of Default shall have occurred and be continuing, the
Trustee alone shall have the power to make such appointment. Except as required
by applicable law, the appointment of a co-trustee or separate trustee shall not
relieve the Trustee of its responsibilities hereunder. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor Trustee under Section 8.6 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.8.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any particular act or
acts are to be performed (whether as Trustee hereunder or as successor to the
Servicer hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Fund or any portion thereof in any
such jurisdiction) shall be exercised and performed by such separate trustee or
co-trustee solely at the direction of the Trustee.
No trustee under this Agreement shall be personally liable by reason
of any act or omission of any other trustee under this Agreement. The Depositor
and the Trustee acting jointly may at any time accept the resignation of or
remove any separate trustee or co-trustee, except that if the Depositor is no
longer in existence, or if the separate trustee or co-trustee is an employee of
the Trustee, the Trustee acting alone may accept the resignation of or remove
any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this
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Agreement and the conditions of this Article VIII. Every such instrument shall
be filed with the Trustee. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. In no event shall any such separate trustee or co-trustee be entitled
to any provision relating to the conduct of, affecting the liability of, or
affording protection to such separate trustee or co-trustee that imposes a
standard of conduct less stringent than that imposed on the Trustee hereunder,
affording greater protection than that afforded to the Trustee hereunder or
providing a greater limit on liability than that provided to the Trustee
hereunder.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts hereunder shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
SECTION 8.11Authenticating Agent.
The Trustee may appoint an Authenticating Agent to execute and to
authenticate Certificates. The Authenticating Agent must be acceptable to the
Depositor and the Servicer and must be a corporation organized and doing
business under the laws of the United States of America or any state, having a
principal office and place of business in a state and city acceptable to the
Depositor and the Servicer, having a combined capital and surplus of at least
$_____________, authorized under such laws to do a trust business and subject to
supervision or examination by federal or state authorities. The Trustee shall
serve as the initial Authenticating Agent and the Trustee hereby accepts such
appointment.
Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be party, or any corporation succeeding to the corporate agency business
of the Authenticating Agent, shall be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at least
____ days' advance written notice of resignation to the Trustee, the Depositor,
the Special Servicer and the Servicer. The Trustee may at any time terminate the
agency of the Authenticating Agent by giving written notice of termination to
the Authenticating Agent, the Depositor, the Special Servicer and the Servicer.
Upon receiving a notice of resignation or upon such a termination,
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or in case at any time the Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 8.11, the Trustee promptly shall
appoint a successor Authenticating Agent, which shall be acceptable to the
Servicer and the Depositor, and shall mail notice of such appointment to all
Certificateholders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers, duties
and responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent herein. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section
8.11.
The Authenticating Agent shall have no responsibility or liability
for any action taken by it as such at the direction of the Trustee. The Trustee
shall pay the Authenticating Agent reasonable compensation from its own funds.
SECTION 8.12Appointment of Custodians.
The Trustee may appoint one or more Custodians to hold all or a
portion of the Mortgage Files as agent for the Trustee, by entering into a
Custodial Agreement. The Trustee agrees to comply with the terms of each
Custodial Agreement and to enforce the terms and provisions thereof against the
Custodian for the benefit of the Certificateholders. Each Custodian shall be a
depository institution subject to supervision by federal or state authority,
shall have a combined capital and surplus of at least $____________, shall have
a long-term debt rating of at least "BBB" from each Rating Agency, unless each
of the Rating Agencies has confirmed in writing that a lower rating shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of the Certificates, and
shall be qualified to do business in the jurisdiction in which it holds any
Mortgage File. Each Custodial Agreement may be amended only as provided in
Section 10.7. The Trustee shall pay the Custodian reasonable compensation from
its own funds. The Trustee shall serve as the initial Custodian.
[SECTION 8.13. Fiscal Agent Appointed; Concerning the
Fiscal Agent.
(a) The Trustee hereby appoints ___________________ as the initial
Fiscal Agent hereunder for the purposes of exercising and performing the
obligations and duties imposed upon the Fiscal Agent by Sections 3.22, 4.6 and
7.2.
(b) The Fiscal Agent undertakes to perform such duties and only such
duties as are specifically set forth in Sections 3.22, 4.6 and 7.2.
(c) No provision of this Agreement shall be construed to relieve the
Fiscal Agent from liability for its own negligent failure to act, bad faith or
its own willful misfeasance; provided, however, that (i) the duties and
obligations of the Fiscal Agent shall be determined solely by the express
provisions of Sections 3.22, 4.6 and 7.2, the Fiscal Agent shall not be liable
except for the performance of such duties and obligations, no implied covenants
or
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obligations shall be read into this Agreement against the Fiscal Agent and, in
the absence of bad faith on the part of the Fiscal Agent, the Fiscal Agent may
conclusively rely, as to the truth and correctness of the statements or
conclusions expressed therein, upon any resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Fiscal Agent by the Depositor, the Servicer, the Special Servicer or the Trustee
and which on their face do not contradict the requirements of this Agreement,
and (ii) the provisions of clause (ii) of Section 8.1(c) shall apply to the
Fiscal Agent.
(d) Except as otherwise provided in Section 8.1(c), the Fiscal Agent
also shall have the benefit of provisions of clauses (i), (ii), (iii) (other
than the proviso thereto), (iv), (v) (other than the proviso thereto) and (vi)
of Section 8.2(a).]
ARTICLE IX
TERMINATION
SECTION 9.1.Termination.
(a) The respective obligations and responsibilities of the Servicer,
the Special Servicer, the Depositor, the Trustee [and the Fiscal Agent] created
hereby with respect to the Certificates (other than the obligation to make
certain payments and to send certain notices to Certificateholders as
hereinafter set forth) shall terminate immediately following the occurrence of
the last action required to be taken by the Trustee pursuant to this Article IX
on the Termination Date; provided, however, that in no event shall the trust
created hereby continue beyond the expiration of twenty-one years from the death
of the survivor of the descendants of Joseph P. Kennedy, the late ambassador of
the United States to the United Kingdom, living on the date hereof.
(b) The Trust Fund, the Upper-Tier REMIC and the Lower-Tier REMIC
shall be terminated and the assets of the Trust Fund shall be sold or otherwise
disposed of in connection therewith, only pursuant to a "plan of complete
liquidation" within the meaning of Code Section 860F(a)(4)(A) providing for the
actions contemplated by the provisions hereof pursuant to which the applicable
Notice of Termination is given and requiring that the Trust Fund, the Upper-Tier
REMIC and the Lower-Tier REMIC shall terminate on a Distribution Date occurring
not more than 90 days following the date of adoption of the plan of complete
liquidation. For purposes of this Section 9.1(b), the Notice of Termination
given pursuant to Section 9.1(c) shall constitute the adoption of the plan of
complete liquidation as of the date such notice is given, which date shall be
specified by the Trustee in the final federal income tax returns of the
Upper-Tier REMIC and the Lower-Tier REMIC.
(c) If the Trust Fund has not been previously terminated pursuant to
subsection (d) of this Section 9.1, [the Special Servicer] may effect an early
termination of the Trust Fund, upon not less than 30 days' prior Notice of
Termination given to the Trustee and the Servicer
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any time on or after the Early Termination Notice Date specifying the
Anticipated Termination Date, by purchasing on such date all, but not less than
all, of the Mortgage Loans then included in the Trust Fund, and all property
acquired in respect of any Mortgage Loan, at a purchase price, payable in cash,
equal to not less than the greater of:
(i) the sum of
(A) 100% of the unpaid principal balance of each Mortgage Loan
included in the Trust Fund as of the last day of the month
preceding such Distribution Date;
(B) the fair market value of all other property
included in the Trust Fund as of the last day
of the month preceding such Distribution
Date, as determined by an Independent
appraiser acceptable to the Servicer as of
the date not more than 30 days prior to the
last day of the month preceding such
Distribution Date;
(C) all unpaid interest accrued on such principal balance of
each such Mortgage Loan (including for this purpose any
Mortgage Loan as to which title to the related Mortgaged
Property has been acquired) at the Mortgage Rate to the
last day of the month preceding such Distribution Date;
(D) the aggregate amount of unreimbursed Advances (with
interest thereon at the Advance Rate) and unpaid Trust Fund
expenses; or
(ii) the aggregate fair market value of the Mortgage Loans, and all
other property acquired in respect of any Mortgage Loan in the
Trust Fund, on the last day of the month preceding such
Distribution Date, as determined by an Independent appraiser
acceptable to the Servicer as of a date not more than 30 days
prior to the last day of the month preceding such Distribution
Date, together with one month's interest thereon at the Mortgage
Rate and disposition expenses.
[Any Holder of a Class LR Certificate representing greater than a
____% Percentage Interest in such Class], [the Servicer] or [the Depositor] may
also effect such termination as provided above if it first notifies the [Special
Servicer] through the Trustee of its intention to do so in writing at least 30
days prior to the Early Termination Notice Date and the [Special Servicer] does
not terminate the Trust Fund as described above within such 30 day period. All
costs and expenses incurred by any party to this Agreement or by the Trust Fund
in connection with the purchase of the Mortgage Loans and other assets of the
Trust Fund pursuant to this Section 9.1(c) shall be borne by the party
exercising its purchase rights
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hereunder. The Trustee shall be entitled to rely conclusively on any
determination made by an Independent appraiser pursuant to this subsection (c).
[(d) If the Trust Fund has not been previously terminated pursuant to
subsection (c) of this Section 9.1, on or after the Auction Valuation Date, the
Trustee shall conduct an auction of the Mortgage Loans in accordance with the
following principles:
(i) The Trustee shall request that four Independent
financial advisory or investment banking or
investment brokerage firms nationally recognized
in the field of real estate analysis and
reasonably acceptable to the Servicer and the
Special Servicer provide the Trustee with an
estimated value at which the Mortgage Loans and
all other property in respect of any Mortgage
Loan in the Trust Fund could be sold at an
auction. If the aggregate value of the Mortgage
Loans and such property, as determined by the
average of the three highest such estimates,
equals or exceeds the aggregate amount of the
Certificate Balances of all Certificates
outstanding as of the close of business on the
Auction Valuation Date (the "Aggregate
---------
Certificate Balance") plus the Auction Fees,
-------------------
Servicing Fees, Trustee Fees and all other incidental
expenses, the Trustee shall (A) adopt a "plan of complete
liquidation", as required by Section 9.1(b), and (B) appoint
an Auction Agent to solicit offers from Qualified Offerors to
purchase all (but not less than all) of the Mortgage Loans and
such property in accordance with the Auction Procedures for a
price that is not less than the Aggregate Certificate Balance
plus the Auction Fees, Servicing Fees, Trustee Fees and all
other incidental expenses. In the event that there is an
auction of the Mortgage Loans and such property the Auction
Agent shall be authorized to employ Independent attorneys and
other Independent professional consultants (including, without
limitation, appraisers and environmental consultants) as
reasonably required to conduct such sale.
(ii) In determining the Aggregate Certificate
Balance, there shall be included all
Certificates owned by or on behalf of the
Depositor, the Servicer, the Trustee, a Manager
or a Borrower or any Affiliate thereof,
notwithstanding the proviso in the first
sentence of the definition of the term
"Certificateholder."
(iii) The Trustee shall reject every bid that the
Auction Agent advises the Trustee in writing (a)
is from a Person other than a Qualified Offeror,
(b) provides for a purchase price that is less
than the Aggregate Certificate Balance plus the
Auction Fees, Servicing Fees, Trustee Fees and
all other incidental expenses, (c) provides for
purchase on terms other than all-cash or (d) is
contingent on the occurrence or non
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occurrence of any event (each, a "Deficient Auction Bid"). If
all bids received by the Trustee are Deficient Auction Bids,
as advised by the Auction Agent, the Mortgage Loans and such
property shall not be sold and there shall be no termination
of the Trust Fund pursuant to this Section 9.1(d).
(iv) The Trustee shall accept the highest bid that is
not a Deficient Auction Bid and shall deliver a
Notice of Termination to the Servicer, the
Special Servicer and the Certificateholders
specifying the Anticipated Termination Date
(which shall be first Distribution Date
following the date of closing of the sale of the
Mortgage Loans and such property). The Trustee
shall sell the Mortgage Loans and such property
to the successful bidder at a closing to be held
no later than the Remittance Date immediately
preceding the Auction Proceeds Distribution Date.
(v) The Trustee shall be entitled to be reimbursed
from the Collection Account for expenses (which
shall be deemed to be expenses of the Trust
Fund) that it or the Auction Agent on its behalf
incurs pursuant to this Section 9.1(d) in
connection with the valuation and sale of the
Mortgage Loans and such property (collectively,
the "Auction Fees"), including all fees and
------------
reasonable expenses of legal counsel and other professional
consultants retained by either of the Trustee or the Auction
Agent. The Trustee shall not be personally liable for any act
or omission of the Auction Agent hereunder or any Independent
attorneys and other Independent professional consultants
appointed by the Auction Agent.
(vi) Any auction shall be conducted in accordance
with auction procedures to be developed by the
auction agent in connection with such auction
(the "Auction Procedures"), provided that such
procedures shall include at a minimum provisions
substantially to the effect that: (i) no due
diligence of the Servicer's, the Special
Servicer's or the Trustee's records with respect
to the Mortgage Loans may be conducted by any
bidder prior to being notified that it has
submitted the highest bid; (ii) the Auction
Agent is entitled to require that the highest
bidder provide a non-refundable good faith
deposit sufficient to reimburse the Trustee and
the Auction Agent for all expenses in connection
with the evaluation of such bid and in
connection with such highest bidder's due
diligence, (iii) each bidder may be required to
enter into a confidentiality agreement with the
Servicer, the Special Servicer, the Auction
Agent and the Trustee prior to being permitted
to conduct due diligence, (iv) Borrowers on any
of the Mortgage Loans shall be prohibited from
submitting bids, and (v) in the event that the
highest
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bidder withdraws, the next highest bidder shall be permitted to
conduct due diligence as if it were the highest bidder.]
(e) If the Trust Fund has not been previously terminated pursuant to
subsection (c) or (d) of this Section 9.1, the Trustee shall determine as soon
as practicable the Distribution Date on which the Trustee reasonably
anticipates, based on information with respect to the Mortgage Loans previously
provided to it, that the final distribution will be made (i) to the Holders of
outstanding Regular Certificates, and to the Trustee in respect of the
Lower-Tier Regular Interests notwithstanding that such distribution may be
insufficient to distribute in full the Certificate Balance of each Certificate
or Lower-Tier Regular Interest, together with amounts required to be distributed
on such Distribution Date pursuant to Section 4.1(a) or (ii) if no such Classes
of Certificates are then outstanding, to the Holders of the Class LR
Certificates of any amount remaining in the Collection Account and to the
Holders of the Class R Certificates of any amount remaining in the Distribution
Account, in either case, following the later to occur of (A) the receipt or
collection of the last payment due on any Mortgage Loan included in the Trust
Fund or (B) the liquidation or disposition pursuant to Section 3.18 of the last
asset held by the Trust Fund.
(f) Notice of any termination of the Trust Fund pursuant to this
Section 9.1 shall be mailed by the Trustee to affected Certificateholders with a
copy to the Servicer and the Special Servicer and each Rating Agency at their
addresses shown in the Certificate Registrar as soon as practicable after the
Trustee shall have received, given or been deemed to have received a Notice of
Termination but in any event not more than thirty days, and not less than ten
days, prior to the Anticipated Termination Date. The notice mailed by the
Trustee to affected Certificateholders shall:
(i) specify the Anticipated Termination Date on which the final
distribution is anticipated to be made to Holders of
Certificates of the Classes specified therein;
(ii) specify the amount of any such final
distribution, if known; and
(iii) state that the final distribution to Certificateholders will
be made only upon presentation and surrender of Certificates
at the office of the Paying Agent therein specified.
If the Trust Fund is not terminated on any Anticipated Termination Date for any
reason, the Trustee shall promptly mail notice thereof to each affected
Certificateholder.
(g) Any funds not distributed on the Termination Date because of the
failure of any Certificateholders to tender their Certificates shall be set
aside and held in trust for the account of the appropriate non-tendering
Certificateholders, whereupon the Trust Fund shall terminate. If any
Certificates as to which notice of the Termination Date has been given
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pursuant to this Section 9.1 shall not have been surrendered for cancellation
within _____ months after the time specified in such notice, the Trustee shall
mail a second notice to the remaining Certificateholders, at their last
addresses shown in the Certificate Register, to surrender their Certificates for
cancellation in order to receive, from such funds held, the final distribution
with respect thereto. If within _____ year after the second notice any
Certificate shall not have been surrendered for cancellation, the Trustee may,
directly or through an agent, take appropriate steps to contact the remaining
Certificateholders concerning surrender of their Certificates. The costs and
expenses of maintaining such funds in trust and of contacting Certificateholders
shall be paid out of such funds. If within _____ years after the second notice,
any such Certificates shall not have been surrendered for cancellation, the
Paying Agent shall pay to the Servicer all amounts distributable to the Holders
thereof, at which time the obligations of the Trustee to such Holders with
respect to such amounts shall terminate, and the Servicer shall thereafter hold
such amounts for the benefit of such Holders. No interest shall accrue or be
payable to any Certificateholder on any amount held as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 9.1. Such funds held by the Servicer
shall not be invested.
SECTION 9.2.Additional Termination Requirements.
In the event that [(a)] [the holder of a Class LR Certificate
representing greater than a ____% Percentage Interest in such Class], [the
Servicer] or [the Depositor] exercises its purchase option as provided in
Section 9.1(c) [or (b) the procedures for sale of all Mortgage Loans as provided
in Section 9.1(d) are initiated], the Trust Fund shall be terminated in
accordance with the following additional requirements: provided that the Trustee
has received an Opinion of Counsel or other evidence to the effect that the
termination of the Trust Fund (i) will constitute a "qualified liquidation" of
each of the Upper-Tier REMIC and the Lower-Tier REMIC within the meaning of Code
Section 860F(a)(4)(A-3) and (ii) will not subject either the Upper-Tier REMIC or
the Lower-Tier REMIC to tax or cause either the Upper-Tier REMIC or the
Lower-Tier REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding:
(a) The notice given by the holder of a Class LR Certificate
representing greater than a ____% Percentage Interest in such Class, under
Section 9.1 shall provide that such notice constitutes the adoption of a plan of
complete liquidation of the Trust Fund as of the date of such notice (or, if
earlier, the date on which the first such notice is mailed to the Trustee and
the Servicer). The Trustee shall also specify such date in a statement attached
to the final tax returns of each of the Upper-Tier REMIC and the Lower-Tier
REMIC; and
(b) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the Final Distribution Date, the Trustee shall
sell all of the assets of the Trust Fund to [the holder of such Class LR
Certificates], [the Servicer] or [the Depositor] [(or otherwise pursuant to the
provisions of Section 9.1(d))] for cash at the purchase price specified in
Section 9.1 and shall distribute such cash in the manner specified in Section
9.1.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
SECTION 10.2Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Agreement or the Mortgage Loans, unless, with respect to this Agreement, such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates representing at least ___% of the aggregate Voting
Rights allocated to each affected Class of Certificates shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 30 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding. It is understood and intended,
and expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
of any Class shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and
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for the equal, ratable and common benefit of all Holders of Certificates of such
Class. For the protection and enforcement of the provisions of this Section,
each and every Certificateholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 10.3Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 10.4Notices.
All demands, notices and communications hereunder shall be in
writing, shall be deemed to have been given upon receipt (or, in the case of
notice by telecopy, upon confirmation of receipt) as follows:
If to the Trustee [or the Fiscal Agent], to:
Attention:
Telecopy No.:
With copies to:
Attention:
Telecopy No.:
If to the Depositor, to:
Midland Realty Acceptance Corp.
210 West 10th Street
6th Floor
Kansas City, Missouri 64105
Attention: Alan L. Atterbury
Telecopy No.:
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With copies to:
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Attention: William A. Hirsch, Esq.
Telecopy No.: (816) 474-4208
If to the Servicer, to:
Midland Loan Services, L.P.
210 West 10th Street
Kansas City, Missouri 64105
Attention: Alan L. Atterbury
Telecopy No.: _____________
With copies to:
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Attention: William A. Hirsch, Esq.
Telecopy No.: (816) 474-4208
If to the Special Servicer, to:
Attention:
Telecopy No.:
With copies to:
Attention:
Telecopy No.:
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If to the Mortgage Loan Seller, to:
Attention:
Telecopy No.:
With copies to:
Attention:
Telecopy No.:
If to any Certificateholder, to:
the address set forth in the
Certificate Register,
or, in the case of the parties to this Agreement, to such other address as such
party shall specify by written notice to the other parties hereto.
SECTION 10.5Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then, to the
extent permitted by applicable law, such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 10.6Notice to the Depositor and Each Rating Agency.
(a) The Trustee shall use its best efforts to promptly provide
written notice to the Depositor and each Rating Agency with respect to each of
the following of which a Responsible Officer of the Trustee has actual
knowledge:
(i) any material change or amendment to this
Agreement;
(ii) the occurrence of any Event of Default that has
not been cured;
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(iii) the merger, consolidation, resignation or
termination of the Servicer, Special Servicer,
Trustee [or Fiscal Agent];
(iv) the repurchase of Mortgage Loans pursuant to
Section 2.3(d) or 2.3(e);
(v) the final payment to any Class of
Certificateholders;
(vi) each report to Certificateholders described in
Section 4.2;
(b) The Servicer and the Special Servicer shall promptly furnish to
each Rating Agency copies of the following:
(i) each of its annual statements as to compliance
described in Section 3.14;
(ii) each of its annual independent public accountants' servicing
reports described in Section 3.15.
(iii) annual reports of each Borrower with respect to the net
operating income and occupancy rates required to be delivered
by the related Mortgage and actually received by the Servicer
or the Special Servicer, if applicable, pursuant thereto to
the extent consistent with applicable law and the related
Mortgage Loan Documents.
(c) The Special Servicer, shall furnish each Rating Agency with such
information with respect to any Specially Serviced Mortgage Loan as such Rating
Agency shall request and which the Special Servicer can obtain to the extent
consistent with applicable law and the related Mortgage Loan Documents.
(d) Notices to each Rating Agency shall be addressed
as follows:
or in each case to such other address as any Rating Agency shall specify by
written notice to the parties hereto.
SECTION 10.7Amendment.
This Agreement or any Custodial Agreement may be amended from time to
time by the Depositor, the Servicer, the Special Servicer, the Trustee [and the
Fiscal Agent], without the consent of any of the Certificateholders, (i) to cure
any ambiguity, (ii) to correct or supplement any provisions herein or therein
that may be inconsistent with any other provisions
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herein or therein, (iii) to amend any provision hereof to the extent necessary
or desirable to maintain the rating or ratings assigned to each of the Classes
of Regular Certificates by each Rating Agency, or (iv) to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement and will
not result in the downgrading, withdrawal or qualification of the rating or
ratings then assigned to any outstanding Class of Certificates, as confirmed by
each Rating Agency in writing and, in all cases, which, as evidenced by an
Opinion of Counsel at the expense of the party (other than the Trustee, unless
such amendment modifies or otherwise relates solely to the obligations, duties
or rights of the Trustee) requesting such amendment, shall not adversely affect
in any material respect the interests of any Certificateholder.
This Agreement or any Custodial Agreement may also be amended from
time to time by the Depositor, the Servicer, the Special Servicer, the Trustee
[and the Fiscal Agent] with the consent of the Holders of each of the Classes of
Regular Certificates representing not less than ______% of the aggregate Voting
Rights allocated to each Class of Certificates affected by the amendment for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall:
(i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be
distributed on any Certificate without the consent of each
affected Certificateholder;
(ii) change the percentages of Voting Rights of Holders of
Certificates which are required to consent to any action or
inaction under this Agreement, without the consent of the
Holders of all Certificates then outstanding; or
(iii) alter the obligations of the Servicer, the Trustee [or the
Fiscal Agent] to make a P&I Advance or Property Advance
without the consent of the Holders of all Certificates
representing all of the Voting Rights of the Class or Classes
affected thereby.
Further, the Depositor, the Servicer, the Special Servicer, the
Trustee [and the Fiscal Agent], at any time and from time to time, without the
consent of the Certificateholders, may amend this Agreement or any Custodial
Agreement to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust REMICs as two
separate REMICs, or to prevent the imposition of any additional material state
or local taxes, at all times that any Certificates are outstanding; provided,
however, that such action, as evidenced by an Opinion of Counsel (obtained at
the expense of the Trust Fund), is necessary or helpful to maintain such
qualification or to prevent the imposition of any such taxes, and would not
adversely affect in any material respect the interest of any Certificateholder.
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In the event that neither the Depositor nor the successor thereto, if
any, is in existence, any amendment under this Section 10.7 shall be effective
with the consent in writing of the Trustee, [the Fiscal Agent,] the Servicer,
the Special Servicer, and, to the extent required by this Section, the
Certificateholders and each Rating Agency.
Promptly after the execution of any amendment, the Trustee shall
furnish written notification of the substance of such amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders under
this Section 10.7 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
method of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe; provided, however, that such method
shall always be by affirmation and in writing.
Notwithstanding any contrary provision of this Agreement, no
amendment shall be made to this Agreement or any Custodial Agreement unless the
Servicer and the Trustee shall have received an Opinion of Counsel, at the
expense of the party requesting such amendment (or, if such amendment is
required by any Rating Agency to maintain the rating issued by it or requested
by the Trustee for any purpose described in clause (i) or (ii) of the first
sentence of this Section, then at the expense of the Trust Fund), to the effect
that such amendment will not cause either the Upper-Tier REMIC or Lower-Tier
REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding or cause a tax to be imposed on the Trust Fund under the REMIC
Provisions (other than a tax at the highest marginal corporate tax rate on net
income from foreclosure property).
Prior to the execution of any amendment to this Agreement or any
Custodial Agreement, the Trustee, [the Fiscal Agent,] the Special Servicer and
the Servicer shall be entitled to receive and rely conclusively upon an Opinion
of Counsel, at the expense of the party requesting such amendment (or, if such
amendment is required by any Rating Agency to maintain the rating issued by it
or requested by the Trustee for any purpose described in clause (i), (ii) or
(iv) (which do not modify or otherwise relate solely to the obligations, duties
or rights of the Trustee) of the first sentence of this Section, then at the
expense of the Trust Fund) stating that the execution of such amendment is
authorized or permitted by this Agreement. The Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Trustee's own
rights, duties or immunities under this Agreement.
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SECTION 10.8Confirmation of Intent.
It is the express intent of the parties hereto that the conveyance of
the Trust Fund (including the Mortgage Loans) by the Depositor to the Trustee on
behalf of Certificateholders as contemplated by this Agreement and the sale by
the Depositor of the Certificates be, and be treated for all purposes as, a sale
by the Depositor of the undivided portion of the beneficial interest in the
Trust Fund represented by the Certificates. It is, further, not the intention of
the parties that such conveyance be deemed a pledge of the Trust Fund by the
Depositor to the Trustee to secure a debt or other obligation of the Depositor.
However, in the event that, notwithstanding the intent of the parties, the Trust
Fund is held to continue to be property of the Depositor then (a) this Agreement
shall also be deemed to be a security agreement under applicable law; (b) the
transfer of the Trust Fund provided for herein shall be deemed to be a grant by
the Depositor to the Trustee on behalf of Certificateholders of a first priority
security interest in all of the Depositor's right, title and interest in and to
the Trust Fund and all amounts payable to the holders of the Mortgage Loans in
accordance with the terms thereof and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, instruments, securities or other
property, including, without limitation, all amounts from time to time held or
invested in the Collection Account and the Distribution Account, whether in the
form of cash, instruments, securities or other property; (c) the possession by
the Trustee (or the Custodian or any other agent on its behalf) of Notes and
such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party" for purposes of perfecting the security interest pursuant to Section
9-305 of the Uniform Commercial Codes; and (d) notifications to Persons holding
such property, and acknowledgments, receipts or confirmations from Persons
holding such property, shall be deemed notifications to, or acknowledgments,
receipts or confirmations from, financial intermediaries, bailees or agents (as
applicable) of the Trustee for the purpose of perfecting such security interest
under applicable law. Any assignment of the interest of the Trustee pursuant to
any provision hereof shall also be deemed to be an assignment of any security
interest created hereby. The Depositor shall, and upon the request of the
Servicer, the Trustee shall, to the extent consistent with this Agreement (and
at the expense of the Trust Fund), take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in the
Mortgage Loans, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of this Agreement. It is the intent of the parties
that such a security interest would be effective whether any of the Certificates
are sold, pledged or assigned.
IN WITNESS WHEREOF, the Depositor, the Servicer, the Special
Servicer, the Trustee [and the Fiscal Agent] have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
<PAGE>
Signed and acknowledged
in the presence of:
Print Name:
Print Name:
MIDLAND REALTY ACCEPTANCE CORP.
as Depositor
By:
Name:
Title:
Signed and acknowledged
in the presence of:
Print Name:
Print Name:
MIDLAND LOAN SERVICES, L.P.
as Servicer
By: MIDLAND DATA SYSTEMS, INC.
its General Partner
By:
Name:
Title:
Signed and acknowledged
in the presence of:
Print Name:
Print Name:
,
as Special Servicer
By:
Name:
Title:
Signed and acknowledged
in the presence of:
Print Name:
Print Name:
,
as Trustee, Custodian, Certificate Registrar and Paying Agent
By:
Name:
Title: Vice President
<PAGE>
Signed and acknowledged
in the presence of:
Print Name:
Print Name:
[ ,
as Fiscal Agent of the Trustee
By:
Name:
Title:]
<PAGE>
STATE OF __________________)
) ss.:
COUNTY OF _________________)
On this ___th day of , before me appeared to me personally known, who
being by me duly sworn did say that he is a [Vice] President of MIDLAND REALTY
ACCEPTANCE CORP., a Missouri corporation and that he signed his name thereto
under authority of the board of directors of said corporation and on behalf of
such corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF __________________)
) ss.:
COUNTY OF _________________)
On this ___th day of , before me appeared , to me personally known,
who being by me duly sworn did say that he is a [Title] of Midland Data Systems,
Inc., a Missouri corporation, the general partner of MIDLAND LOAN SERVICES,
L.P., a Missouri limited partnership, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed on behalf of said corporation by authority of its board of
directors as the general partner of said limited partnership, and said
acknowledged said instrument to be the free act and deed of said corporation as
the general partner of said limited partnership and the free act and deed of
said limited partnership.
WITNESS my hand and seal hereto affixed the day and year first above
written.
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF __________________)
) ss.:
COUNTY OF _________________)
On this ___th day of , before me
appeared ____________________, to me personally known, who being
by me duly sworn did say that he is a [Title] of
, a corporation, and that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed on behalf of said
corporation by authority of its board of directors, and said __________________
acknowledged said instrument to be the free act and deed of said corporation and
the free act and deed of said corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF __________________)
) ss.:
COUNTY OF _________________)
On this ___th day of , before
me, the undersigned, a Notary Public in and for the State of
, duly commissioned and sworn, personally
appeared , to me known who, by me duly
sworn, did depose and acknowledge before me and say that he
resides at ; that he is
the of , a
, the corporation described in and that
executed the foregoing instrument; and that he signed his name thereto under
authority of the board of directors of said corporation and on behalf of such
corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
NOTARY PUBLIC in and for the
State of .
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
Name:
Address:
<PAGE>
STATE OF __________________)
) ss.:
COUNTY OF _________________)
On the ___th day of , before me,
, a Notary Public in and for said
State, personally appeared ,
and
, personally known to me or
proved to me on the basis of satisfactory evidence to be the persons whose names
are subscribed to the within instrument and acknowledged to me that they
executed the same in their authorized capacity, and that by their signatures on
the instrument the corporation upon behalf of which the person acted executed
the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
NOTARY PUBLIC
My commission expires ___________________
PJRES07N.KCM/js
<PAGE>
MORRISON & HECKER L.L.P.
ATTORNEYS AT LAW
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Telephone 816-691-2600
Telefax 816-474-4208
, 1996
Midland Realty Acceptance Corp.
210 West 10th Street, 6th Floor
Kansas City, Missouri 64105
Re: Mortgage Pass-Through Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form S-3 (Registration No. 33- ) (the "Registration
Statement") to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended (the "Act"). The Registration Statement
covers Mortgage Pass-Through Certificates ("Certificates") to be sold by Midland
Realty Acceptance Corp. ("Seller") in one or more series (each, a "Series") of
Certificates. Each Series of Certificates will be issued under a pooling and
servicing agreement ("Pooling and Servicing Agreement") between Seller and a
servicer (the "Servicer"), a trustee (the "Trustee") and possibly a special
servicer (the "Special Servicer") and a fiscal agent (the "Fiscal Agent") to be
identified in the Prospectus Supplement for such Series of Certificates. A form
of Pooling and Servicing Agreement is included as an exhibit to the Registration
Statement. Capitalized terms used and not otherwise defined herein have the
respective meanings given them in the Registration Statement or the Accord
identified in the following paragraph.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The opinions expressed herein are given only with
respect to the present status of the substantive laws of the state of Missouri
(not including the choice-of-law rules under Missouri law). We express no
opinion as to any matter arising under the laws of any other jurisdiction.
In rendering the opinions set forth below, we have examined and relied on
the following: (1) the Registration Statement and the Prospectus and the form of
Prospectus Supplement included therein; (2) the form of the Pooling and
Servicing Agreement included as an exhibit to the Registration Statement; and
(3) such other documents, materials, and authorities as we have deemed necessary
in order to enable us to render our opinions set forth below.
Based on and subject to the foregoing and other qualifications set forth
below, we are of the opinion that:
<PAGE>
Midland Realty Acceptance Corp.
, 1996
Page 2
(a) When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized, executed and delivered by the Seller, the
Servicer, the Trustee and, if applicable, the Special Servicer and the Fiscal
Agent, such Pooling and Servicing Agreement will constitute a valid and legally
binding agreement of Seller, enforceable against Seller in accordance with its
terms.
(b) When (a) a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and delivered by the
Seller, the Servicer, the Trustee and, if applicable, the Special Servicer and
the Fiscal Agent, (b) the Mortgage Loans and other consideration constituting
the Trust Fund for the Series have been deposited with the Trustee, (c) the
Certificates of such Series have been duly executed, authenticated, delivered
and sold as contemplated in the Registration Statement and (d) the consideration
for the sale of such Certificates has been fully paid to the Seller, such
Certificates will be legally and validly issued, fully paid and nonassessable,
and the duly registered holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement.
The General Qualifications apply to the opinions set forth in paragraphs 1
and 2 above, and in addition, such opinions are subject to the qualification
that certain remedial, waiver and other similar provisions of a Pooling and
Servicing Agreement for a Series of Certificates or of the Certificates of such
Series may be rendered unenforceable or limited by applicable laws, regulations
or judicial decisions, but such laws, regulations and judicial decisions will
not render such Pooling and Servicing Agreement or such Certificates invalid as
a whole and will not make the remedies available thereunder inadequate for the
practical realization of the principal benefits intended to be provided thereby,
except for the economic consequences of any judicial, administrative or other
delay or procedure which may be imposed by applicable law.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be
<PAGE>
Midland Realty Acceptance Corp.
, 1996
Page 3
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Act.
Very truly yours,
PJRES07N.KCM/cston
<PAGE>
MORRISON & HECKER L.L.P.
ATTORNEYS AT LAW
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Telephone 816-691-2600
Telefax 816-691-4208
, 1996
Midland Realty Acceptance Corp.
210 West 10th Street, 6th Floor
Kansas City, Missouri 64105
Re: Mortgage Pass-Through Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the proposed issuance of
Mortgage Pass-Through Certificates (the "Certificates") pursuant to the
Registration Statement on Form S-3 (Registration No. 33- ) (the "Registration
Statement") to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended (the "Act"). The Registration Statement
covers Mortgage Pass-Through Certificates ("Certificates") to be sold by Midland
Realty Acceptance Corp. ("Seller") in one or more series (each, a "Series") of
Certificates. Each Series of Certificates will be issued under a pooling and
servicing agreement ("Pooling and Servicing Agreement") between the Seller, a
servicer, a trustee and possibly a special servicer and a fiscal agent to be
identified in the Prospectus Supplement for such Series of Certificates. A form
of a Pooling and Servicing Agreement is included as an exhibit to the
Registration Statement. Capitalized terms used and not otherwise defined herein
have the respective meanings given them in the Registration Statement.
In rendering the opinion set forth below, we have examined and relied on
the following: (1) the Registration Statement and the Prospectus and the form of
Prospectus Supplement included therein; (2) the form of the Pooling and
Servicing Agreement included as an exhibit to the Registration Statement; and
(3) such other documents, materials, and authorities as we have deemed necessary
in order to enable us to render our opinion set forth below.
As your counsel, we have advised you with respect to certain federal
income tax aspects of the proposed issuance of the Certificates of each Series.
Such advice has formed the basis for the description of material federal income
tax consequences for holders of the Certificates that appears under the heading
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus. Such descriptions
do not purport to discuss all
<PAGE>
Midland Realty Acceptance Corp.
, 1996
Page 2
possible federal income tax ramifications of the proposed issuance of the
Certificates, but, with respect to those federal income tax consequences that
are discussed, in our opinion, the description is accurate in all material
respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and the form of Prospectus Supplement and in the other documents
reviewed by us. Our opinion as to the matters set forth herein could change with
respect to a particular Series of Certificates as a result of changes in facts
and circumstances, changes in the terms of the documents reviewed by us, or
changes in the law subsequent to the date hereof. Consequently, we express no
such opinion with respect to any particular Series of Certificates. As the
Registration Statement contemplates multiple Series of Certificates with
numerous different characteristics, the particular characteristics of a Series
of Certificates must be considered in determining the application of the
opinion to a particular Series of Certificates.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to our firm under the heading
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus and the Prospectus
Supplement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the provisions of the Act.
Very truly yours,
PJRES07N.KCM/js
<PAGE>
