SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29,
1997
TRUST CREATED BY BLOCK MORTGAGE FINANCE, INC. (under a
Pooling and Servicing Agreement dated as of December 31,
1996, which Trust is the Issuer of Block Mortgage Finance
Asset Backed Certificates, Series 1997-1)
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation)
333-14041 Applied For
(Commission File Number) (IRS Employer Identification No.)
3 Park Plaza, Irvine, California
Attention: Block Mortgage Finance
Asset Backed Certificates, Series 1997-1 92614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 714-253-7575
Not applicable
(Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
Exhibit 1 Underwriting Agreement Relating to Block Mortgage
Finance Asset Backed Certificates, Series 1997-1
Exhibit 4 Pooling and Servicing Agreement Relating to Block
Mortgage Finance Asset Backed Certificates,
Series 1997-1
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Exhibit 99,1 Certificate Guaranty Insurance Policy, Policy
Number 23004, Relating to Block Mortgage Finance
Asset Backed Certificates, Series 1997-1, Class
A-1, Class A-2, and Class A-3 Certificates
Exhibit 99.2 Certificate Guaranty Insurance Policy, Policy
Number 23005, Relating to Block Mortgage Finance
Asset Backed Certificates, Series 1997-1, Class
A-4 Certificates
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BLOCK MORTGAGE FINANCE, INC.
By: /s/ Bret G. Wilson
Name: Bret G. Wilson
Title: Vice President, Secretary and Director
Date: February 13, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1 Underwriting Agreement
Relating to Block
Mortgage Finance Asset
Backed Certificates,
Series 1997-1
4 Pooling and Servicing
Agreement Relating to
Block Mortgage Finance
Asset Backed
Certificates, Series
1997-1
99.1 Certificate Guaranty
Insurance Policy,
Policy Number 23004,
Relating to Block
Mortgage Finance Asset
Backed Certificates,
Series 1997-1, Class
A-1, Class A-2, and
Class A-3 Certificates
99.2 Certificate Guaranty
Insurance Policy,
Policy Number 23005,
Relating to Block
Mortgage Finance Asset
Backed Certificates,
Series 1997-1, Class
A-4 Certificates
<PAGE>
$103,197,000
BLOCK MORTGAGE FINANCE, INC.
Block Mortgage Finance
Asset-Backed Certificates, Series 1997-1,
Class A-1
Class A-2
Class A-3
Class A-4
UNDERWRITING AGREEMENT
January 24, 1997
Morgan Stanley & Co. Incorporated
as Representative of the Several
Underwriters listed herein
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
Block Mortgage Finance, Inc. (the "Depositor"), a
wholly-owned, special purpose subsidiary of Companion
Mortgage Corporation ("Companion"), has authorized the
issuance and sale of Block Mortgage Finance Asset-Backed
Certificates, Series 1997-1, Class A-1, Class A-2 and
Class A-3 Certificates (collectively, the "Fixed Rate
Certificates") and Class A-4 Certificates (the "Adjustable
Rate Certificates" and together with the Fixed Rate
Certificates, the "Class A Certificates"), Class X-1 and
Class X-2 Certificates (the "Class X Certificates") and
the Class R Certificates (the "Class R Certificates" and
together with the Class X Certificates, the "Private
Certificates"). As used herein, the Class A Certificates,
Class X Certificates and Class R Certificates are herein
collectively referred to as the "Certificates." The
Certificates evidence in the aggregate the beneficial
interest in a pool of fixed and adjustable rate mortgage
loans (the "Mortgage Loans"). The Fixed Rate Certificates
will represent an undivided ownership interest in the
group of Mortgage Loans (the "Fixed Rate Group") which are
secured by fixed-rate first and second mortgages primarily
on one- to four-family residential dwellings. The
Adjustable Rate Certificates will represent an undivided
ownership interest in the group of Mortgage Loans (the
"Adjustable Rate Group" and, together with the Fixed Rate
Group, the "Loan Groups") which are secured by
adjustable-rate
<PAGE>
first mortgages primarily on one- to four-family
residential dwellings.
Only the Class A Certificates are being purchased by
the several underwriters named in Schedule B hereto
(collectively, the "Underwriters"), at the price set forth
in Schedule A.
The Certificates will be issued under a pooling and
servicing agreement (the "Pooling and Servicing
Agreement"), dated as of December 31, 1996 among the
Depositor, Block Financial Corporation, as seller (in its
capacity as seller, the "Seller") and as master servicer
(in its capacity as master servicer, the "Master
Servicer", and in both capacities, "Block Financial"), and
Bankers Trust Company of California N.A., as trustee (the
"Trustee"). On or prior to the Closing Date (as defined
herein), Companion will transfer to the Seller, without
recourse, all of its right, title and interest in and to
the Mortgage Loans as of the Cut-Off Date and the
collateral securing each Mortgage Loan pursuant to a
mortgage loan purchase agreement (the "Mortgage Loan
Purchase Agreement") dated as of December 31, 1996 between
Companion and the Seller. The Master Servicer will enter
into a subservicing agreement, dated as of December 31,
1996 (the "Sub-Servicing Agreement) with NF Investments,
Inc. (the "Sub-Servicer") to provide for the subservicing
of the Mortgage Loans. The Seller, pursuant to the terms
of the Pooling and Servicing Agreement, will transfer to
the Depositor all of its right, title and interest in and
to the Mortgage Loans as of the Cut-Off Date and the
collateral securing each Mortgage Loan. The Depositor,
pursuant to the Pooling and Servicing Agreement will
transfer all of its right, title and interest in and to
the Mortgage Loans as of the Cut-off Date and the
collateral securing each Mortgage Loan to the Trustee.
The Certificates will evidence fractional undivided
interests in the property held in trust for the holders of
such Certificates (the "Trust"). The assets of the Trust
will include, among other things: the Mortgage Loans to be
conveyed by the Depositor to the Trust on the Closing
Date; such amounts as may be held by the Master Servicer
in the Collection Account (other than investment earnings
thereon) and any other accounts held by or maintained by
the Master Servicer with respect to the servicing of the
Mortgage Loans and the other assets of the Trust; and such
amounts as may be held by the Trustee in the Distribution
Account (other than investment earnings thereon) and any
other accounts held by the Trustee for the Trust. The
aggregate undivided interest in the Trust represented by
the Class A Certificates initially will be equal to
$103,197,000 of principal (subject to a variance of plus
or minus 5%), which will represent 100% of the outstanding
principal balances of the Mortgage Loans as of December
31, 1996 (the "Cut-Off Date"). The Class A Certificates
will have the benefit of two financial guaranty insurance
policies (each, a "Policy") issued by MBIA Insurance
Corporation, (the "Certificate Insurer") the principal
operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company, pursuant to an Insurance
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
Agreement (the "Insurance Agreement") dated as of December
31, 1996 among the Seller, the Master Servicer, the
Depositor, the Trustee and the Certificate Insurer. In
addition to the Insurance Agreement, the Seller, the
Underwriters and the Certificate Insurer will enter into
an indemnification agreement (the "Indemnification
Agreement") dated as of January 24, 1997. A Form of the
Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement (hereinafter
defined).
The Trust will include two segregated asset pools,
with respect to which elections will be made to treat the
assets of each as a "real estate mortgage investment
conduit" (a "REMIC") for federal income tax purposes. The
Class A Certificates and the Class X Certificates will
represent beneficial ownership of "regular interests" in
the Master REMIC and the Class R Certifi- cates will
represent beneficial ownership of "residual interests" in
each of the Subsidiary REMIC and the Master REMIC.
Capitalized terms used but not defined herein shall
have the meanings given to them in the Pooling and
Servicing Agreement.
This Underwriting Agreement, the Pooling and
Servicing Agreement, the Mortgage Loan Purchase Agreement,
the Sub-Servicing Agreement, the Insurance Agreement and
the Indemnification Agreement are referred to collectively
herein as the "Agreements". The Master Servicer,
Companion, the Seller and the Depositor are referred to
collectively herein as the "Transaction Parties".
The Depositor has filed with the Securities and
Exchange Commission (the "Commission") on October 15,
1996, a registration statement on Form S-3 (No.
333-14041), including a form of prospectus and prospectus
supplement relating to the Class A Certificates, and has
filed with the Commission amendment No. 1 to such
registration statement on December 31, 1996 and amendment
No. 2 to such registration statement on January 21, 1997,
and pursuant to the provisions hereof shall file such
post-effective amendments thereto as may hereafter be
required pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), and the rules and regulations of
the Commission thereunder (the "Rules and Regulations").
Such registration statement (as amended) is referred to
herein as the "Registration Statement"; the prospectus
and prospectus supplement relating to the offering of the
Class A Certificates constituting a part of the
Registration Statement filed by the Depositor are
collectively referred to herein as the "Prospectus" and
each of the prospectus and prospectus supplement are
referred to as the "Base Prospectus" and the "Prospectus
Supplement," respectively; "Amendment No. 1" and Amendment
No. 2" referred to herein mean the amendment No. 1 to such
Registration Statement filed with the Commission on
December 31, 1996 and the amendment No. 2 to such
Registration Statement filed with the Commission on
January 21, 1997, respectively; and any reference herein
to any amendment or supplement with respect to the
Registration Statement or the
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
Prospectus shall be deemed to refer to and include any
information deemed to be a part thereof pursuant to Rule
430A under the 1933 Act.
SECTION 1. Representations and Warranties of the
Master Servicer, Companion, the Seller and the Depositor.
Each of the Master Servicer, Companion, the Seller and the
Depositor, as to itself, and Block Financial,
individually, with respect to (a), (b), (q), (s), (t) and
(u) below, represents and warrants to, and agrees with the
Underwriters that:
(a) The Registration Statement, as amended by
Amendment No. 1 and Amendment No. 2, has become effective
under the 1933 Act. The Registration Statement complies,
and all amendments to the Registration Statement at the
time such amended Registration Statement becomes effective
will comply, in all material respects with the
requirements of the 1933 Act and the Rules and
Regulations. The Registration Statement at the time such
Registration Statement became effective did not, and any
amendment to the Registration Statement at the time such
amended Registration Statement becomes effective will not,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
The Prospectus as of the date hereof does, and the
Prospectus as amended or supplemented as of the Closing
Date will, comply in all material respects with the
requirements of the 1933 Act and the Rules and
Regulations. The Prospectus as of the date hereof did not,
and the Prospectus as amended or supplemented as of the
Closing Date will not, contain any untrue statement of a
material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading; provided, however, that the representations
and warranties in this subsection shall not apply to
statements in, or omissions from, the Registration
Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Depositor in
writing by the Underwriters or the Certificate Insurer
expressly for use in the Registration Statement or
Prospectus. The Seller and the Depositor acknowledge that
the statements set forth in the last paragraph of the
cover page of the Prospectus Supplement and in the Section
"Underwriting" in the Prospectus Supplement constitute the
only information furnished in writing by the Underwriters
for inclusion in the Prospectus. The conditions to the use
by the Depositor of a registration statement on Form S-3
under the 1933 Act, as set forth in the General
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
Instructions to Form S-3, have been satisfied with respect
to the Registration Statement and the Prospectus. There
are no contracts or documents of the Depositor or its
affiliates that are required to be filed as exhibits to
the Registration Statement pursuant to the 1933 Act or the
Rules and Regulations that have not been so filed on or
prior to the effective date of the Registration Statement.
(b) Since the respective dates as of which
information is given in the Prospectus, or the Prospectus
as amended and supplemented at the Closing Date, there has
not been any material adverse change in the general
affairs, management, financial condition, or results of
operations of any of the Transaction Parties or of their
subsidiaries or affiliates, otherwise than as set forth in
the Prospectus or the Prospectus as amended and
supplemented at the Closing Date.
(c) Such Transaction Party has been duly incorporated
and is validly existing as a corporation in good standing
under the laws of its respective jurisdiction of
incorporation, with the full right, power and authority
(corporate and other) to own, lease and operate its
properties and conduct its business as described in the
Prospectus and to enter into and perform its obligations
under the Agreements to which it is a signatory, and, with
respect to the Depositor, to cause the Certificates to be
issued; such Transaction Party is duly qualified as a
foreign corporation to transact business and is in good
standing in each jurisdiction which requires such
qualification, except where failure to be so qualified
would not have a material adverse effect on (A) its
business or financial condition, (B) its obligations under
the Agreements to which it is a signatory or (C) the
Owners of the Certificates; such Transaction Party is duly
authorized and licensed under applicable law, including,
without limitation, those that regulate the business of
originating, selling or servicing first and junior lien
mortgage loans, to conduct in the various jurisdictions in
which it does business, the business it currently conducts
therein and to perform its obligations as contemplated by
the Agreements, except where failure to be so qualified or
licensed would not have a material adverse effect on (A)
its business or financial condition, (B) its obligations
under the Agreements to which it is a signatory or (C) the
Owners of the Certificates.
(d) There are no legal or governmental proceedings
pending to which such Transaction Party is a party or of
which any property of such Transaction Party is the
subject, which, if determined adversely to such
Transaction Party would individually or in the aggregate
have a material adverse effect on (A) its financial
position, shareholders' equity or results of operations,
(B) its obligations under the Agreements to which it is a
signatory or (C) the Owners of the Certificate; and to the
best knowledge of such Transaction Party, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
BWNY03/62100.9/14040/00302/1977 February 12, 1997
(e) This Underwriting Agreement has been and, prior
to the Closing Date, the Agreements (other than this
Underwriting Agreement) will have been, duly authorized,
executed and delivered by each Transaction Party which is
a party to such Agreements and when duly executed and
delivered by the other parties thereto will constitute,
legal, valid and binding instruments enforceable against
such Transaction Party, in accordance with their
respective terms, subject as to enforceability (i) to
applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors'
rights generally, (ii) to general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law) and (iii) with respect to
rights of indemnity under this Agreement and the
Indemnification Agreement, to limitations of public policy
under applicable securities laws.
(f) The issuance and delivery of the Certificates,
the consummation of any other of the transactions
contemplated in the Agreements and the fulfillment of the
terms of the Agreements do not and will not conflict with
or violate any term or provision of the Certificate or
Articles of Incorporation or Bylaws of such Transaction
Party; any statute, order or regulation applicable to such
Transaction Party of any court, regulatory body,
administrative agency or governmental body having
jurisdiction over such Transaction Party; and do not and
will not conflict with, result in a breach or violation or
the acceleration of, or constitute a default under, or
result in the creation or imposition of any lien, charge
or encumbrance upon any of the property or assets of such
Transaction Party pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement or other agreement
or instrument to which such Transaction Party is a party
or by which such Transaction Party may be bound or to
which any of the property or assets of such Transaction
Party may be subject, except for conflicts, violations,
breaches, accelerations and defaults which would not be,
individually or in the aggregate, materially adverse to
such Transaction Party or the Owners of the Certificates
or materially adverse to the transactions contemplated by
the Agreements.
(g) Deloitte & Touche llp is an independent public
accountant with respect to the Master Servicer, Companion,
the Seller and the Depositor as required by the 1933 Act
and the Rules and Regulations.
(h) The direction by the Depositor to the Trustee to
execute, countersign, issue and deliver the Certificates
will, as of the Closing Date, be duly authorized by the
Depositor, and assuming the Trustee has been duly
authorized to do so, when executed, countersigned, issued
and delivered by the Trustee in accordance with the
Pooling and Servicing Agreement, the Certificates will be
validly issued and outstanding and will be entitled to the
benefits provided by the Pooling and Servicing Agreement.
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
(i) No consent, approval, authorization, order,
registration or qualification of or with any court or
governmental agency or body is required for the issuance
or sale of the Class A Certificates, or the consummation
by such Transaction Party of the other transactions
contemplated by the Agreements, except the registration
under the 1933 Act of the Class A Certificates and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state securities
or Blue Sky laws in connection with the issuance of the
Class A Certificates and the purchase and distribution of
the Class A Certificates by the Underwriters.
(j) Such Transaction Party possesses all material
licenses, certificates, authorities or permits issued by
the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct the business now
conducted by it and as described in the Prospectus, and
such Transaction Party has not received any notice of
proceedings relating to the revocation or modification of
any such license, certificate, authority or permit which,
singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially
and adversely affect the conduct of its business,
operations or financial condition.
(k) At the time of execution and delivery of the
Mortgage Loan Purchase Agreement, Companion (i) will have
good and marketable title to each Mortgage Loan being
transferred by it to the Seller, free and clear of any
lien, mortgage pledge, charge, encumbrance, adverse claim
or other security interest (collectively "Liens"), (ii)
will not have assigned to any person, other than the
Seller, any of its right, title or interest in or to such
Mortgage Loans and (iii) will have the power and authority
to sell such Mortgage Loans to the Seller.
(l) At the time of execution and delivery of the
Pooling and Servicing Agreement, after giving effect to
the sale of the Mortgage Loans from Companion to the
Seller pursuant to the Mortgage Loan Purchase Agreement,
the Seller (i) will have good and marketable title to each
Mortgage Loan being transferred by it to the Depositor,
free and clear of any Lien, (ii) will not have assigned to
any person, other than the Depositor, any of its right,
title or interest in or to such Mortgage Loans and (iii)
will have the power and authority to sell such Mortgage
Loans to the Depositor.
(m) At the time of execution and delivery of the
Pooling and Servicing Agreement, after giving effect to
the sale of the Mortgage Loans from the Seller to the
Depositor pursuant to the Pooling and Servicing Agreement,
the Depositor (i) will have good and marketable title to
each Mortgage Loan being transferred by it to the Trustee
pursuant to the Pooling and Servicing Agreement, free and
clear of and Liens, (ii) will not have assigned to any
person, other than the Trustee, any of its right, title or
interest
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
in or to such Mortgage Loans and (iii) will have the power
and authority to sell such Mortgage Loans to the Trustee.
(n) Upon execution and delivery of the Mortgage Loan
Purchase Agreement by all of the parties thereto, the
Seller will have acquired beneficial ownership of all of
Companion's right, title and interest in and to the
Mortgage Loans, free of all Liens.
(o) Upon execution and delivery of the Pooling and
Servicing Agreement by all of the parties thereto, the
Depositor will have acquired beneficial ownership of all
of the Seller's right, title and interest in and to the
Mortgage Loans, free of all Liens.
(p) Upon execution and delivery of the Pooling and
Servicing Agreement by all of the parties thereto, the
Trustee will have acquired beneficial ownership of all of
the Depositor's right, title and interest in and to the
Mortgage Loans, and upon delivery to the Underwriters of
the Class A Certificates and payment of the purchase price
therefore, the Underwriters will have good and marketable
title to the Class A Certificates, in each case free of
Liens.
(q) As of the Closing Date, each of the Mortgage
Loans will meet the eligibility criteria described in the
Prospectus and set forth in the Pooling and Servicing
Agreement.
(r) Such Transaction Party will not conduct its
operations while any of the Class A Certificates are
outstanding in a manner that would require such
Transaction Party or the Trust to be registered as an
"investment company" under the Investment Company Act of
1940, as amended (the "1940 Act"), as in effect on the
date hereof or require the Trust to be registered under
the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") as in effect on the date hereof.
(s) On the Closing Date, the Certificates and the
Pooling and Servicing Agreement will conform in all
material respects to the descriptions thereof contained
in the Prospectus.
(t) On the Closing Date, the Class A Certificates
shall have been rated "AAA" by Standard & Poor's Ratings
Services and "Aaa" by Moody's Investors Service, Inc.
(u) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of
the Agreements and the Certificates have been paid or will
be paid at or prior to the Closing Date.
(v) On the Closing Date, each of the representations
and warranties of the Master Servicer, the Seller and the
Depositor set forth in the Pooling and Servicing Agreement
and the Insurance Agreement and of Companion with respect
to the Mortgage Loans set forth in the Mortgage Loan
Purchase Agreement will be true and correct in all
material respects.
SECTION 2. Purchase and Sale. The commitment of the
Underwriters to purchase the Class A Certificates pursuant
to this Agreement shall be deemed to have been made on the
basis of the representations and warranties of the Master
Servicer, the Seller and the Depositor herein contained
and shall be subject to the terms and conditions herein
set forth. The Depositor agrees to instruct the Trustee
to issue, and agrees to sell to the Underwriters, and the
Underwriters agree, severally and not jointly (except as
provided in Section 12 hereof), to purchase from the
Depositor, at the purchase price for each Class A
Certificate set forth on Schedule A hereto, the respective
principal amount of Class A Certificates set forth
opposite the name of such Underwriter on Schedule A hereto.
SECTION 3. Delivery and Payment. Payment of the
purchase price for, and delivery of, any Class A
Certificates to be purchased by the Underwriters shall be
made at the office of Brown & Wood llp, One World Trade
Center, New York, New York, or at such other place as
shall be agreed upon by you and the Depositor, at 10:00
a.m. New York City time on January 29, 1997 or at such
other time or date as shall be agreed upon in writing by
you and the Depositor (the "Closing Date"). The Class A
Certificates will be delivered in book-entry form through
the facilities of The Depository Trust Company, CEDEL S.A.
and the Euroclear System. Payment shall be made to the
Depositor by wire transfer of same day funds payable to
the account of the Depositor. Delivery of the Class A
Certificates shall be made to you for the respective
accounts of the Underwriters against payment of the
purchase price thereof. Such Class A Certificates shall
be in such denominations and registered in such names as
you may request in writing at least one business day prior
to the Closing Date. Such Class A Certificates, which may
be in temporary form, will be made available for
examination and packaging by you no later than 3:00 p.m.
New York City time on the first business day prior to the
Closing Date.
SECTION 4. Offering by the Underwriters. It is
understood that the Underwriters propose to offer the
Class A Certificates for sale to the public as set forth
in the Prospectus.
SECTION 5. Covenants of the Seller, the Depositor and
the Master Servicer. The Master Servicer, Seller and the
Depositor each covenant, as to itself, with each of the
Underwriters for so long as the Class A Certificates are
outstanding as follows:
(a) If, at any time when the Prospectus, as amended
or supplemented, is required by the 1933 Act to be
delivered in connection with sales of the Class A
Certificates by the Underwriters, any event shall occur or
condition exist as a result
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
of which it is necessary, in the opinion of counsel to the
Underwriters or counsel for the Depositor, to further
amend or supplement the Prospectus as then amended or
supplemented in order that the Prospectus as amended or
supplemented will not include an untrue statement of a
material fact or omit to state any material fact necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading,
or if it shall be necessary, in the opinion of any such
counsel at any such time to amend or supplement the
Registration Statement or the Prospectus as then amended
or supplemented in order to comply with the requirements
of the 1933 Act or the Rules and Regulations thereunder,
or if required by such Rules and Regulations, including
Rule 430A thereunder, to file a post-effective amendment
to such Registration Statement (including an amended
Prospectus), the Depositor will promptly prepare and file
with the Commission such amendment or supplement as may be
necessary to correct such untrue statement or omission or
to make the Registration Statement or Prospectus comply
with such requirements, and within two business days will
furnish to the Underwriters as many copies of the
Prospectus, as amended or supplemented, as reasonably
requested.
(b) The Depositor will give you reasonable notice of
its intention to file any amendment to the Registration
Statement or the Prospectus, as amended or supplemented,
pursuant to the 1933 Act relating to the Class A
Certificates, will furnish you with copies of any such
amendment or supplement proposed to be filed a reasonable
time in advance of filing, and will not file any such
amendment or supplement to which you or your counsel shall
reasonably object.
(c) The Depositor will notify you immediately, and
confirm the notice in writing, (i) of the effectiveness of
any amendment to the Registration Statement, (ii) of the
mailing or the delivery to the Commission for filing of
any supplement to the Prospectus or the Prospectus as
amended or supplemented, (iii) of the receipt of any
comments from the Commission with respect to the
Registration Statement or the Prospectus or the Prospectus
as amended or supplemented, (iv) of any request by the
Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for
additional information and (v) of the issuance by the
Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any
proceedings for that purpose. The Depositor will make
every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(d) The Depositor will deliver to you as many signed
and as many conformed copies of the Registration Statement
(as originally filed) and of each amendment thereto
(including exhibits filed therewith or incorporated by
reference therein and documents incorporated by reference
in the Prospectus) as you may reasonably request.
(e) The Depositor will make generally available to
holders of the Class A Certificates as soon as
practicable, but in any event not later than 120 days
after the close of the period covered thereby, an earnings
statement of the Trust (which need not be audited)
complying with Section 11(a) of the 1933 Act and the Rules
and Regulations (including, at the option of the Seller,
Rule 158) and covering a period of at least twelve
consecutive months beginning not later than the first day
of the first fiscal quarter following the Closing Date.
(f) The Depositor will endeavor, in cooperation with
you, to qualify the Class A Certificates for offering and
sale under the applicable securities laws of such states
and other jurisdictions of the United States as you may
designate, and will maintain or cause to be maintained
such qualifications in effect for as long as may be
required for the distribution of the Class A Certificates.
The Depositor will file or cause the filing of such
statements and reports as may be reasonably required by
the laws of each jurisdiction in which the Class A
Certificates have been qualified as above provided.
(g) None of the Master Servicer, Companion, the
Seller or the Depositor will, without your prior written
consent, publicly offer or sell or contract to sell any
mortgage pass-through certificates, mortgage pass-through
notes or collateralized mortgage obligations or other
similar securities representing interests in or secured by
other mortgage-related assets originated or owned by any
of them for a period of 30 days following the commencement
of the offering of the Class A Certificates to the public.
(h) So long as the Class A Certificates shall be
outstanding, the Depositor will deliver to the
Underwriters the annual statement as to compliance
delivered to the Trustee pursuant to the Pooling and
Servicing Agreement and the annual statement of a firm of
independent public accountants furnished to the Trustee
pursuant to the Pooling and Servicing Agreement, as soon
as such statements are furnished to the Trustee.
(i) The Depositor will apply the net proceeds from
the sale of the Class A Certificates in the manner set
forth in the Prospectus.
(j) If, between the date hereof and the Closing Date,
to the knowledge of the Master Servicer, the Seller or the
Depositor, there are any legal or governmental proceedings
instituted or threatened against such Transaction Party
which, if determined adversely to such Transaction Party,
would individually or in the aggregate have a material
adverse effect on the financial condition, shareholders'
equity or results of operations of such Transaction Party,
or on its ability to perform its obligations under the
Agreements, the Master Servicer, the Seller or the
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<PAGE>
Depositor, as applicable, will give prompt written notice
thereof to the Underwriters.
SECTION 6. Conditions to the Underwriters'
Obligations. The obligations of the Underwriters to
purchase the Class A Certificates pursuant to this
Agreement are subject to the accuracy on and as of the
Closing Date of the representations and warranties on the
part of the Master Servicer, the Seller and the Depositor
herein contained, to the material accuracy of the
statements of officers of the Master Servicer, the Seller
and the Depositor, respectively, made pursuant hereto, to
the performance by the Master Servicer, the Seller and the
Depositor of all of their respective obligations hereunder
and to the following conditions at the Closing Date:
(a) (i) The Registration Statement shall have been
declared effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission; any
price-related information previously omitted from the
effective Registration Statement pursuant to Rule 430A
under the 1933 Act shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) under the
1933 Act within the prescribed time period, and the
Depositor shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective
amendment to the Registration Statement providing such
information shall have been promptly filed with the
Commission and declared effective in accordance with the
requirements of Rule 430A under the 1933 Act; and prior to
the Closing Date the Depositor shall have provided
evidence satisfactory to the Underwriters of such
effectiveness and (ii) there shall not have come to your
attention any facts that would cause you to believe that
the Prospectus, at the time it was required to be
delivered to a purchaser of the Class A Certificates,
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The Underwriters shall have received the
favorable opinion or opinions, dated the date of the
Closing Date, of Morrison & Hecker, l.l.p., as special
counsel to the Master Servicer, Companion, the Seller and
the Depositor (collectively, the "Block Transaction
Parties"), in form and substance satisfactory to the
Underwriters, to the effect that:
(i) The Depositor is a duly incorporated, validly
existing corporation and in good standing under the
laws of the State of Delaware. Block Financial
Corporation (in its capacity(ies) as the Seller, the
Master Servicer or both, as applicable, "Block
Financial") is a duly incorporated, validly existing
corporation and in good standing under the laws of
the State of Delaware. Companion is a duly
incorporated, validly existing corporation and in
good standing under the laws of the State of Delaware.
(ii) The Depositor has all requisite power and
authority under the General Corporation Law of the
State of Delaware to execute, deliver and perform its
obligations under each of the Pooling and Servicing
Agreement, the Insurance Agreement and the
Underwriting Agreement. Block Financial has all
requisite power and authority under the General
Corporation Law of the State of Delaware to execute,
deliver and perform its obligations under each of the
Agreements. Companion has all requisite power and
authority under the General Corporation Law of the
State of Delaware to execute, deliver and perform its
obligations under the Mortgage Loan Purchase
Agreement and the Underwriting Agreement.
(iii) The execution, delivery and performance of
the Underwriting Agreement have been duly authorized
by all requisite corporate action on the part of the
Depositor, and the Underwriting Agreement has been
duly executed and delivered by the Depositor. The
execution, delivery and performance of the Pooling
and Servicing Agreement and the Insurance Agreement
have been duly authorized by all requisite corporate
action on the part of the Depositor, and each of the
Pooling and Servicing Agreement and the Insurance
Agreement has been duly executed and delivered by the
Depositor and is the legally valid and binding
obligation of the Depositor enforceable against the
Depositor in accordance with its terms. The
execution, delivery and performance of each of the
Underwriting Agreement and the Indemnification
Agreement have been duly authorized by all requisite
corporate action on the part of Block Financial, and
the Underwriting Agreement and the Indemnification
Agreement have been duly executed and delivered by
Block Financial. The execution, delivery and
performance of the Pooling and Servicing Agreement,
the Insurance Agreement, the Mortgage Loan Purchase
Agreement and the Subservicing Agreement have been
duly authorized by all requisite corporate action on
the part of Block Financial, and each of the Pooling
and Servicing Agreement, the Insurance Agreement, the
Mortgage Loan Purchase Agreement and the Subservicing
Agreement has been duly executed and delivered by
Block Financial and is the legal, valid and binding
obligation of Block Financial enforceable against
Block Financial in accordance with its terms. The
execution, delivery and performance of the
Underwriting Agreement have been duly authorized by
all requisite corporate action on the part of
Companion, and the Underwriting Agreement has been
duly executed and delivered by Companion. The
execution, delivery and performance of the Mortgage
Loan Purchase Agreement have been duly authorized by
all requisite corporate action on the part of
Companion, and the Mortgage Loan Purchase Agreement
has been duly executed and delivered by Companion.
The
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<PAGE>
Mortgage Loan Purchase Agreement is legal, valid and
binding obligation of Companion enforceable against
Companion in accordance with its terms. Such
opinions with respect to the enforceability of such
Agreements will be subject to bankruptcy, insolvency,
reorganization and other laws of general
applicability relating to or affecting creditors'
rights, to general principles of equity and to the
qualifications previously provided by Morrison &
Hecker L.L.P. and approved by the counsel to the
Underwriters.
(iv) The Depositor's execution, delivery and
performance of its obligations under the Pooling and
Servicing Agreement, the Insurance Agreement and the
Underwriting Agreement will not (A) conflict with the
Certificate of Incorporation or By- laws of the
Depositor or (B) violate applicable provisions of
federal, Missouri or New York statutory law or
regulation or the General Corporation Law of the
State of Delaware, the violation of which would have
a material adverse effect on the ability of the
Depositor to perform its obligations under any of
such agreements. Block Financial's execution,
delivery and performance of its obligations under the
Agreements will not (A) conflict with the Certificate
of Incorporation or Bylaws of Block Financial or (B)
violate applicable provisions of federal, Missouri or
New York statutory law or regulation or the General
Corporation Law of the State of Delaware, the
violation of which would have a material adverse
effect on the ability of Block Financial to perform
its obligations under the Agreements. Companion's
execution, delivery and performance of its
obligations under the Mortgage Loan Purchase
Agreement and the Underwriting Agreement will not (A)
conflict with the Certificate of Incorporation or
Bylaws of Companion or (B) violate applicable
provisions of federal, Missouri or New York statutory
law or regulation, or the General Corporation Law of
the State of Delaware, the violation of which would
have a material adverse effect on the ability of
Companion to perform its obligations under the
Mortgage Loan Purchase Agreement or the Underwriting
Agreement.
(v) To such counsel's knowledge, and based in
part upon the Depositor's written representations to
such counsel, the Depositor's execution and delivery
of, and its performance of its obligations under, the
Pooling and Servicing Agreement, the Insurance
Agreement and the Underwriting Agreement will not
conflict with, result in a breach or violation of,
constitute a default or an event of acceleration
under, or result in the creation or imposition of any
lien, charge or encumbrance upon the property or
assets of the Depositor pursuant to the terms of, (A)
any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument
known to such counsel to which the Depositor is a
party or by which it or its property is bound or (B)
any order, judgment or decree of any State of
Delaware, State of Missouri, State of New York or
United States court, administrative agency or
governmental instrumentality applicable to the
Depositor which is known to such counsel, the
conflict with which, or the breach, violation,
default, acceleration or creation or imposition of
which, would have a material adverse effect on the
ability of the Depositor to perform its obligations
under any of such agreements. To such counsel's
knowledge, and based in part upon Block Financial's
written representations to such counsel, Block
Financial's execution and delivery of, and its
performance of its obligations under, the Agreements
will not conflict with, result in a breach or
violation of, constitute a default or an event of
acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon
the property or assets of Block Financial pursuant to
the terms of, (A) any indenture, mortgage, deed of
trust, loan agreement or other material agreement or
instrument known to such counsel to which Block
Financial is a party or by which it or its property
is bound or (B) any order, judgment or decree of any
State of Delaware, State of Missouri, State of New
York or United States court, administrative agency or
governmental instrumentality applicable to Block
Financial which is known to such counsel, the
conflict with which, or the breach, violation,
default, acceleration or creation or imposition of
which, would have a material adverse effect on the
ability of Block Financial to perform its obligations
under the Agreements. To such counsel's knowledge,
and based in part upon Companion's representations to
such counsel, Companion's execution and delivery of,
and its performance of its obligations under, the
Mortgage Loan Purchase Agreement and the Underwriting
Agreement will not conflict with, result in a breach
or violation of, constitute a default or an event of
acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon
the property or assets of Companion pursuant to the
terms of, (A) any indenture, mortgage, deed of trust,
loan agreement or other material agreement or
instrument known to such counsel to which Companion
is a party or by which it or its property is bound or
(B) any order, judgment or decree of any State of
Delaware, State of Missouri, State of New York or
United States court, administrative agency or
governmental instrumentality applicable to Companion
which is known to such counsel, the conflict with
which, or the breach, violation, default,
acceleration or creation or imposition of which,
would have a material adverse effect on the ability
of Companion to perform its obligations under the
Mortgage Loan Purchase Agreement or the Underwriting
Agreement.
(vi) The direction by the Depositor to the
Trustee to authenticate, issue and deliver the
Certificates has been duly authorized by the
Depositor, and the Certificates, when duly
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<PAGE>
authorized, authenticated, issued and delivered by
the Trustee and paid for by the Underwriters in
accordance with the Pooling and Servicing Agreement
and the Underwriting Agreement, will be validly
issued and outstanding and will be entitled to the
benefits provided by the Pooling and Servicing
Agreement.
(vii) To such counsel's knowledge, and based in
part upon the Depositor's written representations to
such counsel, the Depositor is not required to obtain
the consent, approval, authorization or order of, or
to register or file with, or to give notice to, any
court or governmental agency or body of the State of
Delaware (under the General Corporation Law thereof),
the State of Missouri, the State of New York or the
United States of America in order to execute,
deliver, perform and comply with the terms of, or for
the consummation of the transactions of the Depositor
contemplated by, the Pooling and Servicing Agreement,
the Insurance Agreement or the Underwriting Agreement
except any consent, approval, authorization, order,
registration, filing or notice (A) as may be required
under state securities, real estate syndication or
Blue Sky laws in connection with the offering and
sale of the Class A Certificates (as to which we
express no opinion whatsoever) or (B) which is a
future obligation of the Depositor pursuant to the
terms of the Pooling and Servicing Agreement, the
Insurance Agreement or the Underwriting Agreement,
such as, by way of illustration, but not in
limitation of the generality of the foregoing, filing
or recording an Uniform Commercial Code assignment of
a financing statement or an assignment of Mortgage
with respect to a Mortgage Loan; or if any such
consent, approval, authorization, order,
registration, filing or notice (not described in the
exception to the immediately preceding clause) is
required, the Depositor has obtained, made or given
the same. To such counsel's knowledge, and based in
part upon Block Financial's written representations
to such counsel, Block Financial is not required to
obtain the consent, approval, authorization or order
of, to register or file with, or to give notice to,
any court or governmental agency or body of the State
of Delaware (under the General Corporation Law
thereof), the State of Missouri, the State of New
York or the United States of America in order to
execute, deliver, perform and comply with the terms
of, or for the consummation of the transactions of
Block Financial contemplated by, the Agreements
except any consent, approval, authorization, order,
registration, filing or notice (A) as may be required
under state securities, real estate syndication or
Blue Sky laws in connection with the offering and
sale of the Class A Certificates (as to which we
express no opinion whatsoever) or (B) which is a
future obligation of Block Financial pursuant to the
terms of an Agreement, such as, by way of
illustration, but not in limitation of the generality
of the foregoing, filing or recording an Uniform
Commercial Code assignment of a financing statement
or an assignment of Mortgage with respect to a
Mortgage Loan or obtaining a consent, approval,
order, etc. in connection with a foreclosure; or if
any such consent, approval, authorization, order,
registration, filing or notice (not described in the
exception to the immediately preceding clause) is
required, Block Financial has obtained, made or given
the same. To such counsel's knowledge, and based in
part upon Companion's written representations to such
counsel, Companion is not required to obtain the
consent, approval, authorization or order of, to
register or file with, or to give notice to, any
court or governmental agency or body of the State of
Delaware (under the General Corporation Law thereof),
the State of Missouri, the State of New York or the
United States of America in order to execute,
deliver, perform and comply with the terms of, or for
the consummation of the transactions of Companion
contemplated by, the Mortgage Loan Purchase Agreement
or the Underwriting Agreement except any consent,
approval, authorization, order, registration, filing
or notice (A) as may be required under state
securities, real estate syndication or Blue Sky laws
in connection with the offering and sale of the Class
A Certificates (as to which we express no opinion
whatsoever) or (B) which is a future obligation of
Companion pursuant to the terms of the Mortgage Loan
Purchase Agreement or the Underwriting Agreement,
such as, by way of illustration, but not in
limitation of the generality of the foregoing, filing
or recording an Uniform Commercial Code assignment of
a financing statement or an assignment of Mortgage
with respect to a Mortgage Loan; or if any such
consent, approval, authorization, order,
registration, filing or notice (not described in the
exception to the immediately preceding clause) is
required, Companion has obtained, made or given the
same.
(viii) The Registration Statement is effective
under the 1933 Act, and to such counsel's knowledge,
no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933
Act or proceedings therefore initiated or threatened
by the Commission.
(ix) The conditions to the use by the Depositor
of a registration statement on Form S-3 under the
1933 Act, as set forth in the General Instructions to
Form S-3 have been satisfied with respect to the
Registration Statement. To such counsel's knowledge,
and based in part upon the Depositor's
representations to such counsel, there are no
contracts or documents of any of the Transaction
Parties which are required to be filed as exhibits to
the Registration Statement pursuant to the 1933 Act
or the Rules and Regulations thereunder which have
not been so filed. The statements set forth in each
of the Base Prospectus and the Prospectus Supplement
under the captions "RISK FACTORS -- Legal
Considerations" and "ERISA
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
CONSIDERATIONS" and the statements set forth in the
Base Prospectus under the caption "CERTAIN LEGAL
ASPECTS OF THE PRIMARY ASSETS", in each case insofar
as such statements purport to summarize matters of
state or federal law or legal conclusions with
respect thereto, have been prepared or reviewed by
such counsel and provide a fair summary of such law
or conclusions.
(x) To such counsel's knowledge, and based in
part upon the Depositor's representations to such
counsel, there are no actions, suits or proceedings
against the Depositor (or to which the property of
the Depositor is subject) pending or overtly
threatened in writing before any court, governmental
agency or arbitrator which (A) question, directly or
indirectly, the validity or enforceability of any of
the Pooling and Servicing Agreement, the Insurance
Agreement or the Underwriting Agreement or (B) would,
if decided adversely to the Depositor, either
individually or in aggregate, have a material adverse
effect on the Depositor's financial condition,
business or properties taken as a whole or the
validity or enforceability of any of such agreements
or the Certificates or (C) would materially and
adversely affect the ability of the Depositor to
perform its obligations under any of such
agreements. To such counsel's knowledge, and based
in part upon Block Financial's representations to
such counsel, there are no actions, suits or
proceedings against Block Financial (or to which the
property of Block Financial is subject) pending or
overtly threatened in writing before any court,
governmental agency or arbitrator which (D) question,
directly or indirectly, the validity or
enforceability of any of the Agreements, or (E)
would, if decided adversely to Block Financial,
either individually or in the aggregate, have a
material adverse effect on Block Financial's
financial condition, business or properties taken as
a whole or the validity or enforceability of any
Agreement or the Certificates or (F) would materially
and adversely affect the ability of Block Financial
to perform its obligations under the Agreements. To
such counsel's knowledge, and based in part upon
Companion's representations to such counsel, there
are no actions, suits or proceedings against
Companion (or to which the property of Companion is
subject) pending or overly threatened in writing
before any court, governmental agency or arbitrator
which (G) question, directly or indirectly, the
validity or enforceability of any of the Mortgage
Loan Purchase Agreement or the Underwriting Agreement
or (H) would, if decided adversely to Companion,
either individually or in the aggregate, have a
material adverse effect on Companion's financial
condition, business or properties taken as a whole or
the validity or enforceability of any of such
agreements or the Certificates or (I) would
materially and adversely affect the ability of
Companion to perform its obligations under such
agreements.
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<PAGE>
(xi) The Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture
Act of 1939, as amended, and neither the Depositor
nor the Trust Fund is required to be registered under
the Investment Company Act of 1940, as amended.
(xii) In connection with such counsel's
participation in the preparation of the Registration
Statement and the Prospectus, such counsel has not
independently verified the accuracy, completeness or
fairness of the statements contained therein, and,
without limiting the generality of the foregoing,
such counsel has not, with the opinion recipients'
consent, reviewed any loan files relating to the
Mortgage Loans. The limitations inherent in such
counsel's participation in the preparation of the
Registration Statement and the Prospectus and the
knowledge available to such counsel are such that
such counsel is unable to assume, and does not
assume, any responsibility for the accuracy,
completeness or fairness of the statements contained
in the Registration Statement and the Prospectus. On
the basis of such counsel's participation in the
preparation of the Registration Statement and the
Prospectus as described above and such counsel's
participation in conferences and telephone
conversations with representatives of the Depositor,
the Seller, the Master Servicer, the Underwriters and
others at which the contents of the Registration
Statement and the Prospectus were discussed, and
relying as to facts necessary to the determination of
materiality to the extent such counsel may do so in
the exercise of such counsel's professional
responsibility upon the certificates and statements
of officers and other representatives of the
Depositor, the Seller, the Master Servicer and
others, no facts have come to such counsel's
attention that lead such counsel to believe that as
of the date hereof, the Registration Statement or the
Prospectus (excluding any financial or statistical
data contained therein, the sections of the Base
Prospectus and the Prospectus Supplement captioned
"FEDERAL INCOME TAX CONSEQUENCES", the section of the
Base Prospectus captioned "PLAN OF DISTRIBUTION" and
the sections of the Prospectus Supplement captioned
"NF INVESTMENTS, INC.", "CREDIT ENHANCEMENT --
Certificate Insurance Policy", "CREDIT ENHANCEMENT --
The Certificate Insurer", "UNDERWRITING" and "REPORT
OF EXPERTS", as to which such counsel does not
comment) contains any untrue statement of a material
fact or omits to state a material fact required to be
stated therein or necessary to make the statements
therein, in the light of the circumstances under
which they were made, not misleading.
Such counsel's opinion letters may express its
reliance as to factual matters upon the representations
and warranties made by the Block Transaction Parties and
on certificates or other documents furnished by officers
of the Block Transaction Parties. In
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<PAGE>
addition to the qualifications with respect to the
enforceability opinions under paragraph (iii) above, the
other opinions set forth in such opinion letters will be
subject to such qualifications as Morrison & Hecker L.L.P.
customarily makes with respect to such opinions in the
manner that Morrison & Hecker L.L.P. customarily makes
such qualifications.
(c) [Reserved]
(d) The Underwriters shall have received the
favorable opinion of counsel to the Sub-Servicer, dated
the date of the Closing Date, addressed to the
Underwriters and in form and scope satisfactory to counsel
to the Underwriters, to the effect that:
(i) The Sub-Servicer has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the state of its
incorporation, with corporate power to own its
properties, to conduct its business as described in
the Prospectus and to enter into and perform its
obligations under the Sub-Servicing Agreement.
(ii) The Sub-Servicer has full corporate power
and authority to serve in the capacity of a
sub-servicer of the Mortgage Loans as contemplated
in the Sub-Servicing Agreement and the Pooling and
Servicing Agreement.
(iii) The Sub-Servicer is duly authorized under
relevant statutes, laws and court decisions, to
conduct in the various jurisdictions in which it does
business the respective businesses therein currently
conducted by it, except where failure to be so
permitted or failure to be so authorized will not
have a material adverse effect on its business or
financial condition and will not have a material
adverse effect on the Class A Certificates, and the
Sub-Servicer is duly authorized under applicable law,
including those that regulate the business of
originating, selling or servicing mortgage loans, to
conduct in the various jurisdictions in which it does
business the business it currently conducts therein
and to perform its obligations as contemplated by the
Sub-Servicing Agreement.
(iv) The Sub-Servicing Agreement has been duly
authorized, executed and delivered by the
Sub-Servicer pursuant thereto and, assuming the due
authorization, execution and delivery of such
agreements by the other parties thereto, such
agreements constitute the valid and binding
obligation of the Sub-Servicer, enforceable against
the Sub- Servicer in accordance with its terms,
except that in each case as to enforceability (A)
such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to
creditors' rights generally and (B) the remedy of
specific performance and injunctive and other forms
of equitable relief may be subject to equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(v) The consummation of the transactions
contemplated under the Sub-Servicing Agreement, or
the fulfillment of the terms of the Sub-Servicing
Agreement does not and will not conflict with or
violate any term or provision of the Certificate or
Articles of Incorporation or Bylaws of the Sub-
Servicer or, to the best of such counsel's knowledge,
any statute, order or regulation applicable to the
Sub-Servicer, of any court, regulatory body,
administrative agency or governmental body having
jurisdiction over the Sub-Servicer and do not and
will not conflict with, result in a breach or
violation or the acceleration of, or constitute a
default under, or result in the creation or
imposition of any lien, charge or encumbrance upon
any of the property or assets of the Sub-Servicer
pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the
Sub-Servicer is a party or by which the Sub-Servicer
may be bound or to which any of the property or
assets of the Sub-Servicer may be subject except for
conflicts, violations, breaches, accelerations and
defaults which would not, individually or in the
aggregate, be materially adverse to the Sub-Servicer
or materially adverse to the transactions
contemplated by the Sub-Servicing Agreement.
(vi) To the best of such counsel's knowledge, no
consent, approval, authorization, order, registration
or qualification of or with any court or governmental
agency or body is required for the consummation by
the Sub-Servicer of the transactions contemplated by
the Sub-Servicing Agreement.
(vii) There are no actions, proceedings or
investigations pending before or, to the best
knowledge of such counsel, threatened by any court,
administrative agency or other tribunal to which the
Sub-Servicer is a party or of which any of their
respective properties is the subject (A) which if
determined adversely to the Sub-Servicer would have a
material adverse effect on the business or financial
condition of the Sub-Servicer, (B) asserting the
invalidity of the Sub- Servicing Agreement, (C)
seeking to prevent the consummation by the
Sub-Servicer of any of the transactions contemplated
by the Sub-Servicing Agreement, or (D) which might
materially and adversely affect the performance by
the Sub-Servicer of its obligations under, or the
validity or enforceability of, the Sub-Servicing
Agreement.
(e) The Underwriters shall have received the
favorable opinion of counsel to the Trustee, dated the
date of the Closing Date, addressed to the Underwriters
and in form and scope
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<PAGE>
satisfactory to counsel to the Underwriters, to the
effect that:
(i) The Trustee has duly authorized, executed and
delivered the Pooling and Servicing Agreement and the
Insurance Agreement, which constitute the valid and
legally binding agreements of the Trustee and are
enforceable against the Trustee in accordance with
their terms, subject, as to enforcement of remedies,
(A) to applicable bankruptcy, insolvency,
reorganization, and other similar laws affecting the
rights of creditors generally and (B) to general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in
equity or at law).
(ii) The Trustee has duly executed and
countersigned the Certificates issued on the date
thereof on behalf of the Trust.
(iii) The execution and delivery by the Trustee
of the Pooling and Servicing Agreement and the
Insurance Agreement and the performance by the
Trustee of its obligations thereunder do not conflict
with or result in a violation of the Organization
Certificate or Bylaws of the Trustee.
(iv) The Trustee has full power and authority to
execute and deliver the Pooling and Servicing
Agreement, and the Insurance Agreement and to perform
its obligations thereunder.
(v) To the best of such counsel's knowledge,
there are no actions, proceedings or investigations
pending or threatened against or affecting the
Trustee before or by any court, arbitrator,
administrative agency or other governmental authority
which, if adversely decided, would materially and
adversely affect the ability of the Trustee to carry
out the transactions contemplated in the Pooling and
Servicing Agreement and the Insurance Agreement.
(vi) No consent, approval or authorization of,
or registration, declaration or filing with, any
court or governmental agency or body of the United
States of America or any state thereof is required
for the execution, delivery or performance by the
Trustee of the Pooling and Servicing Agreement and
the Insurance Agreement.
(f) The Underwriters shall have received the
favorable opinion or opinions, dated the date of the
Closing Date, of Brown & Wood llp, as counsel for the
Underwriters, with respect to the issuance of the Class A
Certificates and the sale of the Class A Certificates to
the Underwriters, the Registration Statement, this
Agreement, the Prospectus and such other related matters
as the Underwriters may require.
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
(g) The Underwriters shall have received the
favorable opinion, dated the date of the Closing Date, of
Kutak Rock, special counsel for the Certificate Insurer,
in form and scope satisfactory to counsel for the
Underwriters, to the effect that:
(i) The Certificate Insurer is a stock insurance
corporation, duly incorporated and validly existing
under the laws of the State of New York. The
Corporation is validly licensed and authorized to
issue each of the Policies and perform its
obligations under each of the Policies in accordance
with the terms thereof, under the laws of the State
of New York.
(ii) The execution and delivery by the
Certificate Insurer of each of the Policies, the
Insurance Agreement and the Insurance Indemnification
Agreement are within the corporate power of the
Certificate Insurer and have been authorized by all
necessary corporate action on the part of the
Certificate Insurer; each of the Policies has been
duly executed and is the valid and binding obligation
of the Certificate Insurer enforceable in accordance
with its terms except that the enforcement of the
Policies may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting
creditors' rights generally and by general principles
of equity.
(iii) The Certificate Insurer is authorized to
deliver the Insurance Agreement and the Insurance
Indemnification Agreement and each of the Insurance
Agreement and the Insurance Indemnification Agreement
has been duly executed and is a valid and binding
obligation of the Certificate Insurer enforceable in
accordance with its terms except that the enforcement
of the Insurance Agreement and the Insurance
Indemnification Agreement may be limited by laws
relating to bankruptcy, insolvency, reorganization,
moratorium, receivership and other similar laws
affecting creditors' rights generally and by general
principles of equity and, in the case of the
Insurance Indemnification Agreement, public policy
considerations as to rights of indemnification for
violations of federal and state securities laws.
(iv) No consent, approval, authorization or order
of any state or federal court or governmental agency
or body is required on the part of the Certificate
Insurer, the lack of which would adversely affect the
validity or enforceability of each of the Policies,
the Insurance Agreement or the Insurance
Indemnification Agreement; to the extent required by
applicable legal requirements that would adversely
affect the validity or enforceability of each of the
Policies, the form of each of the Policies has been
filed with, and approved by,
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
all governmental authorities having jurisdiction over
the Certificate Insurer in connection with the
Policies.
(v) To the extent that either of the Policies
constitute a security within the meaning of Section
2(1) of the 1933 Act, it is a security that is exempt
from the registration requirements of the 1933 Act.
(vi) The information set forth under the caption
"CREDIT ENHANCEMENT-Certificate Insurance Policies"
in the Prospectus Supplement, insofar as such
statements constitute a description of the Policies,
accurately summarizes the Policies.
(h) The Underwriters shall have received an opinion,
dated the date of the Closing Date, of Morrison & Hecker,
l.l.p. as counsel to the Master Servicer, Companion, the
Seller and the Depositor, addressed to the Seller, the
Depositor and satisfactory to the Certificate Insurer,
Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, and Moody's Investors Service,
Inc., relating to the true sale of the Mortgage Loans (i)
by Companion to the Seller, (ii) by the Seller to the
Depositor, and (iii) by the Depositor to the Trust and
such counsel shall have consented to reliance by the
Certificate Insurer, Standard & Poor's Ratings Services
and Moody's Investors Service, Inc. and the Underwriters
on such opinion as though such opinion had been addressed
to each such party.
(i) Each of the Transaction Parties shall have
furnished to the Underwriters a certificate signed on
behalf of such Transaction Party by an accounting or
financial officer thereof, dated the date of the Closing
Date, as to (i) the accuracy of the representations and
warranties of such Transaction Party herein at and as of
the Closing Date, (ii) there being no legal or
governmental proceedings pending, other than those, if
any, referred to in the Prospectus or the Prospectus as
amended or supplemented, as the case may be, to which such
Transaction Party is a party or of which any property of
such Transaction Party is the subject, which, in the
judgment of such Transaction Party, have a reasonable
likelihood of resulting in a material adverse change in
the financial condition, shareholders' equity or results
of operations of such Transaction Party to have a material
adverse effect on the ability to perform its obligations
under the Agreements; and to the best knowledge of each
such Transaction Party, no such proceedings are threatened
or contemplated by governmental authorities or threatened
by others, (iii) the performance by such Transaction Party
of all of its respective obligations hereunder to be
performed at or prior to the Closing Date, and (iv) such
other matters as you may reasonably request.
(j) The Trustee shall have furnished to the
Underwriters a certificate of the Trustee, signed by one
or more duly authorized officers of the Trustee, dated the
date of the Closing Date, as to the due authorization,
execution and delivery of the Pooling and Servicing
Agreement by the Trustee and the acceptance by the Trustee
of the trust created by the Pooling and Servicing
Agreement and the due execution and delivery of the
Certificates by the Trustee thereunder and such other
matters as you shall reasonably request.
(k) The Indemnification Agreement shall have been
entered into between the Certificate Insurer, the Seller
and the Underwriters, in which the Certificate Insurer
will represent to the Underwriters, among other
representations, that (i) the information under the
captions "CREDIT ENHANCEMENT--The Certificate Insurer,"
and "CREDIT ENHANCEMENT--Certificate Insurance Policies"
(the "Insurer Information") in the Prospectus Supplement
was approved by the Certificate Insurer and is limited and
does not purport to provide the scope of disclosure
required to be included in a prospectus for a registrant
under the Securities Act of 1933, in connection with the
public offer and sale of securities of such registrant.
Within such limited scope of disclosure, the Insurer
Information does not contain any untrue statement of a
material fact or omit to state a material fact necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading
and (ii) there has been no change in the financial
condition of the Certificate Insurer since September 30,
1996 which would have a material adverse effect on the
Certificate Insurer's ability to meet its obligations
under the Policies and shall contain provisions,
reasonably satisfactory to the Underwriters, for the
indemnification of the Underwriters.
(l) The Policies shall have been issued by the
Certificate Insurer pursuant to the Insurance Agreement
and shall have been duly countersigned by an authorized
agent of the Certificate Insurer, if so required under
applicable state law or regulation.
(m) The Class A Certificates shall have been rated
"AAA" by Standard & Poor's Ratings Services and "Aaa" by
Moody's Investors Service, Inc.
(n) Counsel to the Transaction Parties shall have
furnished to the Underwriters any opinions supplied to
Standard & Poor's Ratings Services, Moody's Investors
Service, Inc. or the Certificate Insurer relating to the
Class A Certificates and such opinions shall state that
the Underwriters may rely thereon.
(o) The Underwriters shall have received from
Deloitte & Touche llp, or other independent certified
public accountants acceptable to the Underwriters, a
letter, dated as of the date of this Agreement in the form
heretofore agreed to.
(p) Prior to the Closing Date, Brown & Wood llp, as
counsel for the Underwriters, shall have been furnished
with such documents and
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance of the Class A
Certificates and the sale of the Class A Certificates to
the Underwriters as herein contemplated and related
proceedings or in order to evidence the accuracy and
completeness of any of the representations and warranties,
or the fulfillment of any of the conditions, herein
contained; and all proceedings taken by the Transaction
Parties in connection with the issuance of the Class A
Certificates and the sale of the Class A Certificates to
the Underwriters as herein contemplated shall be
satisfactory in form and substance to the Underwriters and
Brown & Wood llp.
(q) Since the respective dates as of which
information is given in the Prospectus, there shall not
have been any change, or any development involving a
prospective change, in or affecting the general affairs,
management, financial condition, stockholders' equity or
results of operations of any of the Transaction Parties or
the Certificate Insurer otherwise than as set forth or
contemplated in the Prospectus, the effect of which is in
the judgment of the Underwriters so material and adverse
as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Class A
Certificates on the terms and in the manner contemplated
in the Prospectus.
(r) Subsequent to the execution and delivery of this
Underwriting Agreement, there shall not have occurred any
downgrading in the rating of any securities of the Seller
and Master Servicer, or any public announcement that any
such organization has under surveillance or review its
rating of any securities of any of the Transactional
Parties or the Certificate Insurer (other than an
announcement with positive implications of a possible
upgrade, and no implication of a possible downgrade, of
such rating).
(s) Prior to the Closing Date, Block Financial
Corporation shall deliver to you a waiver, in form
acceptable to you, to the terms of the Credit Agreement
between Block Financial Corporation and [Mellon Bank as
agent for the several participating banks] with respect to
the transactions contemplated by the Agreements.
(t) Prior to the Closing Date, each of the
Transaction Parties shall have furnished to you such
further information, certificates and documents as you may
reasonably request.
If any condition specified in this Section 6 shall
not have been fulfilled when and as required to be
fulfilled, this Agreement may be terminated by you by
notice to the Depositor at any time at or prior to the
Closing Date, and such termination shall be without
liability of any party to any other party except as
provided in Section 7.
SECTION 7. Payment of Expenses. Block Financial
Corporation
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
agrees to pay all expenses incident to the performance of
their obligations under this Agreement, including without
limitation those related to (i) the filing of the
Registration Statement and all amendments thereto,
(ii) the preparation, issuance and delivery of the
Certificates, (iii) the fees and disbursements of Morrison
& Hecker l.l.p., as special counsel for the Transactional
Parties, and of Deloitte & Touche llp, accountants of the
Master Servicer, the Seller and the Depositor, (iv) the
first $100,000 of fees and expenses, and 50% of the
reasonable fees and expenses in excess thereof, of Brown
and Wood llp, as special tax counsel for the Depositor,
(v) the qualification of the Class A Certificates under
securities and Blue Sky laws and the determination of the
eligibility of the Class A Certificates for investment in
accordance with the provisions of subsection 5(f)
including filing fees, (vi) the printing and delivery to
the Underwriters, in such quantities as you may reasonably
request, of copies of the Registration Statement and
Prospectus and all amendments and supplements thereto, and
of any Blue Sky Survey, (vii) the delivery to the
Underwriters, in such quantities as you may reasonably
request, of copies of the Agreements, (viii) the fees
charged by nationally recognized statistical rating
agencies for rating the Class A Certificates, (ix) the
reasonable fees and expenses of the Trustee and its
counsel and (x) the reasonable fees and expenses of the
Certificate Insurer and its counsel.
If this Agreement is terminated by you in accordance
with the provisions of Section 6, the Master Servicer, the
Seller and the Depositor shall reimburse you for all
reasonable out-of-pocket expenses, including the fees and
disbursements of Brown & Wood llp, as counsel for the
Underwriters.
SECTION 8. Indemnification. (a) Block Financial
Corporation and the Depositor jointly and severally agree
to indemnify and hold harmless the Underwriters and each
person, if any, who controls the Underwriters within the
meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising
out of any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement (or any amendment thereto),
including the information deemed to be a part of the
Registration Statement pursuant to Rule 430A under
the 1933 Act, if applicable, or the omission or
alleged omission therefrom of a material fact
required to be stated therein or necessary to make
the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (or
any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in
light of the circumstances under which they were
made, not misleading,
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
unless (a) such untrue statement or omission or
alleged untrue statement or omission was made in
reliance upon and in conformity with written
information furnished to the Depositor by the
Underwriters or the Certificate Insurer expressly for
use in the Registration Statement (or any amendment
thereto), (b) such untrue statement or omission or
alleged untrue statement or omission was made in any
Preliminary Prospectus and corrected in the
Prospectus and (A) any such loss, claim, damage or
liability suffered or incurred by an Underwriter
resulted from an action, claim or suit by any person
who purchased the Class A Certificates from such
Underwriter in the offering and (B) such Underwriter
failed to deliver or provide a copy of the Prospectus
dated January 24, 1997 to such person at or prior to
the confirmation of the sale of such Class A
Certificates in any case where such delivery is
required by the 1933 Act;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the
extent of the aggregate amount paid in settlement of
any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected
with the written consent of the Depositor; and
(iii) against any and all reasonable expense
whatsoever (including the reasonable fees and
disbursements of counsel chosen by you) as
reasonably incurred in investigating, preparing to
defend or defending against or appearing as a third
party witness with respect to any litigation, or
investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or
omission, as such expense is incurred and to the
extent that any such expense is not paid under (i) or
(ii) above.
This indemnity agreement will be in addition to any
liability which any of the Master Servicer, the Seller or
the Depositor may otherwise have.
(b) Each of the Underwriters severally and not
jointly agrees to indemnify and hold harmless Block
Financial Corporation and the Depositor, each of their
directors, each of their officers who signed the
Registration Statement, and each person, if any, who
controls Block Financial Corporation and/or the Depositor
within the meaning of Section 15 of the 1933 Act (each, an
"Indemnified Party") against any and all loss, liability,
claim, damage and expense, as incurred, described in the
indemnity contained in subsection (a) of this Section 8,
arising out of any untrue statements or omissions, or
alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Seller and/or to the Depositor by such
Underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or
any amendment or supplement thereto). The parties
acknowledge that the statements set forth in the last
paragraph of the cover page of the Prospectus Supplement
and in the Section "Underwriting" in the Prospectus
Supplement constitute the only information furnished in
writing by the Underwriters for inclusion in the
Prospectus.
(c) Each indemnified party shall give prompt notice
to each indemnifying party of any action commenced
against it with respect to which indemnity may be sought
hereunder, but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have
hereunder unless it has been materially prejudiced by such
failure to notify or from any liability which it may have
otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in
the defense of such action. In no event shall the
indemnifying parties be liable for the fees and expenses
of more than one counsel for all indemnified parties in
connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of
the same general allegations or circumstances, unless (i)
if the defendants in any such action include one or more
of the indemnified parties and the indemnifying party, and
one or more of the indemnified parties shall have employed
separate counsel after having reasonably concluded that
there may be legal defenses available to it or them that
are different from or additional to those available to the
indemnifying party or to one or more of the other
indemnified parties or (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party
within a reasonable time after notice of the commencement
of the action.
SECTION 9. Contribution. In order to provide for
just and equitable contribution in circumstances in which
the indemnity agreement provided for in Section 8 is for
any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms,
Block Financial Corporation and the Depositor on the one
hand, and the Underwriters, on the other, shall contribute
to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity
agreement incurred by Block Financial Corporation and/or
the Depositor and one or more of the Underwriters, in such
proportion as shall be appropriate to reflect the relative
benefits to Block Financial Corporation and the Depositor
on the one hand and the Underwriters on the other in
connection with the matter to which the indemnification
relates, which relative benefits shall be deemed to be in
such proportions the Underwriters shall be responsible for
that portion represented by the percentage that the
underwriting discount on the cover of the Prospectus on
the Closing
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
Date bears to the initial public offering price for the
Class A Certificates as set forth thereon, and Block
Financial Corporation and the Depositor shall be jointly
and severally responsible for the balance or (ii) if the
allocation provided by clause (i) above is not permitted
by applicable law or otherwise prohibited hereby, in such
proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also
the relative fault of Block Financial Corporation and the
Depositor on the one hand and the Underwriters or
Underwriter, as applicable, on the other in connection
with the statements or omissions that resulted in such
losses, claims, damages or liabilities, or actions in
respect thereof, as well as any other relevant equitable
considerations; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. Relative fault shall be
determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material
fact relates to information supplied by Block Financial
Corporation or the Depositor, on the one hand, or the
Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
Block Financial Corporation, the Depositor and the
Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 9 were to be
determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take
into account the equitable considerations referred to in
the first sentence of this Section 9. The amount paid by
an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof)
referred to in the first sentence of this Section 9 shall
be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in
connection with investigating, preparing to defend or
defending against any action or claim that is the subject
of this Section 9. Notwithstanding the provisions of this
Section 9, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total
underwriting commission received by such Underwriter for
the sale of the Class A Certificates underwritten by such
Underwriter and distributed to the public were offered to
the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay in respect
of such losses, liabilities, claims, damages and
expenses. The Underwriters' obligations in this Section 9
to contribute are several in proportion to their
respective underwriting obligations and not joint. Each
party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon
it in any action instituted against it in respect to which
contribution may be sought, it shall promptly give written
notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify
such party or parties of
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
any such service shall not relieve the party from whom
contribution may be sought for any obligation it may have
hereunder or otherwise (except as specifically provided in
Section 8 hereof). For purposes of this Section 9, each
person, if any, who controls any Underwriter within the
meaning of Section 14 of the 1933 Act shall have the same
rights to contribution as such Underwriter, and each
respective director of Block Financial Corporation and/or
the Depositor, each respective officer of Block Financial
Corporation and/or the Depositor who signed the
Registration Statement, and each person, if any, who
controls Block Financial Corporation and/or the Depositor
within the meaning of Section 14 of the 1933 Act shall
have the same rights to contribution as Block Financial
Corporation and/or the Depositor.
SECTION 10. Representations, Warranties and
Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or
any statement set forth in any of the certificates of
officers of the Seller or the Depositor submitted pursuant
hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on
behalf of the Underwriters or controlling person thereof,
or by or on behalf of the Master Servicer, Companion, the
Seller or the Depositor and shall survive delivery of any
Underwritten Certificates to the Underwriters.
SECTION 11. Termination of Agreement. This Agreement
shall be subject to termination by notice given by you to
the Depositor if (i) any change, or any development
involving a prospective change, in or affecting
particularly the business or properties of the Trust, any
of the Transaction Parties or the Certificate Insurer
which, in your judgment, materially impairs the investment
quality of the Class A Certificates or makes it
impractical or inadvisable to market the Class A
Certificates; (ii) Block Financial Corporation fails to
obtain the waiver referred to in Section 6(r) hereto;
(iii) any downgrading in the rating of any securities of
the Trust, the Transactions Parties or the Certificate
Insurer, the Seller or the Depositor by any "nationally
recognized statistical rating organization" (as defined
for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under
surveillance or review its rating of any securities of the
Trust, any of the Transaction Parties or the Certificate
Insurer (other than an announcement with positive
implications of a possible upgrading, and no implication
of a possible downgrading, of such rating); (iv) any
suspension or limitation of trading in securities
generally on the New York Stock Exchange, or any setting
of minimum prices for trading on such exchange; (v) any
suspension of trading of any securities of the Trust, the
Transaction Parties or the Certificate Insurer on any
exchange or in the over-the-counter market; (vi) any
banking moratorium declared by Federal or New York
authorities; or (vii) any outbreak or escalation of major
hostilities in which the United States is involved, any
declaration of war by Congress, or any other
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
substantial national or international calamity or
emergency if, in your judgment, the effect of any such
outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with
completion of the sale of and payment for the Class A
Certificates. In the event of any such termination, the
covenant set forth in subsection 5(b), the provisions of
Section 7, the indemnity agreement set forth in Section 8,
and the provisions of Sections 9 and 14 shall remain in
effect.
SECTION 12. Default by One or More of the
Underwriters. If one of the Underwriters participating in
the public offering of the Class A Certificates shall fail
on the Closing Date to purchase the Class A Certificates
which it is obligated to purchase hereunder (the
"Defaulted Certificates"), then the non-defaulting
Underwriter shall have the right, within 24 hours
thereafter, to make arrangements for it, or any other
underwriter, to purchase all, but not less than all, of
the Defaulted Certificates in such amounts as may be
agreed upon and upon the terms herein set forth. If,
however, you have not completed such arrangements within
such 24-hour period, then:
(i) if the aggregate principal amount of
Defaulted Certificates does not exceed 10% of the
aggregate principal amount of the Class A
Certificates to be purchased pursuant to this
Agreement, the non-defaulting Underwriter named in
this Agreement shall be obligated to purchase the
full amount thereof, or
(ii) if the aggregate principal amount of
Defaulted Certificates exceeds 10% of the aggregate
principal amount of the Class A Certificates to be
purchased pursuant to this Agreement, this Agreement
shall terminate, without any liability on the part of
the non-defaulting Underwriter.
No action taken pursuant to this Section 12 shall
relieve the defaulting Underwriter from the liability with
respect to any default of such Underwriter under this
Agreement.
In the event of a default by any Underwriters as set
forth in this Section 12, either you or the Seller shall
have the right to postpone the Closing Date for a period
not exceeding five Business Days in order that any
required changes in the Registration Statement or
Prospectus or in any other documents or arrangements may
be effected.
SECTION 13. Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the
Underwriters shall be directed to them at the address set
forth on the first page hereof. Notices to the Master
Servicer, the Seller or the Depositor shall be
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
directed to Block Mortgage Finance, Inc., 4435 Main
Street, Suite 500, Kansas City, Missouri 64111, to the
attention of the Secretary, with a copy to the Treasurer.
SECTION 14. Parties. This Agreement shall inure to
the benefit of and be binding upon the Underwriters, the
Master Servicer, the Seller and the Depositor, and their
respective successors. Nothing expressed or mentioned in
this Agreement is intended nor shall it be construed to
give any person, firm or corporation, other than the
parties hereto and their respective successors and the
controlling persons and officers and directors referred to
in Sections 8 and 9 and their heirs and legal
representatives, any legal or equitable right, remedy or
claim under or with respect to this Agreement or any
provision herein contained. This Agreement and all
conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the parties and their
respective successors and said controlling persons and
officers and directors and their heirs and legal
representatives (to the extent of their rights as
specified herein) and except as provided above for the
benefit of no other person, firm or corporation. No
purchaser of Class A Certificates from the Underwriters
shall be deemed to be a successor by reason merely of such
purchase.
SECTION 15. Governing Law and Time. This Agreement
shall be governed by the law of the State of New York and
shall be construed in accordance with such law. Specified
times of day refer to New York City time.
SECTION 16. Counterparts. This Agreement may be
executed in counterparts, each of which shall constitute
an original of any party whose signature appears on it,
and all of which shall together constitute a single
instrument.
BWNY03/62100.9/14040/00302/1977 February 12, 1997
<PAGE>
If the foregoing is in accordance with the
Underwriters' understanding of our agreement, please sign
and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a
binding agreement among the Underwriters, the Master
Servicer, the Seller and the Depositor in accordance with
its terms.
Very truly yours,
BLOCK MORTGAGE FINANCE, INC. as
Depositor
By:
Name:
&..
COMPANION MORTGAGE CORPORATION
By: __________________________
Name:
Title:
BLOCK FINANCIAL CORPORATION, as
Master Servicer and Seller
By:
Name:
Title:
<PAGE>
CONFIRMED AND ACCEPTED, as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
as Representative of the Underwriters
By:
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
Schedule A
Underwriting
<S><C> <C> <C> <C> <C>
Underwriter Class A-1 Class A-2 Class A-3 Class A-4
Certificates Certificates Certificates Certificates
Morgan Stanley &
Co. Incorporated
Certificate Balance (1)...... $12,027,000.00 $7,695,500.00 $10,560,000.00 $21,316,000.00
Price to Public.............. 99.937500% 99.890625% 99.312500% 100.000000%
Underwriting Discount........ 0.21% 0.30% 0.50% 0.25%
Purchase Price............... $11,994,226.43 $7,663,996.55 $10,487,400.00 $21,262,710.00
Salomon Brothers Inc
Certificate Balance (1)...... $12,027,000.00 $7,695,500.00 $10,560,000.00 $21,316,000.00
Price to Public.............. 99.937500% 99.890625% 99.312500% 100.000000%
Underwriting Discount........ 0.21% 0.30% 0.50% 0.25%
Purchase Price............... $11,994,226.43 $7,663,996.55 $10,487,400.00 $21,262,710.00
__________________
(1) Subject to a permitted variance of plus or
minus 5%, dependent upon the principal balance
of the Mortgage Loans as of the Cut-off Date in
the Trust Fund on the Closing Date.
</TABLE>
POOLING AND SERVICING AGREEMENT
Relating to
BLOCK MORTGAGE FINANCE ASSET BACKED CERTIFICATES, SERIES 1997-1
Among
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
BLOCK FINANCIAL CORPORATION,
as Seller and Master Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of December 31, 1996
<PAGE>
CONTENTS
Page
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......... 3
Section 1.01 Definitions.................. 3
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST..... 34
Section 2.01 Establishment of the Trust... 34
Section 2.02 Office....................... 34
Section 2.03 Purposes and Powers.......... 34
Section 2.04 Appointment of the Trustee;
Declaration of Trust......... 34
Section 2.05 Expenses of the Trust........ 34
Section 2.06 Ownership of the Trust....... 35
Section 2.07 Situs of the Trust........... 35
Section 2.08 Miscellaneous REMIC
Provisions................... 35
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE MASTER SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS..... 38
Section 3.01 Representations and
Warranties of the Depositor.. 38
Section 3.02 Representations and
Warranties of the
Master Servicer.............. 40
Section 3.03 Representations and
Warranties of the Seller..... 42
Section 3.04 Covenants of Seller to
Take Certain Actions
with Respect to the
Mortgage Loans In
Certain Situations........... 45
Section 3.05 Conveyance of the Mortgage
Loans and Qualified
Replacement Mortgages........ 46
Section 3.06 Acceptance by Trustee;
Certain Substitutions of
Mortgage Loans; Certification
by Trustee................... 49
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES.......... 51
Section 4.01 Issuance of Certificates..... 51
Section 4.02 Sale of Certificates......... 51
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS........ 52
Section 5.01 Terms........................ 52
Section 5.02 Forms........................ 52
i
<PAGE>
Page
Section 5.03 Execution, Authentication
and Delivery................. 52
Section 5.04 Registration and Transfer
of Certificates.............. 53
Section 5.05 Mutilated, Destroyed,
Lost or Stolen Certificates.. 55
Section 5.06 Persons Deemed Owners........ 55
Section 5.07 Cancellation................. 56
Section 5.08 Limitation on Transfer
of Ownership Rights.......... 56
Section 5.09 Assignment of Rights......... 57
ARTICLE VI
COVENANTS...................... 58
Section 6.01 Distributions................ 58
Section 6.02 Money for Distributions
to be Held in Trust;
Withholding............... 58
Section 6.03 Protection of Trust Estate... 59
Section 6.04 Performance of Obligations... 60
Section 6.05 Negative Covenants........... 60
Section 6.06 No Other Powers.............. 60
Section 6.07 Limitation of Suits.......... 61
Section 6.08 Unconditional Rights of
Owners to Receive
Distributions................ 61
Section 6.09 Rights and Remedies
Cumulative................... 62
Section 6.10 Delay or Omission Not
Waiver....................... 62
Section 6.11 Control by Owners............ 62
Section 6.12 Indemnification.............. 62
Section 6.13 Access to Owners of
Certificates' Names
and Addresses................ 63
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES......... 64
Section 7.01 Collection of Money.......... 64
Section 7.02 Establishment of Accounts.... 64
Section 7.03 Flow of Funds................ 65
Section 7.04 Reserved..................... 69
Section 7.05 Investment of Accounts....... 69
Section 7.06 Payment of Trust Expenses.... 69
Section 7.07 Permitted Investments........ 70
Section 7.08 Accounting and Directions
by Trustee................... 71
Section 7.09 Reports by Trustee to
Owners and Certificate
Insurer...................... 72
Section 7.10 Reports by Trustee........... 74
Section 7.11 Preference Payments.......... 74
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS.................. 75
Section 8.01 Master Servicer and
Sub-Servicers................ 75
ii
<PAGE>
Page
Section 8.02 Collection of Certain
Mortgage Loan Payments....... 76
Section 8.03 Sub-Servicing Agreements
Between Master Servicer and
Sub-Servicers................ 76
Section 8.04 Successor Sub-Servicers...... 77
Section 8.05 Liability of Master Servicer;
Indemnification ............. 77
Section 8.06 No Contractual
Relationship Between
Sub-Servicer, Trustee or
the Owners................... 78
Section 8.07 Assumption or ermination of
Sub-Servicing Agreement by
Trustee...................... 78
Section 8.08 Collection Account........... 79
Section 8.09 P&I Advances and
Servicing Advances........... 80
Section 8.10 Compensating Interest:
Repurchase of Mortgage Loans. 81
Section 8.11 Maintenance of Insurance..... 82
Section 8.12 Due-on-Sale Clauses;
Assumption and Substitution
Agreements................... 84
Section 8.13 Realization Upon Defaulted
Mortgage Loans; Inspection... 85
Section 8.14 Trustee to Cooperate;
Release of Files............. 86
Section 8.15 Servicing Compensation....... 87
Section 8.16 Annual Statement as to
Compliance................... 87
Section 8.17 Annual Independent Certified
Public Accountants' Reports.. 88
Section 8.18 Access to Certain
Documentation and
Information Regarding the
Mortgage Loans............... 88
Section 8.19 Merger or Consolidation
of the Master Servicer;
Assignment................... 88
Section 8.20 Removal of Master Servicer;
Resignation of Master
Servicer..................... 89
Section 8.21 Inspections by Certificate
Insurer; Errors and Omissions
Insurance.................... 93
ARTICLE IX
TERMINATION OF TRUST................. 94
Section 9.01 Termination of Trust......... 94
Section 9.02 Termination Upon Option
of Owners of Class
R Certificates and Market
Servicer..................... 94
Section 9.03 Termination Auction.......... 95
Section 9.04 Termination Upon Loss
of REMIC Status.............. 97
Section 9.05 Disposition of Proceeds...... 98
ARTICLE X
THE TRUSTEE..................... 99
Section 10.01 Certain Duties and
Responsibilities............. 99
Section 10.02 Removal of Trustee for
Cause........................100
Section 10.03 Certain Rights of the
Trustee......................102
Section 10.04 Not Responsible for
Recitals or Issuance
of Certificates..............103
Section 10.05 May Hold Certificates........103
Section 10.06 Money Held in Trust..........103
Section 10.07 Compensation and
Reimbursement; No Lien
for Fees.....................103
Section 10.08 Corporate Trustee
Required; Eligibility........104
Section 10.09 Resignation and Removal;
Appointment of Successor.....104
iii
<PAGE>
Page
Section 10.10 Acceptance of Appointment
by Successor Trustee.........105
Section 10.11 Merger, Conversion,
Consolidation or Succession
to Business of the Trustee...106
Section 10.12 Reporting; Withholding.......106
Section 10.13 Liability of the Trustee.....107
Section 10.14 Appointment of
Co-Trustee or Separate
Trustee .....................107
ARTICLE XI
MISCELLANEOUS....................109
Section 11.01 Compliance Certificates
and Opinions.................109
Section 11.02 Form of Documents
Delivered to the Trustee.....109
Section 11.03 Acts of Owners...............110
Section 11.04 Notices, etc. to Trustee.....110
Section 11.05 Notices and Reports to
Owners; Waiver of Notices....111
Section 11.06 Rules by Trustee.............111
Section 11.07 Successors and Assigns.......111
Section 11.08 Severability.................111
Section 11.09 Benefits of Agreement........112
Section 11.10 Legal Holidays...............112
Section 11.11 Governing Law; Submission
to Jurisdiction..............112
Section 11.12 Counterparts.................113
Section 11.13 Usury........................113
Section 11.14 Amendment....................113
Section 11.15 Paying Agent; Appointment
and Acceptance of Duties.....114
Section 11.16 REMIC Status.................115
Section 11.17 Additional Limitation on
Action and Imposition of Tax.116
Section 11.18 Appointment of Tax
Matters Person...............117
Section 11.19 The Certificate Insurer......117
Section 11.20 Reserved.....................117
Section 11.21 Third Party Rights...........117
Section 11.22 Notices......................117
iv
<PAGE>
SCHEDULE I REPRESENTATIONS AND WARRANTIES AS TO THE
MORTGAGE LOANS
SCHEDULE I-A SCHEDULE OF FIXED RATE GROUP
MORTGAGE LOANS
SCHEDULE I-B SCHEDULE OF ADJUSTABLE RATE GROUP
MORTGAGE LOANS
SCHEDULE II RESERVED
SCHEDULE III MORTGAGE LOANS WITH DELINQUENCY
CHARACTERISTICS
SCHEDULE IV MORTGAGE LOANS WITH 15-YEAR
"BALLOON" PAYMENTS
EXHIBIT A FORM OF CLASS A CERTIFICATE
EXHIBIT B FORM OF CLASS X CERTIFICATE
EXHIBIT C FORM OF CLASS R CERTIFICATE
EXHIBIT D [RESERVED]
EXHIBIT E TRUSTEE RECEIPT
EXHIBIT F POOL CERTIFICATION
EXHIBIT G DELIVERY ORDER
EXHIBIT H AFFIDAVIT FOR TAX MATTERS PERSON
EXHIBIT I RESERVED
EXHIBIT J RESERVED
EXHIBIT K TERMINATION ACTION PROCEDURES
EXHIBIT L FORM OF LIQUIDATION REPORT
EXHIBIT M STATEMENT OF INSURANCE
v
<PAGE>
POOLING AND SERVICING
AGREEMENT, relating to BLOCK
MORTGAGE FINANCE ASSET BACKED
CERTIFICATES, SERIES 1997-1,
dated as of December 31, 1996 by and among
BLOCK MORTGAGE FINANCE, INC.,
a Delaware corporation, in its capacity as Depositor (the "Depositor"), BLOCK
FINANCIAL CORPORATION, a Delaware corporation, in its capacities as Seller (in
such capacity, the "Seller") and in its capacity as Master Servicer (in such
capacity, the "Master Servicer") and BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
a national banking association, in its capacity as the trustee (the "Trustee").
WHEREAS, the Depositor wishes to establish a trust and provide for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution thereof;
WHEREAS, the Master Servicer has agreed to service the Mortgage Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when executed by
the Depositor and authenticated by the Trustee, valid instruments, and to make
this Agreement a valid agreement, in accordance with their and its terms, have
been done;
WHEREAS, Bankers Trust Company of
California, N.A. is willing to serve in the
capacity of Trustee hereunder; and
WHEREAS, MBIA Insurance Corporation is intended to be a third-party
beneficiary with the right to enforce this Agreement as if it were a party
hereto of this Agreement and is hereby recognized by the parties hereto to be a
third-party beneficiary with the right to enforce this Agreement as if it were a
party hereto of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Seller, the Master Servicer, and the
Trustee hereby agree as follows:
CONVEYANCE
To provide for the distribution of the principal of and/or interest on the
Class A Certificates, the Class X Certificates and the Class R Certificates in
accordance with their terms, all of the sums distributable under this Agreement
with respect to the Certificates and the performance of the covenants contained
in this Agreement, the Seller hereby bargains, sells, conveys, assigns and
transfers to the Depositor and the Depositor hereby bargains, sells, conveys,
assigns and transfers to the Trustee, in trust, without recourse (except as
provided herein) and for the exclusive benefit of the Owners of the Certificates
and the Certificate Insurer, all of its respective right, title and interest in
and to any and all benefits accruing to it from (a) the Mortgage Loans (other
than any principal and interest payments received thereon on or prior to the
Cut-Off Date) listed in Schedules I-A and I-B to this Agreement which the Seller
is causing to be delivered to the Depositor and the Depositor is causing to be
delivered to the Trustee herewith (and all substitutions therefor as provided by
Sections 3.03, 3.04 and 3.06), together with the related Mortgage Loan documents
and the Seller's and Depositor's interest in any Mortgaged Property which
secures a Mortgage Loan but which has been acquired by foreclosure or deed in
lieu of foreclosure, and all payments thereon and proceeds of the conversion,
voluntary or involuntary, of the foregoing; (b) such amounts as may be held by
the Trustee in the Distribution Account (exclusive of investment earnings on
such amounts) (except as otherwise provided herein) and such amounts as may be
held by the Master Servicer in the name of the Trustee in the Collection
Account, if any, exclusive of investment earnings thereon (except as otherwise
provided herein), whether in the form of cash, instruments, securities or other
properties (including any Permitted Investments held by the Master
<PAGE>
Servicer); (c) with respect to the Class A Certificates, the Certificate
Insurance Policies and (d) proceeds of all the foregoing (including, but not by
way of limitation, all proceeds of any mortgage insurance, hazard insurance and
title insurance policy relating to the Mortgage Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified herein ((a)-(d) above shall be collectively referred to herein as the
"Trust Estate"), excluding the proceeds of the Certificate Insurance Policies
except with respect to the Class A Certificates.
The Trustee acknowledges such sale, accepts the Trust hereunder in
accordance with the provisions hereof and agrees to perform the duties herein to
the best of its ability to the end that the interests of the Owners may be
adequately and effectively protected.
2
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance
with Section 7.02 or 8.08 hereof.
"Accrual Period": With respect to the Fixed Rate Certificates and any
Distribution Date, the calendar month immediately preceding the month in which
the Distribution Date occurs; a "calendar month" shall be deemed to be 30 days.
With respect to the Adjustable Rate Certificates and any Distribution Date, the
period commencing on the immediately preceding Distribution Date (or the
Start-up Date in the case of the first Distribution Date) and ending on the day
immediately preceding the current Distribution Date. All calculations of
interest on the Fixed Rate Certificates will be made on the basis of a 360-day
year assumed to consist of twelve 30-day months and calculations of interest on
the Adjustable Rate Certificates will be made on the basis of the actual number
of days elapsed in the related Accrual Period and a year of 360 days.
"Adjustable Rate Certificates": The Class
A-4 Certificates.
"Adjustable Rate Group": The Subsidiary REMIC Interest 4, which is
comprised of the pool of Mortgage Loans identified in the related Schedule of
Mortgage Loans as having been assigned to the Adjustable Rate Group in Schedule
I-B hereto, including any Qualified Replacement Mortgages delivered in
replacement thereof.
"Adjustable Rate Group Available Funds": As
defined in Section 7.02(d) hereof.
"Adjustable Rate Group Available Funds
Shortfall": As defined in Section 7.03(c)(i)(A)
hereof.
"Adjustable Rate Group Certificate Insurance Policy": The certificate
guaranty insurance policy (number 23005) dated January 29, 1997 issued by the
Certificate Insurer for the benefit of the Owners of the Adjustable Rate
Certificates pursuant to which the Certificate Insurer guarantees Insured
Payments.
"Adjustable Rate Group Monthly Remittance Amount": As of any Monthly
Remittance Date, with respect to the Adjustable Rate Group, (a) payments other
than those specified in clauses (b) and (c) of this definition collected or
advanced on or prior to the related Determination Date with respect to the
related Due Period, (b) any Prepayments collected during the related Prepayment
Period and (c) any Curtailments and Net Liquidation Proceeds collected during
the related Due Period, in each case, as remitted by the Master Servicer on the
Monthly Remittance Date, together with any Substitution Adjustment and any Loan
Purchase Price amount.
"Adjustable Rate Group Principal Distribution
Amount": With respect to the Class A-4
Certificates for any Distribution Date, the lesser of:
3
<PAGE>
(a) the Adjustable Rate Group Total Available Funds plus any Insured
Payment with respect to the Class A-4 Certificates minus the Class A-4 Current
Interest; and
(b) the excess, if any, of (i) the sum of
(without duplication):
(A) the Preference Amount with respect to principal owed to the
Owners of the Class A-4 Certificates that remains unpaid as of such
Distribution Date,
(B) the principal collected by the Master Servicer with respect to
Mortgage Loans in the Adjustable Rate Group for the related Due Period
on or prior to the related Determination Date or advanced by the Master
Servicer for such Distribution Date,
(C) the principal portion of all Prepayments received by the
Master Servicer during the Prepayment Period and remitted to the
Trustee as of the Monthly Remittance Date;
(D) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Adjustable Rate Group that was repurchased by the
Seller or purchased by the Master Servicer on or prior to the related
Monthly Remittance Date, to the extent such Loan Purchase Price is
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(E) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly Remittance
Date in connection with a substitution of a Mortgage Loan in the
Adjustable Rate Group, to the extent such Substitution Adjustments are
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(F) all Net Liquidation Proceeds and Curtailments actually
collected by the Master Servicer with respect to Mortgage Loans in the
Adjustable Rate Group during the related Due Period (to the extent such
Net Liquidation Proceeds or Curtailments are related to principal) to
the extent such Net Liquidation Proceeds or Curtailments are actually
received by the Trustee on or prior to the related Monthly Remittance
Date,
(G) the amount of any Subordination
Deficit with respect to the Adjustable Rate
Group for such Distribution Date,
(H) the portion of the proceeds received by the Trustee with
respect to the Adjustable Rate Group from any termination of the Trust
(to the extent such proceeds related to principal),
(I) the amount of any Subordination Increase Amount with respect
to the Adjustable Rate Group for such Distribution Date, to the extent
of any Net Monthly Excess Cashflow available for such purpose, and
(J) the portion of any Carry Forward
Amount relating to principal with respect to the
Adjustable Rate Group for such Distribution
Date;
4
<PAGE>
over
(ii) the amount of any Subordination
Reduction Amount with respect to the Adjustable Rate
Group for such Distribution Date.
"Adjustable Rate Group Specified Subordinated
Amount": As defined in the Insurance Agreement.
"Adjustable Rate Group Subordinated Amount": As of any Distribution Date,
the excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in
the Adjustable Rate Group as of the close of business on the last day of the
related Due Period (taking into account all payments of principal, other than
Prepayments, due during the related Due Period and received on or prior to the
related Determination Date or, in connection with Curtailments and Net
Liquidation Proceeds, collected during the related Due Period together with all
Prepayments received on such Mortgage Loans in the Adjustable Rate Group during
the related Prepayment Period) over (y) the Class A-4 Certificate Principal
Balance as of such Distribution Date (after taking into account the payment of
the Class A-4 Distribution Amount thereon (except for any Subordination Deficit
with respect to the Adjustable Rate Group and Subordination Increase Amount with
respect to the Adjustable Rate Group) on such Distribution Date).
"Adjustable Rate Group Total Available Funds":
As defined in Section 7.02(d) hereof.
"Adjustable Rate Group Total Monthly Excess Spread": With respect to the
Adjustable Rate Group and any Distribution Date, the excess, if any, of (i) the
interest which is collected on the Mortgage Loans in the Adjustable Rate Group
prior to the related Determination Date for payment due during the related Due
Period or otherwise remitted in connection with any Prepayments made during the
related Prepayment Period or the interest portion of any Liquidation Proceeds
received during the related Due Period less the Expense Rate with respect to
Mortgage Loans in the Adjustable Rate Group plus (x) the interest component of
any P&I Advances and (y) Compensating Interest paid by the Master Servicer with
respect to the Adjustable Rate Group for such Due Period over (ii) the interest
accrued on the Class A-4 Certificates during the Accrual Period for such
Distribution Date.
"Adjusted Pass-Through Rate": A rate equal to the sum of (a) the Weighted
Average Pass-Through Rate plus (b) any portion of the Insurance Premium Amount
and the Trustee Fee (calculated as a percentage of the outstanding principal
amount of the Certificates) then accrued and outstanding.
"Advisor": As defined in Section 9.03
hereof.
"Agreement": This Pooling and Servicing
Agreement, as it may be amended from time to time,
including the Exhibits and Schedules hereto.
"Annual Loss Percentage (Rolling Twelve Month)": As of any date of
determination thereof a fraction, expressed as a
percentage, the numerator of which is the aggregate Realized Losses that
occurred during the twelve immediately preceding Due Periods
and the denominator of which is the Loan Balances of the Mortgage Loans
on the twelfth Determination Date preceding such date.
"Applicant": As defined in Section 6.13
hereof.
5
<PAGE>
"Appraised Value": The appraised value of any Mortgaged Property based upon
the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Mortgaged Property at such time of
origination, if such sales price is less than such appraised value.
"Auction Date": As defined in Section
9.03 hereof.
"Auction Procedures": As defined in Section
9.03 hereof.
"Authorized Officer": With respect to any Person, any officer of such
Person who is authorized to act for such Person in matters relating to this
Agreement, and whose action is binding upon such Person, with respect to the
Depositor, the Seller and the Master Servicer, initially including those
individuals whose names appear on the lists of Authorized Officers delivered at
the Closing; with respect to the Trustee, any Vice President, any Assistant Vice
President, any Assistant Secretary or any Assistant Treasurers.
"Available Funds": The Fixed Rate Group
Available Funds or the Adjustable Rate Group Available Funds, as the case may
be.
"Available Funds Shortfall": A Fixed Rate
Group Available Funds Shortfall or Adjustable Rate Group Available Funds
Shortfall, as the case may be.
"Basis Risk Carryover Amount": With respect to any Distribution Date, the
sum of the Basis Risk Excess for such Distribution Date and any Basis Risk
Excess which remains unpaid from prior Distribution Dates.
"Basis Risk Excess": With respect to any Distribution Date as to which the
Class A-4 Pass-Through Rate is the Class A-4 Available Funds Cap Rate, the
excess of (i) the amount of interest the Class A-4 Certificates would be
entitled to receive on such Distribution Date at the lesser of (a) the Net
Lifetime Cap for such Distribution Date and (b) the then-applicable Class A-4
Pass-Through Rate without reference to the Class A-4 Available Funds Cap Rate
over (ii) the amount of interest the Class A-4 Certificates will receive on such
Distribution Date at the Class A-4 Available Funds Cap Rate.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in The City of New York, or in the city in
which the principal Corporate Trust Office of the Trustee is located or the
principal offices of the Certificate Insurer, are authorized or obligated by law
or executive order to be closed.
"Carry Forward Amount": With respect to any
Class of the Class A Certificates for any
Distribution Date, the sum of (x) the amount, if
any, by which (i) the Class A Distribution Amount
6
<PAGE>
allocable to such Class as of the immediately preceding Distribution Date
exceeded (ii) the amount of the actual distribution made to the Owners of such
Class of the Class A Certificates on such immediately preceding Distribution
Date plus (y) 30 days' interest on such amount at the Pass-Through Rate in
effect with respect to such Class of Class A Certificates.
"Certificate": Any one of the Class A
Certificates, Class X Certificates or Class R
Certificates, each representing the interests and the
rights described in this Agreement.
"Certificate Insurance Policies": The
Adjustable Rate Group Certificate Insurance Policy and
the Fixed Rate Group Certificate Insurance Policy.
"Certificate Insurer": MBIA Insurance
Corporation, the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company,
or any successor thereto, as issuer of the Certificate
Insurance Policies.
"Certificate Insurer Default": The existence
and continuance of any of the following:
(a) the Certificate Insurer fails to make a
payment required under a Certificate Insurance Policy in
accordance with its terms; or
(b)(i) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Certificate Insurer in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law or (B) a decree or order adjudging the Certificate Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganizing,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Certificate Insurer under any applicable United States federal or state law, or
appointing a custodian, receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of the Certificate Insurer or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60 consecutive
days; or
(ii) the commencement by the Certificate Insurer of a voluntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Certificate Insurer, or the acquiescence by the
Certificate Insurer to the filing of such petition or to the appointment of or
the taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Certificate Insurer or of any
substantial part of its property, or the failure of the Certificate Insurer to
pay debts generally as they become due, or the admission by the Certificate
Insurer in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Certificate Insurer in furtherance
of any such action.
"Certificate Principal Balance": As of the
Start-up Day as to each of the following Classes of
Class A Certificates, the principal balances thereof,
as follows:
7
<PAGE>
Class A-1 - $23,615,000.00
Certificates
Class A-2 - $15,110,000.00
Certificates
Class A-3 - $20,418,000.00
Certificates
Class A-4 - $42,576,000.00
Certificates
The Class X Certificates and the Class R Certificates do not have a
Certificate Principal Balance.
"Class": Any class of the Class A
Certificates, the Class X Certificates or the Class
R Certificates.
"Class A Certificate": Any one of the
Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates or Class A-4 Certificates.
"Class A Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A
Certificates less any amounts actually distributed on such Class A Certificates
with respect to the Class A Distribution Amount pursuant to Section
7.03(c)(iii)(D) with respect to principal thereon on all prior Distribution
Dates (except, for purposes of effecting the Certificate Insurer's subrogation
rights, that portion of Insured Payments made in respect of principal).
"Class A Certificate Termination Date": With respect to the Class A-1
Certificates, the Class A-1 Certificate Termination Date, with respect to the
Class A-2 Certificates, the Class A-2 Certificate Termination Date, with respect
to the Class A-3 Certificates, the Class A-3 Certificate Termination Date and
with respect to the Class A-4 Certificates, the Class A-4 Certificate
Termination Date.
"Class A Distribution Amount": The sum
of the Class A-1 Distribution Amount, Class
A-2 Distribution Amount, Class A-3
Distribution Amount and Class A-4 Distribution
Amount.
"Class A-1 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-1 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-1 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-1
Certificates less any amounts actually distributed with respect to the Class A-1
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-1 Certificate Termination Date":
The Distribution Date on which the Class A-1
Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With
respect to any Distribution Date, the amount of interest
accrued on the Class A-1 Certificate Principal Balance
immediately prior to such Distribution Date during
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the related Accrual Period at the Class A-1 Pass-Through Rate (net of Net
Prepayment Interest Shortfalls and the interest portion of reductions due to the
Relief Act) plus the Preference Amount owed to the Owners of the Class A-1
Certificates as it relates to interest previously paid on the Class A-1
Certificates plus the portion of the Carry Forward Amount, if any, with respect
to the Class A-1 Certificates relating to interest (net of Net Prepayment
Interest Shortfalls and the interest portion of reductions due to the Relief
Act).
"Class A-1 Distribution Amount": The
sum of (x) Class A-1 Current Interest and
(y) the Fixed Rate Group Principal Distribution
Amount payable to the Owners of the Class A-1
Certificates pursuant to Section 7.03(c)(iii)(D)
hereof.
"Class A-1 Pass-Through Rate":
6.550% per annum.
"Class A-2 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-2 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-2 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-2
Certificates less any amounts actually distributed with respect to the Class A-2
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-2 Certificate Termination Date":
The Distribution Date on which the Class A-2
Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-2 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-2 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-2 Certificates as it relates to
interest previously paid on the Class A-2 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-2 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-2 Distribution Amount": The
sum of (x) Class A-2 Current Interest and
(y) the Fixed Rate Group Principal Distribution
Amount payable to the Owners of the Class A-2
Certificates pursuant to Section 7.03(c)(iii)(D)
hereof.
"Class A-2 Pass-Through Rate":
6.850% per annum.
"Class A-3 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-3 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-3 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-3
Certificates less any amounts actually distributed with respect to the Class A-3
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect
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to principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-3 Certificate Termination Date":
The Distribution Date on which the Class A-3
Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-3 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-3 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-3 Certificates as it relates to
interest previously paid on the Class A-3 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-3 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-3 Distribution Amount": The
sum of (x) Class A-3 Current Interest and
(y) the Fixed Rate Group Principal Distribution
Amount payable to the Owners of the Class A-3
Certificates pursuant to Section 7.03(c)(iii)(D)
hereof.
"Class A-3 Pass-Through Rate": Prior
to the Optional Termination Date 7.45% per annum
and on and after the Optional Termination Date, 8.20%
per annum.
"Class A-4 Available Funds Cap Rate": On any Distribution Date prior to the
seventh Distribution Date, the weighted average of the Mortgage Rates of the
Mortgage Loans in the Adjustable Rate Group as of the first day of the related
Due Period less the sum of the Expense Rate and, on any Distribution Date on and
after the seventh Distribution Date, 0.50% per annum.
"Class A-4 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-4 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-4 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-4
Certificates less any amounts actually distributed with respect to the Class A-4
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-4 Certificate Termination Date":
The Distribution Date on which the Class A-4
Certificate Principal Balance is reduced to zero.
"Class A-4 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-4 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-4 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-4 Certificates as it relates to
interest previously paid on the Class A-4 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-4 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
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"Class A-4 Distribution Amount": The
sum of (x) Class A-4 Current Interest and
(y) the Adjustable Rate Group Principal Distribution
Amount payable to the Owners of Class A-4
Certificates pursuant to Section 7.03(c)(iii)(D)
hereof.
"Class A-4 Pass-Through Rate": For any Distribution Date in any month prior
to the month in which the Optional Termination Date occurs, the lesser of (i)
LIBOR plus 0.23% per annum and (ii) the Class A-4 Available Funds Cap Rate for
such Distribution Date and for any Distribution Date in any month commencing
with the month in which the Optional Termination Date occurs, the lesser of (i)
LIBOR plus 0.46% per annum and (ii) the Class A-4 Available Funds Cap Rate for
such Distribution Date.
"Class R Certificate": Any one of the Certificates designated on the face
thereof as a Class R Certificate, substantially in the form annexed hereto as
Exhibit C, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein, and evidencing an interest designated as the
"residual interest" in the REMIC for the purposes of the REMIC Provisions.
"Class R Optionholder": Any Owner of the
Class R Certificates which represent a Percentage
Interest of 99.999% or greater.
"Class X Certificate": Any one of the
Class X-1 Certificates or Class X-2 Certificates.
"Class X-1 Carry Forward Amount": With respect to any Distribution Date the
sum of (a) the amount, if any, by which (x) the Class X-1 Distribution Amount
allocable as of the immediately preceding Distribution Date exceeded (y) the
amount of the actual distribution made to Owners of the Class X-1 Certificates
on such immediately preceding Distribution Date.
"Class X-1 Certificate": Any one of the Certificates designated on the face
thereof as a Class X-1 Certificate, substantially in the form annexed hereto as
Exhibit B, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class X-1 Distribution Amount": With respect to any Distribution Date, the
sum of the X-1A Accrual Amount, the X-1B Accrual Amount and the X-1C Accrual
Amount and the Class X-1 Carry Forward Amount.
"Class X-1 Notional Amount": As of any
Distribution Date, an amount equal to the aggregate
balance of Subsidiary REMIC Interests 1, 2 and
3 as of the prior Distribution Date.
"Class X-2 Carry Forward Amount": With respect to any Distribution Date the
sum of (a) the amount, if any, by which (x) the Class X-2 Distribution Amount
allocable as of the immediately preceding Distribution Date exceeded (y) the
amount of the actual distribution made to Owners of the Class X-2 Certificates
on such immediately preceding Distribution Date.
"Class X-2 Certificate": Any one of the Certificates designated on the face
thereof as a Class X-2 Certificate, substantially in the form annexed hereto as
Exhibit B, authenticated and delivered by the Trustee, representing the right to
distribution as set forth herein.
"Class X-2 Distribution Amount": With
respect to any Distribution Date, the sum of:
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(i) with respect to the Mortgage Loans in the Adjustable Rate Group,
one-twelfth of the product of (x) the sum of the aggregate outstanding Loan
Balances of such Mortgage Loans on the immediately preceding Distribution
Date and (y) the excess of (I) the net weighted average of the Mortgage
Rates of such Mortgage Loans on such immediately preceding Distribution
Date over (II) the sum of the following payments allocable to the
Adjustable Rate Group on or in respect of the related Distribution Date (in
the case of (A), (B), (C) and (D) expressed as a percentage of such
aggregate outstanding Loan Balance); (A) the Servicing Fee, (B) the
Insurance Premium Amount, (C) the Trustee Fee, (D) any Reimbursement Amount
and (E) the Class A-4 Pass-Through Rate for such Distribution Date; and
(ii) the Class X-2 Carry Forward
Amount.
"Class X-2 Notional Amount": As of any
Distribution Date, an amount equal to the balance of
Subsidiary REMIC Interest 4 as of the prior
Distribution Date.
"Closing": As defined in Section 4.02
hereof.
"Code": The Internal Revenue Code of
1986, as amended.
"Collection Account": The collection account created
by the Master Servicer pursuant to Section 8.08(a)
hereof.
"Compensating Interest": As defined in
Section 8.10(a) hereof.
"Component": Any of the components of the
Class X-1 Certificates having the designations and
initial Component Principal Amounts as follows:
Initial Component Component
Designation Principal Amount Interest Rate
X-1A (1) (4)
X-1B (2) (5)
X-1C (3) (6)
- ----------------------
(1) The X-1A Component shall have a Notional Component Amount equal to the
balance of Subsidiary REMIC Interest 1.
(2) The X-1B Component shall have a Notional Component Amount equal to the
balance of Subsidiary REMIC Interest 2.
(3) The X-1C Component shall have a Notional Component Amount equal to the
balance of Subsidiary REMIC Interest 3.
(4) With respect to each Interest Accrual Period applicable thereto, the
interest rate of the X-1A Component will be equal to the excess of (i)
the weighted average of the Mortgage Rates of the Mortgage Loans in the
Fixed Rate Group for the related Distribution Date and (ii) the Class
A-1 Pass-Through Rate for such Distribution Date (determined without
regard to whether such Class of Certificates remains outstanding on
such date).
(5) With respect to each Interest Accrual Period applicable thereto, the
interest rate of the X-1B Component will be equal to the excess of (i)
the weighted average of the Mortgage Rates of the Mortgage Loans in the
Fixed Rate Group for the related Distribution Date and (ii) the Class
A-2 Pass-Through Rate for such Distribution Date (determined without
regard to whether such Class of Certificates remains outstanding on
such date).
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(6) With respect to each Interest Accrual Period applicable thereto, the
interest rate of the X-1C Component will be equal to the excess of (i)
the weighted average of the Mortgage Rates of the Mortgage Loans in the
Fixed Rate Group for the related Distribution Date and (ii) the Class
A-3 Pass-Through Rate for such Distribution Date (determined without
regard to whether such Class of Certificates remains outstanding on
such date).
"Component Certificate": Class X-1
Certificate.
"Component Interest Rate": Any of the
X-1A Interest Rate, the X-1B Interest Rate and the
X-1C Interest Rate.
"Corporate Trust Office": The principal
office of the Trustee at 3 Park Plaza, 16th
floor, Irvine, California 92614.
"Cram Down Losses": With respect to a Mortgage Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Mortgage Rate of such Mortgage Loan, the amount
of such reduction in principal balance or reduction in accrued interest. A "Cram
Down Loss" shall be deemed to have occurred on the date of issuance of such
order.
"Cumulative Loss Percentage": As of any date
of determination thereof, the Cumulative Realized
Losses as a percentage of the Original Aggregate
Principal Balance of the Mortgage Loans.
"Cumulative Realized Losses": As of any date
of determination, the aggregate amount of Realized
Losses with respect to the Mortgage Loans since the
Cut-Off Date.
"Current Interest": With respect to any
Distribution Date, the sum of the Class A-1
Current Interest, Class A-2 Current Interest,
Class A-3 Current Interest and Class A-4
Current Interest.
"Curtailments": Any partial prepayment of principal of a Mortgage Loan
which is received by the Master Servicer in advance of the scheduled due date
for the payment of such principal (other than the principal portion of any
Prepaid Installment or any Prepayment).
"Cut-Off Date": As of the close of
business on December 31, 1996.
"Daily Collections": As defined in Section
8.08(c) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due thereon is
not made by the close of business on the day such payment is scheduled to be
due. A Mortgage Loan is "30 days Delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days Delinquent," "90
days Delinquent" and so on.
"Delivery Order": The delivery order in the
form set forth as Exhibit G hereto and delivered by the
Depositor to the Trustee on the Startup Day pursuant
to Section 4.01 hereof.
"Depositor": Block Mortgage Finance,
Inc., a Delaware corporation, or any successor thereto.
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"Depository": The Depository Trust Company,
7 Hanover Square, New York, New York
10004, and any successor Depository hereafter named.
"Determination Date": The 15th day of any
month, or if such 15th day is not a Business
Day, the Business Day immediately preceding such 15th day,
commencing in February 1997.
"Direct Participant" or "DTC Participant":
Any broker-dealer, bank or other financial institution
for which the Depository holds Class A Certificates
from time to time as a securities depository
"Disqualified Organization": Shall have the
meaning set forth from time to time in the definition
thereof at Section 860E(e)(5) of the Code (or
any successor statute thereto) and applicable to the Trust.
"Distribution Account": The distribution account established in accordance
with Section 7.02(a) hereof and maintained in the corporate trust department of
the Trustee; provided that the funds in such account shall not be commingled
with other funds held by the Trustee.
"Distribution Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month or if
such day is not a Business Day, the next Business Day thereafter, commencing in
the month following the Startup Day.
"Due Period": With respect to any Monthly
Remittance Date, the calendar month immediately preceding
the calendar month in which such Monthly Remittance Date
occurs.
"Eligible Account": Either an account that is
(i) maintained with a federal or state chartered
depository institution or trust company whose short-term
unsecured debt obligations at the time of any deposit
therein have the highest short-term rating by the Rating
Agencies, (ii) one or more accounts with a
depository institution or trust company which accounts are
fully insured by either the Savings Association
Insurance Fund or the Bank Insurance Fund of the
Federal Deposit Insurance Corporation and the
uninsured deposits in which accounts are otherwise
secured such that, as evidenced by an opinion of counsel
delivered to the Trustee, the Certificate Insurer and to
each Rating Agency, the holders of the Certificates have
a claim with respect to the funds in such account or a
perfected first priority security interest against any
collateral (which shall be limited to Eligible
Investments) securing such funds that is superior to
claims or any other depositors or creditors of the
depository institution or trust company in which such
account is maintained, (iii) a segregated trust account
maintained with the Trustee or an affiliate of the
Trustee in its fiduciary capacity or (iv) otherwise
acceptable to the Certificate Insurer and each Rating
Agency as evidenced by a letter from the Certificate
Insurer and each Rating Agency to the Trustee,
without reduction or withdrawal of their then current
ratings of the Class A Certificates. Eligible
Accounts may bear interest.
"Event of Default": Any one of the events
described in Section 8.20(a) or 8.20(b).
"Excess Subordinated Amount": With respect to any Mortgage Loan Group and
Distribution Date, the excess, if any, of (x) the Subordinated Amount that would
apply to the related Mortgage Loan Group on such Distribution Date after taking
into account the payment of the related Class A Distribution Amounts on such
Distribution Date (except for any distributions of related Subordination
Reduction Amounts on such Distribution Date), over (y) the related Specified
Subordinated Amount for such Distribution Date.
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"Expense Rate": For any Distribution Date and each of the Fixed Rate Group
and the Adjustable Rate Group, the sum of the rates at which the Servicing Fee,
the Insurance Premium Amount and the Trustee Fee applicable to each of the Fixed
Rate Group and the Adjustable Rate Group are calculated.
"FDIC": The Federal Deposit Insurance
Corporation, a corporate instrumentality of the United
States, or any successor thereto.
"FHLMC": The Federal Home Loan
Mortgage Corporation, a corporate instrumentality of the
United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor
thereof.
"File": The documents delivered to the
Trustee pursuant to Section 3.05 hereof pertaining
to a particular Mortgage Loan and any additional documents
required to be added to the File pursuant to this
Agreement.
"Final Certification": As defined in Section
3.06(c) hereof.
"Final Determination": As defined in Section
9.04(a) hereof.
"Final Scheduled Distribution Date": For each
Class of Class A Certificates, as set out in
Section 2.08(e).
"First Mortgage Loan": A Mortgage Loan
which constitutes a first priority mortgage lien with
respect to the related Mortgaged Property.
"Fixed Rate Certificate": Any one of the
Class A-1 Certificates, Class A-2 Certificates
and Class A-3 Certificates.
"Fixed Rate Group": The Subsidiary
REMIC Interests 1, 2 and 3 which are
comprised of the pool of Mortgage Loans identified in the related Schedule of
Mortgage Loans as having been assigned to the Fixed Rate Group in Schedule l-A
hereto, including any Qualified Replacement Mortgages
delivered in replacement thereof.
"Fixed Rate Group Available Funds": As
defined in Section 7.02(c) hereof.
"Fixed Rate Group Available Funds
Shortfall": As defined in Section 7.03(c)(i)(A)
hereof.
"Fixed Rate Group Certificate Insurance Policy": The certificate guaranty
insurance policy (number 23004) dated January 29, 1997 issued by the Certificate
Insurer for the benefit of the owners of the Fixed Rate Certificates pursuant to
which the Certificate Insurer guarantees Insured Payments.
"Fixed Rate Group Current Interest": With
respect to any Distribution Date, the sum of the Class A-1 Current Interest,
Class A-2 Current Interest and Class A-3 Current Interest.
"Fixed Rate Group Monthly Remittance Amount": As of any Monthly Remittance
Date, with respect to the Fixed Rate Group, (a) payments other than those
specified in clauses (b) and (c) of this definition collected or advanced on or
prior to the related Determination Date with respect to the related Due Period,
(b) any Prepayments collected during the related Prepayment Period and (c) any
Curtailments
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and Net Liquidation Proceeds collected during the related Due Period, in each
case, as remitted by the Master Servicer on the Monthly Remittance Date,
together with any Substitution Adjustment and any Loan Purchase Price amount.
"Fixed Rate Group Principal Distribution
Amount": With respect to the Fixed Rate Certificates for
any Distribution Date, the lesser of:
(a) the Fixed Rate Group Total Available Funds
plus any Insured Payment with respect to the Fixed
Rate Certificates minus the Fixed Rate Group Current
Interest; and
(b) the excess, if any, (i) the sum of
(without duplication):
(A) the Preference Amount with respect to principal owed to the
Owners of the Fixed Rate Certificates that remains unpaid as of such
Distribution Date,
(B) the principal collected by the Master Servicer with respect to
Mortgage Loans in the Fixed Rate Group for the related Due Period on or
prior to the related Determination Date or advanced by the Master
Servicer for such Distribution Date,
(C) the principal portion of all Prepayments received by the
Master Servicer during the Prepayment Period and remitted to the
Trustee as of the Monthly Remittance Date;
(D) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Fixed Rate Group that was repurchased by the
Seller or purchased by the Master Servicer on or prior to the related
Monthly Remittance Date, to the extent such Loan Purchase Price is
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(E) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly Remittance
Date in connection with a substitution of a Mortgage Loan in the Fixed
Rate Group, to the extent such Substitution Adjustments are actually
received by the Trustee on or prior to the related Monthly Remittance
Date,
(F) all Net Liquidation Proceeds and Curtailments actually
collected by the Master Servicer with respect to Mortgage Loans in the
Fixed Rate Group during the related Due Period (to the extent such Net
Liquidation Proceeds or Curtailments are related to principal) to the
extent such Net Liquidation Proceeds or Curtailments are actually
received by the Trustee on or prior to the related Monthly Remittance
Date,
(G) the amount of any Subordination
Deficit with respect to the Fixed Rate Group
for such Distribution Date,
(H) the portion of the proceeds received by the Trustee with
respect to the Fixed Rate Group from any termination of the Trust (to
the extent such proceeds related to principal),
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(I) the amount of any Subordination Increase Amount with respect
to the Fixed Rate Group for such Distribution Date, to the extent of
any Net Monthly Excess Cashflow available for such purpose, and
(J) the portion of any Carry Forward Amount relating to principal
with respect to the Fixed Rate Group for such Distribution Date;
over
(ii) the amount of any Subordination Reduction Amount with respect to
the Fixed Rate Group for such Distribution Date.
"Fixed Rate Group Specified Subordinated
Amount": As defined in the Insurance Agreement.
"Fixed Rate Group Subordinated Amount": As of any Distribution Date, the
excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in the
Fixed Rate Group as of the close of business on the last day of the related Due
Period (taking into account all payments of principal, other than Prepayments,
due during the related Due Period and received on or prior to the related
Determination Date or, in connection with Curtailments and Net Liquidation
Proceeds, collected during the related Due Period together with all Prepayments
received on such Mortgage Loans in the Fixed Rate Group during the related
Prepayment Period) over (y) the sum of the Class A-1 Certificate Principal
Balance, Class A-2 Certificate Principal Balance and Class A-3 Certificate
Principal Balance as of such Distribution Date (after taking into account the
payment of the Fixed Rate Group Principal Distribution Amount thereon (except
for any Subordination Deficit with respect to the Fixed Rate Group and
Subordination Increase Amount with respect to the Fixed Rate Group) on such
Distribution Date).
"Fixed Rate Group Total Available Funds":
As defined in Section 7.02(c) hereof.
"Fixed Rate Group Total Monthly Excess Spread": With respect to the Fixed
Rate Group and any Distribution Date, the excess, if any, of (i) the interest
which is collected on the Mortgage Loans in the Fixed Rate Group prior to the
related Determination Date for payment due during the related Due Period or
otherwise remitted in connection with any Prepayments made during the related
Prepayment Period or the interest portion of any Net Liquidation Proceeds
received during the related Due Period less the Expense Rate with respect to
Mortgage Loans in the Fixed Rate Group plus (x) the interest component of any
P&I Advances and (y) Compensating Interest paid by the Master Servicer with
respect to the Fixed Rate Group for such Due Period over (ii) the interest
accrued on the Fixed Rate Certificates during the Accrual Period for such
Distribution Date.
"FNMA": The Federal National Mortgage
Association, a federally-chartered and privately-owned
corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor
thereof.
"FNMA Guide": FNMA's Servicing Guide, as the same may be amended by FNMA
from time to time, and the Master Servicer shall elect to apply such amendments
in accordance with Section 8.01 hereof.
"Highest Lawful Rate": As defined in
Section 11.13.
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"Indemnification Agreement": The Indemnification
Agreement dated as of January 24, 1997 among the
Certificate Insurer, the Seller and the Underwriters.
"Indirect Participant": Any financial institution
for whom any Direct Participant holds an interest in a
Class A Certificate.
"Insurance Agreement": The Insurance
Agreement dated as of January 1, 1997, among the Depositor, the Seller, the
Master Servicer, the Certificate Insurer and the Trustee, as it may be
amended from time to time.
"Insurance Policy": Any hazard, flood, title
or primary mortgage insurance policy relating to a
Mortgage Loan plus any amount remitted under Section
8.11 hereof.
"Insurance Premium Amount": As defined in
the Insurance Agreement.
"Insurance Proceeds": Proceeds of any Insurance Policy or other insurance
policy relating to a Mortgage Loan and/or the Mortgaged Property securing any
Mortgage Loan, to the extent proceeds are not to be applied to the restoration
of the related Mortgaged Property in accordance with the express requirements of
the related Mortgage or Note or other documents included in the related File or
in accordance with prudent and customary servicing practices.
"Insured Payment": With respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust plus (B) an amount equal to the Preference Amount with respect to
the Related Loan Group.
"Late Payment Rate": For any Distribution Date, the fluctuating rate of
interest, as it is published from time to time in the New York, New York edition
of The Wall Street Journal under the caption "Money Rates" as the "prime rate,"
to change when and as such published prime rate changes plus 3%. The Late
Payment Rate shall be computed on the basis of a year of 360 days calculating
the actual number of days elapsed. In no event shall the Late Payment Rate
exceed the Highest Lawful Rate.
"Latest Possible Maturity Date": The Distribution Date following the
second anniversary of the last payment with respect to the Mortgage Loan with
the latest scheduled maturity date included in the Trust as of the Startup Date.
The prepayment of such mortgage Loan, or the removal of such Mortgage Loan, or
the addition of any Qualified Replacement Mortgage shall not affect the Latest
Possible Maturity Date.
"LIBOR": With respect to any Accrual Period for the Class A-4 Certificates,
the rate determined by the Trustee on the related LIBOR Determination Date on
the basis of the quotations, as set forth on the Telerate Screen Page 3750,
offered by the principal London office of each of the Reference Banks for making
one-month United States dollar deposits in leading banks in the London interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date.
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"LIBOR Business Day": Any day other than (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, New York, or
the City of London, England are authorized or obligated by law or executive
order to be closed.
"LIBOR Determination Date": With respect to
any Accrual Period for the Class A-4 Certificates,
the second LIBOR Business Day preceding the
commencement of such Accrual Period.
"Liquidated Loan": As defined in Section
8.13(b) hereof.
"Liquidation Expenses": Expenses, not to exceed the Liquidation Proceeds,
which are incurred by the Master Servicer in connection with the liquidation of
any defaulted Mortgage Loan or property acquired in respect thereof, such
expenses including, without limitation, legal fees and expenses, committee or
referee fees, and, if applicable, brokerage commissions and conveyance taxes,
and any Servicing Advances expended by the Master Servicer pursuant to this
Agreement with respect to such Mortgage Loan on such property not previously
reimbursed from collections or other proceeds therefrom.
"Liquidation Proceeds": Any amounts (including Insurance Proceeds)
recovered by the Master Servicer in connection with (i) the taking of a
Mortgaged Property by exercise of the power of eminent domain or condemnation,
(ii) any Liquidated Loan, whether through trustee's sale, foreclosure sale or
otherwise, (iii) the sale of a defaulted Mortgage Loan or an REO Property in
accordance with Section 8.13, or (iv) the sale of all of the Mortgage Loans in
accordance with Article IX.
"Loan Balance": With respect to each Mortgage Loan and as of any date of
determination, the outstanding principal balance thereof on the Cut-Off Date,
less any principal payments relating to such Mortgage Loan included in previous
Monthly Remittance Amounts, provided, however, that the Loan Balance for any
Mortgage Loan that has become a Liquidated Loan shall be zero as of the first
day of the Due Period following the Due Period in which such Mortgage Loan
becomes a Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any
Mortgage Loan purchased from the Trust on a Monthly
Remittance Date pursuant to Section 3.03, 3.04,
3.06(b), 8.10(b) or 8.13(a) hereof, an amount equal to the Loan Balance of such
Mortgage Loan as of the date of purchase (assuming that the Monthly Remittance
Amount remitted by the Master Servicer on such Monthly Remittance Date has
already been remitted), plus one month's interest on the outstanding Loan
Balance thereof as of the beginning of the related Due Period computed at the
then applicable Mortgage Rate, together with (without duplication) the aggregate
amounts of (i) all unreimbursed P&I Advances and Servicing Advances theretofore
made with respect to such Mortgage Loan, (ii) all P&I Advances and Servicing
Advances which the Master Servicer has theretofore failed to remit with respect
to such Mortgage Loan and (iii) all reimbursed P&I Advances to the extent that
reimbursement is not made from the Mortgagor or from Liquidation Proceeds from
the respective Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date (i) with respect to any
First Mortgage Loan, the percentage obtained by dividing the Appraised Value
into the original principal balance of the Note relating to such First Mortgage
Loan and (ii) with respect to any Second Mortgage Loan, the percentage obtained
by dividing the Appraised Value as of the date of origination of such Second
Mortgage Loan into an amount equal to the sum of (a) the remaining principal
balance of the note relating to the related Senior Lien as of the date of
origination of the related Second Mortgage Loan and (b) the original principal
balance of the Note relating to such Second Mortgage Loan.
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"Master REMIC": As described in Section
2.08 hereof.
"Master Servicer": Block Financial
Corporation, a Delaware corporation, and its permitted
successors and assigns.
"Master Servicer Affiliate": A Person (i) controlling, controlled by or
under common control with the Master Servicer or which is 50% or more owned by
the Master Servicer and (ii) which is qualified to service residential mortgage
loans.
"Minimum Termination Amount": As of any time after the Optional Termination
Date, an amount equal to the greater of (i) the sum of (a) the Class A-1
Certificate Principal Balance, (b) any shortfall in interest due to the Owners
of the Class A-1 Certificates in respect of prior Distribution Dates, (c) one
month's interest on the Class A-1 Certificate Principal Balance at the Class A-1
Pass-Through Rate, (d) the Class A-2 Certificate Principal Balance, (e) any
shortfall in interest due to the Owners of the Class A-2 Certificates in respect
of prior Distribution Dates, (f) one month's interest on the Class A-2
Certificate Principal Balance at the Class A-2 Pass-Through Rate, (g) the Class
A-3 Certificate Principal Balance, (h) any shortfall in interest due to the
Owners of the Class A-3 Certificates in respect of prior Distribution Dates, (i)
one month's interest on the Class A-3 Certificate Principal Balance at the Class
A-3 Pass-Through Rate, (j) the Class A-4 Certificate Principal Balance, (k) any
shortfall in interest due to the Class A-4 Certificates in respect of prior
Distribution Dates, (l) one month's interest on the Class A-4 Certificate
Principal Balance at the Class A-4 Pass-Through Rate, and (m) any Reimbursement
Amounts due the Certificate Insurer and (ii) the sum of 100% of the aggregate
Loan Balance of the related Mortgage Loans as of the day of purchase and any
Reimbursement Amounts not otherwise paid to the Certificate Insurer minus
amounts remitted from the Collection Account to the Distribution Account
representing collections of principal on the Mortgage Loans during the current
Due Period, plus one month's interest on such amount computed at the weighted
average Mortgage Rate, plus all accrued and unpaid Servicing Fees plus the
aggregate amount of any unreimbursed P&I Advances and Servicing Advances plus
P&I Advances which the Master Servicer has theretofore failed to remit.
"Monthly Remittance Amount": The sum of the
Fixed Rate Group Monthly Remittance Amount and the
Adjustable Rate Group Monthly Remittance Amount.
"Monthly Remittance Date": With respect to any
Distribution Date, no later than noon, New York
time, on the second Business Day following the
related Determination Date.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or
other instrument creating a first or second lien on an
estate in fee simple interest in real property securing
a Note.
"Mortgage Loan Group" or "Group": The Fixed Rate Group or the Adjustable
Rate Group, as the case may be. References herein to the related Class of Class
A Certificates, when used with respect to a Mortgage Loan Group, shall mean (A)
in the case of the Fixed Rate Group, the Fixed Rate Certificates and (B) in the
case of the Adjustable Rate Group, the Class A-4 Certificates.
"Mortgage Loans": Such of the mortgage loans
transferred and assigned to the Trust pursuant to Section
3.05(a) hereof, together with any Qualified
Replacement Mortgages substituted therefor in accordance
with this Agreement, as from time to time are held
as a part of the Trust Estate, the mortgage
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loans originally so held being identified in the Schedules of Mortgage Loans.
The term "Mortgage Loan" includes the terms "First Mortgage Loan" and "Second
Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan which is
Delinquent, which relates to a foreclosure or which relates to a Mortgaged
Property which is REO Property prior to such Mortgaged Property's disposition by
the Trust. Any mortgage loan which, although intended by the parties hereto to
have been, and which purportedly was, transferred and assigned to the Trust by
the Depositor, in fact was not transferred and assigned to the Trust for any
reason whatsoever, including, without limitation, the incorrectness of the
statement set forth in item (x) of Schedule I hereto with respect to such
mortgage loan, shall nevertheless be considered a "Mortgage Loan" for all
purposes of this Agreement.
"Mortgage Rate": The rate of interest borne by
each Note.
"Mortgaged Property": The underlying property
securing a Mortgage Loan.
"Mortgagor": The obligor on a Note.
"MR Interest": The sole class of
"residual interest" in the Master REMIC.
"Net Lifetime Cap": With respect to any Distribution Date, the weighted
average of the maximum Mortgage Rates on the Mortgage Loans in the Adjustable
Rate Group as of the first day of the related Due Period, minus the sum of (a)
the Expense Rate and (b) commencing on the seventh Distribution Date, 0.50% per
annum.
"Net Liquidation Proceeds": As to any
Liquidated Loan, Liquidation Proceeds net of Liquidation Expenses and
unreimbursed P&I Advances relating to such Mortgage Loan. In no event shall Net
Liquidation Proceeds with respect to any Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": As defined
in Section 7.03(c)(ii) hereof.
"Net Prepayment Interest Shortfall": As of
any Distribution Date, the excess of any Prepayment
Interest Shortfall over the Compensating Interest.
"NFI": NF Investments, Inc., a
Georgia corporation, as the initial Sub-Servicer.
"90+ Delinquency Percentage (Rolling Three Month)": With respect to each
Mortgage Loan and any Determination Date, the average of the percentage
equivalents of the fractions determined for each of three immediately preceding
Due Periods the numerator of each of which is equal to the aggregate Loan
Balance of all of the Mortgage Loans which are 90 days Delinquent (including any
Mortgage Loans which have gone into foreclosure or have been discharged by
reason of bankruptcy) as of such Determination Date and the denominator of which
is the aggregate Loan Balance of all of the Mortgage Loans.
"Nonrecoverable Advance": Any portion of a P&I Advance or a Servicing
Advance proposed to be made or previously made which has not been previously
reimbursed to the Master Servicer, and which the Master Servicer has determined
in its good faith business judgment will not or, in the case of a proposed P&I
Advance or Servicing Advance, would not be ultimately recoverable by the Master
Servicer from late payments, Insurance Proceeds, condemnation proceeds,
Liquidation Proceeds and other collections on or in respect of the related
Mortgage Loan. The determination by the Master Servicer that
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it has made a Nonrecoverable Advance or that any proposed P&I Advance or
Servicing Advance, if made, would constitute a Nonrecoverable Advance shall be
evidenced by an Officer's Certificate delivered to the Trustee, the Certificate
Insurer and the Depositor setting forth such determination and the procedures
and considerations of the Master Servicer forming the basis of such
determination, which shall include a copy of any information or reports obtained
by the Master Servicer which may support such determinations. Notwithstanding
the above, the Trustee shall be entitled to rely upon any determination of the
Master Servicer that any P&I Advance or Servicing Advance previously made is a
Nonrecoverable Advance or that any proposed P&I Advance or Servicing Advance, if
made, would constitute a Nonrecoverable Advance.
"Note": The note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor
under a Mortgage Loan.
"Officer's Certificate": A certificate signed by
any Authorized Officer of any Person delivering such
certificate and delivered to the Trustee.
"Operative Documents": Collectively, this
Agreement, the Certificate Insurance Policies, the Certificates, the
Indemnification Agreement, the Insurance Agreement, Mortgage Loan Purchase
Agreement and the Sub-Servicing Agreement.
"Optional Termination Date": The first
Distribution Date on which the aggregate of the Loan
Balances of the Mortgage Loans is less than 10%
of the Original Aggregate Loan Balance.
"Original Aggregate Loan Balance": The
aggregate Loan Balances of all Mortgage Loans as of
the Startup Day, i.e., $101,855,911.51.
"Outstanding": With respect to all Certificates
of a Class, as of any date of determination, all such
Certificates theretofore executed and delivered hereunder
except:
(i) Certificates theretofore cancelled by
the Registrar or delivered to the Registrar for
cancellation;
(ii) Certificates or portions thereof for which full and final payment
of money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Owners of such Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or stolen for
which replacement Certificates have been issued as provided for in Section
5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such certificate is ever returned to
the Trustee.
"Owner": The Person in whose name a
Certificate is registered in the Register, and the
Certificate Insurer, to the extent described in Section
5.06 and Section 7.03(c) hereof, respectively;
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provided that solely for the purposes of determining the exercise of any voting
rights hereunder, if Class A Certificates are beneficially owned by the
Depositor, the Seller or any affiliate thereof, neither the Depositor, the
Seller nor such affiliate shall be considered an Owner hereunder.
"Pass-Through Rate": Any of the Class
A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3
Pass-Through Rate or the Class A-4
Pass-Through Rate.
"Paying Agent": Initially, the Trustee, and thereafter, the Trustee or any
other Person that meets the eligibility standards for the Paying Agent specified
in Section 11.15 hereof and is authorized by the Trustee and the Depositor to
make payments on the Certificates on behalf of the Trustee.
"Percentage Interest": With respect to a Class A Certificate, a fraction,
expressed as a percentage, the numerator of which is the Class A Certificate
Principal Balance represented by such Class A Certificate on such date of
determination (prior to giving effect to any distribution of principal on such
date) and the denominator of which is the Certificate Principal Balance
attributable to the related Class of Class A Certificates as of such date of
determination. With respect to a Class X or a Class R Certificate, the portion
of the Class evidenced thereby, expressed as a percentage, as stated on the face
of such Certificate, all of which shall total 100% with respect to the related
Class.
"Permitted Investments": Those investments so
designated pursuant to Section 7.07 hereof.
"Person": Any individual, corporation,
partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivision thereof.
"P&I Advance": As defined in Section
8.09(a) hereof.
"Pool Certification": As defined in Section
3.06(a) hereof.
"Preference Amount": With respect to the Class A Certificates, any amounts
of Current Interest and principal included in previous distributions of any
Class A Distribution Amounts to the Owners of the Class A Certificates which are
recovered from such Owners as a voidable preference by a trustee in bankruptcy
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction and which have not
theretofore been repaid to such Owners and for which there has been full
compliance with the provisions of Section 7.11 (including the receipt of payment
therefor from the Certificate Insurer).
"Prepaid Installment": With respect to any Mortgage Loan, any installment
of principal thereof and interest thereon received by the Master Servicer prior
to the scheduled due date for such installment, intended by the Mortgagor as an
early payment thereof and not as a Prepayment with respect to such Mortgage
Loan.
"Prepayment": Any payment in full of principal of a Mortgage Loan which is
received by the Master Servicer in advance of the scheduled due date for the
payment of such principal (other than the principal portion of any Prepaid
Installment), any Substitution Adjustment, the portion of the Loan Purchase
Price of any Mortgage Loan purchased from the Trust pursuant to Section 3.03,
3.04, 3.06(b) or 8.10(b) hereof representing principal and the Insurance
Proceeds which are to be applied as a payment
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of principal on the related Mortgage Loan shall be deemed to be Prepayments for
all purposes of this Agreement.
"Prepayment Interest Shortfall": With respect to any Distribution Date, the
amount of any shortfall in the payment of interest on the Mortgage Loans which
arises from Prepayments (net of any excess in the payment of interest on the
Mortgage Loans which arise from Prepayments).
"Prepayment Period": With respect to any
Distribution Date, the period commencing on the calendar
day after the prior Determination Date and ending on the
related Determination Date.
"Preservation Expenses": Expenditures made by the Master Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal Remittance Amount": The sum of
the Fixed Rate Group Principal Remittance Amount and
the Adjustable Rate Group Principal Remittance Amount.
"Prohibited Transaction": The meaning set forth
from time to time in the definition thereof at Section
860F(a)(2) of the Code (or any successor
statute thereto) and applicable to the Trust.
"Prospectus": The Prospectus dated January
22, 1997 constituting part of the Registration
Statement.
"Prospectus Supplement": The Block Mortgage
Finance Asset Backed Certificates, Series
1997-1 Prospectus Supplement dated January 24, 1997 to
the Prospectus.
"Purchase Option Period": As defined in
Section 9.04(a) hereof.
"Qualified Insurer": An insurance company or security or bonding company
qualified to write the related insurance policy in the relevant jurisdiction,
which shall have a claims paying ability of "AA" or better by each Rating
Agency, unless each of the Rating Agencies has confirmed in writing that an
insurance company with a lower claims paying ability shall not result, in an of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of Certificates and such insurance
company or security or bonding company is acceptable to the Certificate Insurer.
"Qualified Liquidation": The meaning set
forth from time to time in the definition thereof at
Section 860F(a)(4) of the Code (or any
successor statute thereto) and applicable to the Trust.
"Qualified Mortgage": The meaning set forth
from time to time in the definition thereof at Section
860G(a)(3) of the Code (or any successor
statute thereto) and applicable to the Trust.
"Qualified Replacement Mortgage": A Mortgage Loan substituted for another
pursuant to Section 3.03, 3.04 or 3.06(b) hereof, which (i) has a Mortgage Rate
at least equal to the Mortgage Rate of the Mortgage Loan being replaced, (ii) is
of the same property type (or is a single family dwelling) and the same
occupancy status (or is a primary residence) as the replaced Mortgage Loan,
(iii) shall have an original term to maturity that is no later than one month
following the maturity of the Mortgage Loan for which it was substituted, (iv)
has a Loan-to-Value Ratio as of the Replacement Cut-Off Date no higher than the
Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (v) shall be of
the same or
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higher credit quality classification (determined in accordance with (i) the
credit underwriting guidelines pursuant to which the replaced Mortgage Loan was
underwritten at the time the replaced Mortgage Loan was underwritten, or (ii)
the standards acceptable to the Rating Agencies, which would not cause a
downgrade or removal of the ratings assigned to the Class A Certificates
(without giving effect to any Certificate Insurance Policy) as the Mortgage Loan
which such Qualified Replacement Mortgage replaces, (vi) has a Loan Balance as
of the related Replacement Cut-Off Date equal to or less than the Loan Balance
of the replaced Mortgage Loan as of such Replacement Cut-Off Date, (vii) shall
not provide for a "balloon" payment if the related Mortgage Loan did not provide
for a "balloon" payment (and if such related Mortgage Loan provided for a
"balloon" payment, such Qualified Replacement Mortgage shall have an original
maturity of not greater than (and not more than one year less than) the original
maturity of such related Mortgage Loan), (viii) shall be a fixed rate Mortgage
Loan with the same lien priority as the replaced Mortgage Loan if the Mortgage
Loan being replaced is in the Fixed Rate Group and shall be a first lien
adjustable rate Mortgage Loan if the Mortgage Loan being replaced is in the
Adjustable Rate Group, (ix) satisfies the criteria set forth from time to time
in the definition thereof at Section 860G(a)(4) of the Code (or any successor
statute hereto) and applicable to the Trust and (x) satisfies the
representations and warranties made pursuant to Schedule I hereof as of the date
of substitution.
"Rating Agencies": Collectively, Moody's and
Standard & Poor's or any successors thereto.
"Realized Loss": As to any Liquidated
Loan, the amount, if any, by which the Loan Balance
thereof as of the date of liquidation is in excess of
Net Liquidation Proceeds realized thereon applied in
reduction of such Loan Balance.
"Record Date": With respect to the Fixed Rate Certificates and each
Distribution Date, the last day of the calendar month immediately preceding the
calendar month in which such Distribution Date occurs and with respect to the
Class A-4 Certificates, the day immediately preceding such Distribution Date.
"Reference Banks": Any leading banks selected by the Trustee which are
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) not
controlling, under the control of or under common control with the Seller or any
affiliate thereof, (iii) whose quotations appear on Telerate Page 3750 on the
relevant LIBOR Determination Date and (iv) which have been designated as such by
the Trustee.
"Register": The register maintained by the
Registrar in accordance with Section 5.04 hereof,
in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity
as Registrar appointed pursuant to Section 5.04
hereof, or any duly appointed and eligible successor
thereto.
"Registration Statement": The Registration Statement filed by the Depositor
with the Securities and Exchange Commission (Registration Number 333-14041),
including all amendments thereto and including the Prospectus Supplement
relating to the Class A Certificates constituting a part thereof.
"Reimbursement Amount": As of any Distribution Date, the sum, without
duplication, of (x)(i) all Insured Payments previously paid to the Trustee by
the Certificate Insurer and not previously repaid to the Certificate Insurer
pursuant to Section 7.03(c)(i)(C) and (D) hereof or pursuant to the Insurance
Agreement plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at
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the Reimbursement Late Payment Rate and (y)(i) any amounts then due and owing to
the Certificate Insurer under the Insurance Agreement plus (ii) interest on such
amounts to the extent provided in the Insurance Agreement. The Certificate
Insurer shall notify the Trustee, the Depositor and the Seller of the amount of
any Reimbursement Amount.
"Reimbursement Late Payment Rate": Means for any Distribution Date, the
rate of interest as it is publicly announced by Citibank, N.A., or any successor
thereto, at its principal office in New York, New York as its prime rate (any
change in such prime rate of interest to be effective on the date such change is
announced by Citibank, N.A.) plus 3%. The Reimbursement Late Payment Rate shall
be computed on the basis of a year of 365 days elapsed. In no event shall the
Reimbursement Late Payment Rate exceed the maximum rate permissible under any
applicable law limiting interest rates.
"Related Loan Group": The Fixed Rate
Group or the Adjustable Rate Group, as the case may
be.
"Relief Act": The Soldiers' and Sailors'
Civil Relief Act of 1940, as amended.
"REMIC": A "real estate mortgage investment
conduit" within the meaning of Section 860D of the
Code.
"REMIC Opinion": As defined in Section
3.03 hereof.
"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 and revenue rulings promulgated thereunder, as the foregoing may be
in effect from time to time.
"REO Property": A Mortgaged Property acquired by the Master Servicer on
behalf of the Trust through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to
any Qualified Replacement Mortgage, the first day of the
calendar month in which such Qualified Replacement
Mortgage is conveyed to the Trust.
"Representation Letter": Letters to, or
agreements with, the Depository to effectuate a book entry
system with respect to the Class A Certificates
registered in the Register under the nominee name of
the Depository.
"Residual Net Monthly Excess Cashflow": With respect to any Distribution
Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
7.03(c)(i), 7.03(c)(ii) and 7.03(c)(iii)(A) through (G) hereof.
"Schedules of Mortgage Loans": The schedules of Mortgage Loans, separated
by Mortgage Loan Group listing each Mortgage Loan in the related Mortgage Loan
Group to be conveyed on the Startup Day. Such Schedules of Mortgage Loans shall
identify each Mortgage Loan by (i) the Master Servicer's loan number and (ii)
the Mortgagor's name and address (including the state) of the Mortgaged Property
and shall set forth as to each Mortgage Loan (iii) the lien status thereof, (iv)
the Loan-to-Value Ratio and (v) the Loan Balance as of the Cut-Off Date or
Replacement Cut-Off Date, (vi) the Mortgage Rate thereof (and with respect to
the Mortgage Loans in the Adjustable Rate Group the margin), (vii) the current
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scheduled monthly payment of principal and interest and (viii) the maturity of
the related Note, (ix) the property type, (x) occupancy status, (xi) Appraised
Value and (xii) original term-to-maturity thereof and whether or not such
Mortgage Loan (including related Note) has been modified.
"Scheduled Payment": As of any date of calculation, with respect to a
Mortgage Loan, the then stated scheduled monthly installment of principal and
interest payable thereunder which, if timely paid, would result in the full
amortization of principal over the term thereof (or, in the case of a "balloon"
Note, the term to the nominal maturity date for amortization purposes, without
regard to the actual maturity date).
"Second Mortgage Loan": A Mortgage Loan
which constitutes a second priority mortgage lien with
respect to the related Mortgaged Property.
"Securities Act": The Securities Act of
1933, as amended.
"Seller": Block Financial Corporation, a
Delaware corporation.
"Senior Lien": With respect to any Second
Mortgage Loan, the mortgage loan relating to the
corresponding Mortgaged Property having a first priority
lien.
"Servicer Loss Test": The Servicer Loss Test is satisfied if the Cumulative
Loss Percentage for such period does not exceed the percentage set out for such
period below (provided, that for purposes of the calculation of the Servicer
Loss Test, Realized Losses attributable solely to Cram Down Losses should be
excluded from the calculation of Cumulative Loss Percentage).
Period Cumulative Loss Percentage
February 2, 1997 - February 1, 1998 0.75%
February 2, 1998 - February 1, 1999 1.25%
February 2, 1999 - February 1, 2000 1.80%
February 2, 2000 - February 1, 2001 2.25%
February 2, 2001 - February 1, 2002 2.75%
"Servicer Termination Test": The Servicer Termination Test is satisfied for
any date of determination thereof if (a) the 90+ Delinquency Percentage (Rolling
Three Month) with respect to the Mortgage Loans is less than 10.0%, (b) the
Servicer Loss Test is satisfied and (c) the Annual Loss Percentage (Rolling
Twelve Month) as it relates to the Mortgage Loans for the twelve month period
immediately preceding the date of determination is not greater than 1.50%.
"Servicing Advance": As defined in Section
8.09(b) and Section 8.13(a) hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount retained by
the Master Servicer as compensation for servicing and administration duties
relating to such Mortgage Loan pursuant to Section 8.15 and equal to 0.50% per
annum of the then outstanding principal amount of such Mortgage Loan as of the
first day of the related Due Period payable on a monthly basis; provided,
however, that in the event that, as of any Distribution Date, (i) the sum of (x)
the Fixed Rate Group Current Interest applicable to such Distribution Date
(expressed as a percentage of the aggregate outstanding Loan Balance) and (y)
the annualized rate at which the Servicing Fee would otherwise be calculated
exceeds
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(ii) the weighted average Mortgage Rate of the Mortgage Loans in the Fixed Rate
Group for the related Due Period, then the aggregate Servicing Fee with respect
to the Mortgage Loans in the Fixed Rate Group for the related Due Period shall
be reduced by an amount equal to the product of (a) one-twelfth of such excess
(not to exceed ____ basis points on a per annum basis) and (b) the aggregate
Loan Balances of the Mortgage Loans in the Fixed Rate Group of the opening of
business on the first day of such related Due Period.
"Simple Interest Loans": Any Mortgage Loan as to which, pursuant to the
Note relating thereto, interest is computed and charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note based on the
number of days elapsed between receipt of the Mortgagor's last payment through
receipt of the Mortgagor's most current payment.
"Specified Subordinated Amount": As applicable,
the Fixed Rate Group Specified Subordinated Amount or
the Adjustable Rate Group Specified Subordinated Amount.
"SR Interest": The sole class of
"residual interest" in the Subsidiary REMIC.
"Standard & Poor's": Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies.
"Startup Day": January 29, 1997.
"Subordinate Certificates": Collectively, the
Class R Certificates and the Class X Certificates.
"Subordinated Amount": The Fixed Rate Group
Subordinated Amount or the Adjustable Rate Group Subordinated Amount, as the
case may be.
"Subordination Deficiency Amount": With respect to any Mortgage Loan Group
and Distribution Date, the excess, if any, of (i) the Specified Subordinated
Amount applicable to such Mortgage Loan Group and Distribution Date over (ii)
the Subordinated Amount applicable to such Mortgage Loan Group and Distribution
Date prior to taking into account the payment of any related Subordination
Increase Amounts on such Distribution Date.
"Subordination Deficit": With respect to any Mortgage Loan Group and
Distribution Date, the amount, if any, by which (x) the aggregate of the related
Class A Certificate Principal Balances relating to such Mortgage Loan Group,
after taking into account all distributions to be made on such Distribution Date
exceeds (y) the aggregate Loan Balances of the Mortgage Loans in the related
Mortgage Loan Group as of the close of business on the last day of the related
Due Period (taking into account all payments of principal, other than
Prepayments, due during the related Due Period and received on or prior to the
related Determination Date or, in connection with Curtailments and Net
Liquidation Proceeds, collected during the related Due Period, together with all
Prepayments received on such Mortgage Loans in such Loan Group during the
related Prepayment Period).
"Subordination Increase Amount": With respect to any Mortgage Loan Group
and Distribution Date, the aggregate amount of Net Monthly Excess Cashflow
allocated to such Mortgage Loan Group pursuant to Sections 7.03(c)(ii)(A) and
(B) on such Distribution Date.
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"Subordination Reduction Amount": With respect to any Mortgage Loan Group
and Distribution Date, an amount equal to the lesser of (x) the Excess
Subordinated Amount for such Mortgage Loan Group and Distribution Date and (y)
the amount available for distribution on account of principal with respect to
the Class A Certificates relating to such Mortgage Loan Group on such
Distribution Date.
"Subsidiary REMIC": As described in
Section 2.08 hereof.
"Subsidiary REMIC Interest": Any one of
the Subsidiary REMIC Regular Interests as described
in Section 2.08(f) hereof or the SR Interest.
Principal of and interest on the Subsidiary REMIC Regular Interests and the
SR Interest shall be allocated to the corresponding Classes of Certificates in
the manner set forth in the following table:
Corresponding Class of Certificates(1)
Subsidiary Initial Allocation Allocation
REMIC Principal Interest of Principal of Interest
Interest Balance Rate
1 $23,615,000.00 WAC A-1 A-1, X-1
2 $15,110,000.00 WAC A-2 A-2, X-1
3 $20,418,000.00 WAC A-3 A-3, X-1
4 $42,576,000.00 WAC A-4 A-4, X-2
SR (2) (2) R R
(1) The amount of principal and interest allocable from a Subsidiary REMIC
Regular Interest to its Corresponding Class of Certificates on any
Distribution Date shall be 100%.
(2) The MR Interest and the SR Interest will have no principal balance and will
not bear interest.
(3) The beneficial ownership of the MR Interest and the SR Interest is
represented by the Class R Certificates.
"Subsidiary REMIC Regular Interest": Any
one of the "regular interests" in the Subsidiary
REMIC described in Section 2.08 hereof.
"Sub-Servicer: Any Person with whom the Master Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
8.03 hereof in respect of the qualification of a Sub-Servicer, which initially
will be NFI.
"Sub-Servicing Agreement": The
sub-servicing agreement between the Master Servicer and
NFI relating to servicing and/or administration of certain
Mortgage Loans as permitted by Section 8.03, or any
successor agreement.
"Substitution Adjustment": As defined in
Section 3.03 hereof.
"Tax Matters Certificate": The Certificate
representing the Tax Matters Person Residual Interest, initially issued to the
Trustee as the initial Tax Matters Person.
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"Tax Matters Person": The Person appointed
for the Trust pursuant to Section 11.18 hereof
to act as the Tax Matters Person under the Code.
"Tax Matters Person Residual Interest": The 0.001% interest in the
"residual interest" in each of the Master REMIC and Subsidiary REMIC, which
shall be issued to and held by the Trustee throughout the term hereof unless
another Person shall accept an assignment of such interest and the designation
of Tax Matters Person pursuant to Section 11.18 hereof.
"Termination Auction": As defined in Section
9.03 hereof.
"Termination Notice": As defined in Section
9.04(a) hereof.
"Total Available Funds": As defined in
Section 7.02(d) hereof.
"Total Monthly Excess Cashflow": As defined
in Section 7.03(c)(i) hereof.
"Total Monthly Excess Spread": The Fixed
Rate Group Total Monthly Excess Spread or the
Adjustable Rate Group Total Monthly Excess Spread,
as the case may be.
"Trust": Block Mortgage Finance Asset Backed
Certificates, Series 1997-1, the trust created
under this Agreement.
"Trust Estate": As defined in the conveyance
clause under this Agreement.
"Trustee": Bankers Trust Company of California, N.A., a national banking
association, the Corporate Trust Office of which is located on the date of
execution of this Agreement at 3 Park Plaza, 16th floor, Irvine, California
92614, not in its individual capacity but solely as Trustee under this
Agreement, and any successor hereunder.
"Trustee Fee": The fee payable monthly on
each Distribution Date in an amount equal to one-twelfth
of 0.02% multiplied by the then-outstanding Class
A Certificate Principal Balance.
"Underwriters": Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. As of any date of
determination, the Voting Rights shall be allocated among the Owners of the
Certificates in proportion to the Percentage Interests of their respective
Certificates on such date.
"Weighted Average Pass-Through Rate": As to the Class A Certificates and
any Distribution Date, the weighted average of the Class A-1 Pass-Through Rate,
Class A-2 Pass-Through Rate, Class A-3 Pass-Through Rate and Class A-4
Pass-Through Rate (such rate calculated for this purpose on the basis of a
360-day year assumed to consist of twelve 30 day months) weighted by the
respective Certificate Principal Balances of the related Class, as of such
Distribution Date prior to taking into account any distributions to be made on
such Distribution Date.
"X-1A Accrual Amount": As to any Distribution Date, an amount equal to
interest accrued on the X-1A Component for the related Interest Accrual Period,
as reduced by X-1A Distributable Interest for such date.
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"X-1A Distributable Interest": As to any Distribution Date, an amount equal
to the lesser of (a) the product of the X-1A Interest Rate for such Distribution
Date and the aggregate of all X-1A Accrual Amounts for previous Distribution
Dates and (b) the amount of interest accrued on the X-1A Component for the
related Interest Accrual Period, reduced by the sum of the following payments
allocable to the Fixed Rate Group on or in respect to the related Distribution
Date expressed as a percentage: the Servicing Fee, the Insurance Premium Amount
and the Trustee Amount.
"X-1A Interest Rate": With respect to the
X-1A Component and each Interest Accrual Period
applicable thereto, the per annum variable rate at any
time at which interest accrues on the Notional Component
Amount thereof, determined as set forth in the
definition of "Component."
"X-1A Notional Amount": As of any
Distribution Date, an amount equal to the balance of
Subsidiary REMIC Interest 1 for such date.
"X-1B Accrual Amount": As to any Distribution Date, an amount equal to
interest accrued on the X-1B Component for the related Interest Accrual Period,
as reduced by X-1B Distributable Interest for such date.
"X-1B Distributable Interest": As to any Distribution Date, an amount equal
to the lesser of (a) the product of the X-1B Interest Rate for such Distribution
Date and the aggregate of all X-1B Accrual Amounts for previous Distribution
Dates and (b) the amount of interest accrued on the X-1B Component for the
related Interest Accrual Period, reduced by the sum of the following payments
allocable to the Fixed Rate Group on or in respect to the related Distribution
Date expressed as a percentage: the Servicing Fee, the Insurance Premium Amount
and the Trustee Amount.
"X-1B Interest Rate": With respect to the
X-1B Component and each Interest Accrual Period
applicable thereto, the per annum variable rate at any
time at which interest accrues on the Notional Component
Amount thereof, determined as set forth in the
definition of "Component."
"X-1B Notional Amount": As of any
Distribution Date, an amount equal to the balance of
Subsidiary REMIC Interest 2 for such date.
"X-1C Accrual Amount": As to any Distribution Date, an amount equal to
interest accrued on the X-1C Component for the related Interest Accrual Period,
as reduced by X-1C Distributable Interest for such date.
"X-1C Distributable Interest": As to any Distribution Date, an amount equal
to the lesser of (a) the product of the X-1C Interest Rate for such Distribution
Date and the aggregate of all X-1C Accrual Amounts for previous Distribution
Dates and (b) the amount of interest accrued on the X-1C Component for the
related Interest Accrual Period, reduced by the sum of the following payments
allocable to the Fixed Rate Group on or in respect to the related Distribution
Date expressed as a percentage: the Servicing Fee, the Insurance Premium Amount
and the Trustee Amount.
"X-1C Interest Rate": With respect to the
X-1C Component and each Interest Accrual Period
applicable thereto, the per annum variable rate at any
time at which interest accrues on the Notional Component
Amount thereof, determined as set forth in the
definition of "Component."
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"X-1C Notional Amount": As of any
Distribution Date, an amount equal to the balance of
Subsidiary REMIC Interest 3 for such date.
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ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.
The parties hereto do hereby create and establish, pursuant to the laws of
the State of New York and this Agreement, the Trust, which, for convenience,
shall be known as "Block Mortgage Finance Asset Backed Certificates, Series
1997-1," which shall contain two separate pools of Mortgage Loans.
Section 2.02 Office.
The office of the Trust shall be in care of the Trustee, addressed to 3
Park Plaza, 16th floor, Irvine, California 92614, Attention: Block Mortgage
Finance Asset Backed Certificates, Series 1997-1, or at such other address as
the Trustee may designate by notice to the Depositor, the Seller, the Master
Servicer, the Owners and the Certificate Insurer.
Section 2.03 Purposes and Powers.
The purpose of the Trust is to engage in the following activities and only
such activities: (i) the issuance of the Certificates and the acquiring, owning
and holding of Mortgage Loans and the Trust Estate in connection therewith; (ii)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment of moneys in accordance with this Agreement; and (iii) such other
activities as may be required in connection with conservation of the Trust
Estate and distributions to the Owners; provided, however, that nothing
contained herein shall permit the Trustee to take any action which would
adversely affect either the Master REMIC's or the Subsidiary REMIC's status as a
REMIC.
Section 2.04 Appointment of the Trustee; Declaration of Trust.
The Depositor hereby appoints the Trustee as trustee of the Trust effective
as of the Startup Day, to have all the rights, powers and duties set forth
herein. The Trustee hereby acknowledges and accepts such appointment, represents
and warrants its eligibility as of the Startup Day to serve as Trustee pursuant
to Section 10.08 hereof and declares that it will hold the Trust Estate in trust
upon and subject to the conditions set forth herein for the benefit of the
Owners.
Section 2.05 Expenses of the Trust.
The expenses of the Trust, including (i) any portion of the Trustee Fee not
paid pursuant to Section 7.03(c)(iii)(C) hereof, (ii) any reasonable expenses of
the Trustee, and (iii) any other reasonable expenses of the Trust that have been
reviewed and approved by the Master Servicer, which review and approval shall
not be required in connection with the enforcement of a remedy by the Trustee
resulting from a default under this Agreement, shall be paid directly by the
Master Servicer. The Master Servicer shall pay directly the reasonable fees and
expenses of counsel to the Trustee. The reasonable fees and expenses of the
Trustee's counsel in connection with the review and delivery of this Agreement
and related documentation shall be paid by the Master Servicer on the Startup
Day. In addition, if any assignment of Mortgage is required to be filed pursuant
to the terms of this Agreement, the Master
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Servicer shall pay for all costs and expenses associated with filing such
assignment in the appropriate recording office.
Section 2.06 Ownership of the Trust.
On the Startup Day, the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
Section 2.07 Situs of the Trust.
It is the intention of the parties hereto that the Trust constitute a trust
under the laws of the State of California. The Trust will be created and
administered in, and all Accounts maintained by the Trustee on behalf of the
Trust will be located in, the State of New York. The Trust will not have any
employees and will not have any real or personal property (other than property
acquired pursuant to Section 8.13 hereof) located in any state other than in the
State of New York and payments will be received by the Trustee only in the State
of New York and payments from the Trustee will be made only from the State of
New York. The Trust's only office will be at the office of the Trustee as set
forth in Section 2.02 hereof.
Section 2.08 Miscellaneous REMIC Provisions.
(a) The Trust for federal income tax purposes will consist of two REMICs.
The Subsidiary REMIC will consist of all of the assets constituting the Trust
Estate and will be evidenced by the Subsidiary REMIC Regular Interests (which
will be uncertificated and will represent the "regular interests" in the
Subsidiary REMIC) and the SR Interest as the single "residual interest" in the
Subsidiary REMIC. The Trustee will hold the Subsidiary REMIC Regular Interests.
The Master REMIC will consist of the Subsidiary REMIC Regular Interests and will
be evidenced by the Class A-1, Class A-2, Class A-3, Class A-4, Class X-1 and
Class X-2 Certificates (which will represent the "regular interests" in the
Master REMIC) and the MR Interest as the single "residual interest" in the
Master REMIC. The Class R Certificates will represent beneficial ownership of
the SR Interest and the MR Interest. The Owner of the Tax Matters Person
Residual Interest is hereby designated as "tax matters person" as defined in the
REMIC Provisions with respect to the Trust.
(b) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
(c) The Trustee shall cause each of the Master REMIC and the Subsidiary
REMIC to elect to be treated as a REMIC under Section 860D of the Code. Any
inconsistencies or ambiguities in this Agreement or in the administration of the
Trust shall be resolved in a manner that preserves the validity of such election
to be treated as a REMIC.
(d) The Trustee shall provide to the Internal Revenue Service and to the
person described in Section 860(E)(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-l(b)(5)(ii), or any successor
regulation thereto with respect to the Trust. Such information will be provided
in the manner described in Treasury Regulation Section 1.860E-2(a)(5), or any
successor regulation thereto.
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(e) For federal income tax purposes, the
Final Scheduled Distribution Date for each Class of
Certificates is hereby set to be the Distribution Date
indicated below:
Final Scheduled
Class Distribution Date
Class A-1 May 25, 2009
Certificates
Class A-2 October 25, 2011
Certificates
Class A-3 March 25, 2024
Certificates
Class A-4 December 25, 2026
Certificates
Class X-1 December 25, 2026
Certificates
Class X-2 December 25, 2026
Certificates
Class R Certificates December 25, 2026
(f) The Subsidiary REMIC Regular Interests will consist of the 1, 2, 3 and
4. The Subsidiary REMIC Regular Interests 1, 2 and 3 will bear interest at the
rate equal to the weighted average of the Mortgage Rates of the Mortgage Loans
in the Fixed Rate Group. The Subsidiary REMIC Regular Interest 4 will bear
interest at the rate equal to the weighted average of the Mortgage Rates of the
Mortgage Loans in the Adjustable Rate Group. The initial Subsidiary REMIC
balance of Subsidiary REMIC Regular Interest 1 will be equal to the initial
Class A-1 Certificate Principal Balance. Such Subsidiary REMIC balance will be
reduced by amounts distributed in respect of the Principal Distribution Amount
(allocated as provided below), and by any Realized Losses previously allocated
thereto, until the Subsidiary REMIC balance of Subsidiary
REMIC Regular Interest 1 has been reduced to zero. The initial Subsidiary REMIC
balance of Subsidiary REMIC Regular Interest 2 will be equal to the initial
Class A-2 Certificate Principal Balance. Such Subsidiary REMIC balance will be
reduced, after the Subsidiary REMIC balance of Subsidiary REMIC Regular Interest
1 has been reduced to zero, by amounts distributed in respect of the Principal
Distribution Amount (allocated as provided below), and by any Realized Losses
previously allocated thereto, until the Subsidiary REMIC
balance of Subsidiary REMIC Regular Interest 2 has been reduced to zero. The
initial Subsidiary REMIC balance of Subsidiary REMIC Regular Interest 3 will be
equal to the initial Class A-3 Certificate Principal Balance. Such Subsidiary
REMIC balance will be reduced, after the Subsidiary REMIC balance of Subsidiary
REMIC Regular Interest 2 has been reduced to zero, by amounts distributed in
respect of the Principal Distribution Amount (allocated as provided below),
and by any Realized Losses previously allocated thereto, until the Subsidiary
REMIC balance of Subsidiary REMIC Regular Interest 3 has
been reduced to zero. The initial Subsidiary REMIC balance of Subsidiary REMIC
Regular Interest 4 will be equal to the outstanding balances of the Mortgage
Loans in the Adjustable Rate Group. Such Subsidiary REMIC balance will be
reduced by amounts distributed in respect of the Principal Distribution Amount
(allocated as provided below), and by any Realized Losses previously allocated
thereto, until the Subsidiary REMIC balance of Subsidiary
REMIC Regular Interest 4 has been reduced to zero. Amounts distributed in
respect of the Principal Distribution Amount shall be allocated to reduce the
Subsidiary REMIC balances of Subsidiary REMIC Regular Interests 1, 2 and 3,
sequentially, in that order, until the Subsidiary REMIC balance of each such
Subsidiary REMIC Regular Interest has been reduced to zero. Any Realized Losses
allocated to the Class X-1 Carry Forward Amount on any Distribution Date shall
be allocated first, to Subsidiary REMIC Regular Interest 1, until the Subsidiary
REMIC balance thereof has been reduced to zero, second, to Subsidiary REMIC
Regular Interest 2, until the Subsidiary REMIC balance thereof has been reduced
to Zero, and third, to Subsidiary REMIC Regular Interest 3, until the Subsidiary
REMIC blance thereof has been reduced to zero. Any Realized Loses allocated to
the Class X-2 Carry Forward Amount on any Distribution Date shall be allocated
to Subsidiary REMIC Regular Interest 4 until the Subsidiary REMIC balance
thereof has been reduced to zero. Losses in excess of the foregoing amounts
shall be allocated pro rata. For the purposes of this paragraph, the term
"Realized Losses" shall include all losses not otherwise covered by the
Certificate Insurance Policies.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE MASTER SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and the Owners that as of the Startup Day:
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it make such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the Depositor, the Owners or the Certificate Insurer. The
Depositor has all requisite corporate power and authority to own and operate its
properties, to carry out its business as presently conducted and as proposed to
be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Depositor and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Depositor and will not (i) violate
the Depositor's Certificate of Incorporation or Bylaws, (ii) constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in a breach of, any material contract,
agreement or other instrument to which the Depositor is a party or by which the
Depositor is bound or (iii) violate any statute or any order, rule or regulation
of any court, governmental agency or body or other tribunal having jurisdiction
over the Depositor or any of its properties, except where the failure to so
comply would not have a material adverse effect on the Depositor, the Owners or
the Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the Depositor
is a party, assuming due authorization, execution and delivery by the other
parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Depositor or its properties
or the consequences of which would materially and adversely affect its
performance hereunder or under the other Operative Documents to which the
Depositor is a party.
(e) No litigation is pending or, to the best of the Depositor's knowledge,
threatened against the Depositor which litigation is likely to have consequences
that would prohibit its entering into this Agreement or that would materially
and adversely affect the condition (financial or otherwise) or
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operations of the Depositor or its properties or is likely to have consequences
that would materially and adversely affect its performance hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Depositor contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Depositor or matters or activities for which the Depositor is responsible in
accordance with the Operative Documents or which are attributable to the
Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Depositor required to be stated therein or necessary to make
the statements contained therein with respect to the Depositor, in light of the
circumstances under which they were made, not misleading. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Depositor, as the case may be, by or from
any federal, state or other governmental authority or agency (other than any
such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Depositor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Depositor of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Depositor and the
performance by the Depositor of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(i) The Depositor is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Depositor aware of any pending
insolvency of the Depositor, the Seller or the Master Servicer.
(j) The transactions contemplated by the
Agreement are in the ordinary course of business of
the Depositor.
(k) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Depositor hereunder are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Mortgage
Loans to the Trustee.
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Section 3.02 Representations and Warranties of the Master Servicer.
The Master Servicer hereby represents, warrants and covenants to the
Trustee, the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Master Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is, and each
Sub-Servicer is, in compliance with the laws of each state in which any
Mortgaged Property is located to the extent necessary to enable it to perform
its obligations hereunder and is in good standing as a foreign corporation in
each jurisdiction in which the nature of its business, or the properties owned
or leased by it make such qualification necessary, except where the failure to
so qualify would not have a material adverse effect on the Master Servicer, the
Sub- Servicer, if applicable, the Owners, the Trust or the Certificate Insurer.
The Master Servicer and each Sub-Servicer has all requisite corporate power and
authority to own and operate its properties, to carry out its business as
presently conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative Documents
to which it is a party. Either the Master Servicer or a Sub-Servicer is
designated as an approved seller-servicer by FNMA for first and second mortgage
loans and has combined equity and subordinated debt of at least $1,500,000, as
determined in accordance with generally accepted accounting principles.
(b) The execution and delivery of this Agreement by the Master Servicer and
its performance and compliance with the terms of this Agreement have been duly
authorized by all necessary corporate action on the part of the Master Servicer
and will not (i) violate the Master Servicer's Certificate of Incorporation or
Bylaws, (ii) 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 Master
Servicer is a party or by which the Master Servicer is bound or (iii) violate
any statute or any order, rule or regulation of any court, governmental agency
or body or other tribunal having jurisdiction over the Master Servicer or any of
its properties, except where the failure to so comply would not have a material
adverse effect on the Master Servicer, the Owners, the Trust or the Certificate
Insurer.
(c) This Agreement and the Operative Documents to which the Master Servicer
is a party, assuming due authorization, execution and delivery by the other
parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Master Servicer, enforceable against it in accordance with the
terms hereof and thereof, except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Master Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or otherwise) or
operations of the Master Servicer or its properties or might have consequences
that would materially and adversely affect its performance hereunder or under
the other Operative Documents to which the Master Servicer is a party.
(e) No litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which litigation is likely to
have consequences that would prohibit its entering into this Agreement or that
would materially and adversely affect the condition (financial or otherwise)
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or operations of the Master Servicer or its properties or is likely to have
consequences that would materially and adversely affect its performance
hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Master Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Master Servicer or matters or activities for which the Master Servicer is
responsible in accordance with the Operative Documents or which are attributed
to the Master Servicer therein are true and correct in all material respects,
and the Registration Statement does not contain any untrue statement of a
material fact with respect to the Master Servicer or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein with respect to the Master Servicer, in light of the circumstances under
which they were made, not misleading.
(h) The Servicing Fee is a "current (normal) servicing fee rate" as that
term is used in Statement of Financial Accounting Standards No. 65 issued by the
Financial Accounting Standards Board. Neither the Master Servicer nor any
affiliate thereof will report on any financial statements any part of the
Servicing Fee as an adjustment to the sales price of the Mortgage Loans.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Master Servicer, as the case may be, by or
from any federal, state or other governmental authority or agency (other than
any such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Master Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Master Servicer and the performance by the Master Servicer of
its obligations under this Agreement and such of the other Operative Documents
to which it is a party.
(j) The collection practices used by the Master Servicer and each
Sub-Servicer with respect to the Mortgage Loans have been, in all material
respects, legal, proper, prudent and customary in the mortgage servicing
business and in conformity with relevant FNMA guidelines.
(k) The transactions contemplated by this
Agreement are in the ordinary course of business of
the Master Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Mortgage Loans to the
Trustee.
Upon discovery by any of the Depositor, the Seller, the Master Servicer,
the Certificate Insurer, any Owner or the Trustee (each, for purposes of this
paragraph, a party) of a breach of any of the representations and warranties set
forth in this Section 3.02 which materially and adversely affects the
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interests of the Owners or of the Certificate Insurer, the party discovering
such breach shall give prompt written notice to the other parties. Within 60
days of its discovery or its receipt of notice of breach, the Master Servicer
shall cure such breach in all material respects and, upon the Master Servicer's
continued failure to cure such breach, may thereafter be removed by the Trustee
pursuant to Section 8.20 hereof; provided, however, that if any party can
establish to the reasonable satisfaction of the Certificate Insurer that it is
diligently pursuing remedial action, then the cure period may be extended with
the written approval of the Certificate Insurer.
Section 3.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and the Owners that as of the Startup Day:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it, make such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the Seller, the Owners, the Trust and the Certificate Insurer.
The Seller has all requisite corporate power and authority to own and operate
its properties, to carry out its business as presently conducted and as proposed
to be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Seller and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Seller and will not (i) violate
the Seller's Certificate of Incorporation or Bylaws, (ii) constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in a breach of, any material contract, agreement or
other instrument to which the Seller is a party or by which the Seller is bound
or (iii) violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Seller or any of its properties, except where the failure to so comply would not
have a material adverse effect on the Seller, the Owners, the Trust and the
Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the Seller is
a party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Seller, enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default would materially
and adversely affect the condition (financial or other) or operations of the
Seller or its properties or the consequences of which would materially
and adversely affect its performance hereunder and under
the other Operative Documents to which the Seller is a party.
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(e) No litigation is pending or, to the best of Seller's knowledge,
threatened against the Seller which litigation is likely to have consequences
that would prohibit its entering into this Agreement or any other
Operative Documents to which it is a party or that
would materially and adversely affect the condition (financial or otherwise) or
operations of the Seller or its properties or might have consequences that would
materially and adversely affect its performance hereunder and under the other
Operative Documents to which the Seller is a party.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Seller or matters or activities for which the Seller is responsible in
accordance with the Operative Documents or which are attributable to the Seller
therein are true and correct in all material respects. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein, or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(h) Upon the receipt of each Mortgage Loan (including the related Note) and
other items of the Trust Estate by the Trustee under this Agreement, the Trust
will have good title to such Mortgage Loan (including the related Note) and such
other items of the Trust Estate free and clear of any lien, charge, mortgage,
encumbrance or rights of others, except as set forth in item (ix) of Schedule I
(other than liens which will be simultaneously released).
(i) Neither the Seller nor any affiliate thereof will report on any
financial statement any part of the Servicing Fee as an adjustment to the sales
price of the Mortgage Loans.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Seller, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Seller makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Seller of the Operative Documents to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Seller and the performance by the Seller
of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(k) The origination practices used by the Seller or, to the Seller's
knowledge, the respective originators of the Mortgage Loans with respect to such
Mortgage Loans have been in all material respects, legal, proper, prudent and
customary in the mortgage lending business in the jurisdiction in which the
related Mortgage Properties are located.
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(l) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Seller aware of any pending
insolvency of the Seller, the Depositor or the Master Servicer.
(m) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Seller hereunder are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
(n) The transactions contemplated by this
Agreement are in the ordinary course of business of
the Seller.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Upon discovery by any of the Master Servicer, the Seller, the Depositor,
the Certificate Insurer or the Trustee (each, for purposes of this paragraph, a
"party") of a breach of any of the representations and warranties set forth in
this Section 3.03 which materially and adversely affects the interests of the
Owners or the Certificate Insurer, the party discovering such breach shall give
prompt written notice to the other parties. The Seller hereby covenants and
agrees that within 60 days of its discovery or its receipt of notice of breach,
it shall cure such breach in all material respects or, with respect to a breach
of clause (h) above, the Seller may (or may cause an affiliate of the Seller to)
on the Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute in lieu of any Mortgage Loan not in compliance with clause
(h) a Qualified Replacement Mortgage and, if the outstanding principal amount of
such Qualified Replacement Mortgage as of the applicable Replacement Cut-Off
Date is less than the Loan Balance of such Mortgage Loan as of such Replacement
Cut-Off Date, deliver an amount equal to such difference together with the
aggregate amount of (A) all P&I Advances and Servicing Advances theretofore made
with respect to such Mortgage Loan, to the extent unreimbursed to the Master
Servicer and (B) all P&I Advances and Servicing Advances which the Master
Servicer has theretofore failed to remit with respect to such Mortgage Loan (a
"Substitution Adjustment") to the Master Servicer for deposit in the Collection
Account or (ii) purchase such Mortgage Loan from the Trust at the Loan Purchase
Price, which purchase price shall be delivered to the Master Servicer for
deposit in the Collection Account. Notwithstanding any provision of this
Agreement to the contrary, with respect to any Mortgage Loan which is not in
default or as to which no default is imminent, no repurchase or substitution
pursuant to Section 3.03, 3.04 or 3.06 shall be made unless the Seller obtains
for the Trustee and the Certificate Insurer an opinion of counsel experienced in
federal income tax matters to the effect that such a repurchase or substitution
would not constitute a Prohibited Transaction for the Trust or otherwise subject
the Trust to tax and would not jeopardize the status of the Trust as a REMIC (a
"REMIC Opinion") addressed to the Trustee and the Certificate Insurer and
acceptable to the Certificate Insurer and the Trustee. Any Mortgage Loan as to
which repurchase or substitution was delayed pursuant to this Section shall be
repurchased or substituted for (subject to compliance with Sections 3.03, 3.04
or 3.06, as the case may be) upon the earlier of (a) the occurrence of a default
or imminent default with respect to such Mortgage Loan and (b) receipt by the
Trustee and the Certificate Insurer of a REMIC Opinion.
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Section 3.04 Covenants of Seller to Take Certain Actions
with Respect to the Mortgage Loans In Certain
Situations.
(a) The Seller hereby makes the representations set forth on Schedule I
hereto with respect to the Mortgage Loans.
(b) Upon the discovery by the Seller, the Master Servicer, the Certificate
Insurer, or the Trustee (i) that any of the statements set forth in Schedule I
hereto were untrue as of the Startup Day with the result that the interests of
the Owners or the Certificate Insurer are materially and adversely affected or
(ii) that statements set forth in clauses (ix), (x), (xiii), (xxxvi), (xl), or
(xli) of Schedule I hereto were untrue in any material respect as of the Startup
Day, the party discovering such breach shall give prompt written notice to the
other parties. Upon the earliest to occur of the Seller's discovery or its
receipt of notice of breach from any one of the other parties, the Seller hereby
covenants and warrants that it shall promptly cure such breach in all material
respects or, subject to the last two sentences of Section 3.03, it shall on the
second Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute in lieu of each Mortgage Loan which has given rise to the
requirement for action by the Seller a Qualified Replacement Mortgage and
deliver the Substitution Adjustment to the Master Servicer for deposit in the
Collection Account or (ii) purchase such Mortgage Loan from the Trust at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Master Servicer for deposit in the Collection Account.
Other than as specified in Section 6.12 hereof, it is understood and agreed that
the foregoing obligation of the Seller so to substitute or purchase any Mortgage
Loan shall constitute the sole remedy respecting a discovery of any such
statement which is untrue in any material respect in this Section 3.04 available
to the Owners, the Trustee and the Certificate Insurer.
(c) In the event that any such repurchase results in a prohibited
transaction tax, the Trustee shall immediately notify the Seller in writing
thereof and the Seller will, within 10 days of receiving notice thereof from the
Trustee deposit the amount due from the Trust with the Trustee for the payment
thereof, including any interest and penalties, in immediately available funds.
In the event that any Qualified Replacement Mortgage is delivered by the Seller
to the Trust pursuant to Section 3.03, Section 3.04 or Section 3.06 hereof, the
Seller shall be obligated to take the actions described in Section 3.04(b) with
respect to such Qualified Replacement Mortgage upon the discovery by any of the
Owners, the Seller, the Master Servicer, the Certificate Insurer, or the Trustee
that the statements set forth in clause (ix), (x), (xiii), (xxxvi), (xl) or
(xli) of Schedule I hereto are untrue in any material respect on the date such
Qualified Replacement Mortgage is conveyed to the Trust or that any of the other
statements set forth in Schedule I hereto are untrue on the date such Qualified
Replacement Mortgage is conveyed to the Trust such that the interests of the
Owners or the Certificate Insurer in the related Qualified Replacement Mortgage
are materially and adversely affected; provided, however, that for the purposes
of this subsection (c) the statements in Schedule I hereto referring to items
"as of the Cut-Off Date" or "as of the Startup Day" shall be deemed to refer to
such items as of the date such Qualified Replacement Mortgage is conveyed to the
Trust.
(d) It is understood and agreed that the covenants set forth in this
Section 3.04 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgages) to the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative investigation
other than as specifically set forth in this Agreement as to the occurrence of
any condition requiring the repurchase or substitution of any Mortgage Loan
pursuant to this Article III or the eligibility of any Mortgage Loan for the
purpose of this Agreement.
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Notwithstanding the fact that a representation contained in Schedule I
hereto may be limited to the Seller's knowledge, such limitation shall not
relieve the Seller of its repurchase obligation under the Section 3.05 hereof,
or its obligations under Section 6.12 hereof.
Section 3.05 Conveyance of the Mortgage Loans and
Qualified Replacement Mortgages.
(a) On the Startup Day the Seller, concurrently with the execution and
delivery hereof, hereby transfers, assigns, sets over and otherwise conveys to
the Depositor and the Depositor, concurrently with the execution and delivery
hereof, transfers, assigns, sets over and otherwise conveys, without recourse,
to the Trustee for the benefit of the Owners all of their respective right,
title and interest in and to the Trust Estate; provided, however, that the
Seller reserves and retains all of its right, title and interest in and to
principal (including Prepayments) and interest collected on each Mortgage Loan
on or prior to the Cut-Off Date. The transfer by the Depositor of the Mortgage
Loans set forth on the Schedule of Mortgage Loans to the Trustee is absolute and
is intended by the Owners and all parties hereto to be treated as a sale by the
Depositor.
It is intended that the sale, transfer, assignment and conveyance herein
contemplated constitute a sale of the Mortgage Loans conveying good title
thereto free and clear of any liens and encumbrances from the Seller to the
Depositor and from the Depositor to the Trust and that the Mortgage Loans not be
part of the Depositor's or the Seller's estate in the event of insolvency. In
the event that such conveyance is deemed to be a loan, the parties intend that
the Seller shall be deemed to have granted to the Depositor and the Depositor
shall be deemed to have granted to the Trustee a first priority perfected
security interest in the Trust Estate, and that this Agreement shall constitute
a security agreement under applicable law.
In connection with such sale, transfer, assignment, and conveyance from the
Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of New York, California and Missouri, a UCC-1 financing
statement executed by the Seller as debtor, naming the Depositor as secured
party and the Trustee as assignee and listing the Mortgage Loans and the other
property described above as collateral. The characterization of the Seller as
debtor and the Depositor as secured party on such financing statements is solely
for protective purposes and shall in no way be construed as being contrary to
the intent of the parties that this transaction be treated as a sale of the
Seller's entire right, title and interest in and to the Trust Estate. In
connection with such filing, the Seller agrees that it shall cause to be filed
all necessary continuation statements and amendments thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Trustee's, the Owners' and the Certificate Insurer's
interest in the Trust Estate.
In connection with such sale, transfer, assignment, and conveyance from the
Depositor to the Trustee, the Depositor has filed, in the appropriate office or
offices in the States of New York, California and Missouri, a UCC-1 financing
statement executed by the Depositor as debtor, naming the Trustee as secured
party and listing the Mortgage Loans and the other property described above as
collateral. The characterization of the Depositor as debtor and the Trustee as
secured party in such financing statements is solely for protective purposes and
shall in no way be construed as being contrary to the intent of the parties that
this transaction be treated as a sale of the Depositor's entire right, title and
interest in and to the Trust Estate. In connection with such filing, the
Depositor agrees that it shall cause to be filed all necessary continuation
statements thereof and to take or cause to be taken such actions and execute
such documents as are necessary to perfect and protect the Trustee's, the
Owners' and the Certificate Insurer's interest in the Trust Estate.
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(b) In connection with the transfer and assignment
of the Mortgage Loans, the Depositor agrees to:
(i) deliver without recourse to the Trustee on the Startup Day with
respect to each Mortgage Loan, (A) the original Mortgage Note, endorsed by
the Seller or the originator of such Mortgage Loan, without recourse, in
the following form: "Pay to the order of ________________________ without
recourse", with all intervening endorsements necessary to show a complete
chain of endorsement from the originator to the Seller; (B) the original
recorded Mortgage; (C) a duly executed assignment of the Mortgage in blank
(each such assignment, when duly and validly completed, to be in recordable
form and sufficient to effect the assignment of and transfer to the
assignee thereof, under the Mortgage to which such assignment relates); (D)
the original recorded assignment or assignments of the Mortgage together
with all interim recorded assignments of such Mortgage; (E) the original or
copies of each assumption, modification, written assurance or substitution
agreement, if any; (F) the original or duplicate original lender's
title policy and all riders thereto or, in the event such original title
policy has not been received from the insurer, any one of an original title
binder, an original preliminary title report or an original title
commitment, or a copy thereof certified by the title company, with the
original policy of title insurance to be delivered within one year of the
Closing Date; and (G) the original certificate of Title to each
manufactured home, noting the Trustee as lienholder thereon.
(ii) cause, the Master Servicer to record assignments of Mortgages as
and to the extent provided below; and
(iii) deliver the title insurance policy or title searches, the
original Mortgages and such recorded assignments, together with originals
or duly certified copies of any and all prior assignments, to the Trustee
within 15 days of receipt thereof by the Depositor (but in any event, with
respect to any Mortgage as to which original recording information has been
made available to the Depositor, within one year after the Startup Day).
With respect to each Mortgage Loan, the Master Servicer shall, within six
(6) months of the Closing Date, cause to be recorded with respect to each
Mortgage Loan the original Assignment of Mortgage and shall, within five
Business Days after receipt thereof, deliver or cause to be delivered to the
Trustee the original recorded Assignment of Mortgage, except in the states for
which a legal opinion is delivered to the Trustee and the Certificate Insurer as
provided below and is approved by the Certificate Insurer. In regard to those
states in which Mortgaged Property is located, the Master Servicer shall have
the right to deliver to the Trustee and the Certificate Insurer a legal opinion
providing that the recordation of the Assignment of Mortgage in one or more of
such states is not necessary under state law to transfer the related Mortgage
Loan to the Trust; provided such legal opinion is made and delivered within six
(6) months of the Closing Date, and is in form and substance reasonably
acceptable to the
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Certificate Insurer. Upon approval of such opinion by the Certificate Insurer,
the Master Servicer will not be required to record the related Assignments of
Mortgages. All Assignments of Mortgages shall be delivered to the Trustee in
recordable form at the time of closing, and in such states where no opinion is
so rendered, or is rendered and is deemed to be unacceptable to the Certificate
Insurer, recording of such Assignments of Mortgages will be required.
Notwithstanding the preceding provisions allowing for nonrecordation of
Assignments of Mortgage in certain states, if an Event of Default has occurred
as to a party other than the Certificate Insurer as provided in Article 5 of the
Insurance Agreement, or an event set forth in Section 8.20 of the Pooling and
Servicing Agreement has occurred, the Master Servicer shall be required to
record all Assignments of Mortgage in those states where an opinion has not been
previously delivered and approved.
Notwithstanding anything to the contrary contained in this Section 3.05, in
those instances where the public recording office retains the original Mortgage,
the assignment of a Mortgage or the intervening assignments of the Mortgage
after it has been recorded, the Depositor shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage,
such assignment or assignments of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof.
The Depositor hereby appoints the Trustee its attorney-in-fact for the
purpose of, and with full power in, preparing, executing and recording, on its
behalf, all assignments of Mortgages in the event that the Depositor fails to do
so on a timely basis.
Copies of all Mortgage assignments received by the Trustee shall be
retained in the related File.
All recording required pursuant to this Section 3.05 shall be accomplished
at the expense of the Master Servicer.
(c) In the case of Mortgage Loans which have been prepaid in full after the
Cut-Off Date and prior to the Startup Day, the Depositor, in lieu of the
foregoing, will deliver within six (6) days after the Startup Day to the Trustee
a certification of an Authorized Officer of the Depositor in the form set forth
in Exhibit D.
(d) The Seller shall transfer, assign, set over and otherwise convey,
without recourse, to the Trustee all right, title and interest of the Seller in
and to any Qualified Replacement Mortgage delivered to the Trustee on behalf of
the Trust by the Seller pursuant to Section 3.03, 3.04 or 3.06 hereof and all
its right, title and interest to principal and interest on such Qualified
Replacement Mortgage after the applicable Replacement Cut-Off Date; provided,
however, that the Seller shall reserve and retain all right, title and interest
in and to payments of principal and interest received on such Qualified
Replacement Mortgage on or prior to the applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in connection with the
conveyance of a Qualified Replacement Mortgage therefor, the Trustee will
transfer, assign, set over and otherwise convey without recourse or
representation, on the Seller's order, all of its right, title and interest in
and to such released Mortgage Loan and all the Trust's right, title and interest
to principal and interest on such released Mortgage Loan after the applicable
Replacement Cut-Off Date; provided, however, that the Trust shall reserve and
retain all right, title and interest in and to payments of principal and
interest on such released Mortgage Loan on or prior to the applicable
Replacement Cut-Off Date.
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(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Trustee on behalf of the Trust, the Seller agrees to
(i) deliver without recourse to the Trustee on the date of delivery of such
Qualified Replacement Mortgage the documents set forth in Section 3.05(b)(i) and
(ii) deliver the original Qualified Replacement Mortgage, together with original
or duly certified copies of any and all prior assignments, to the Trustee within
15 days of receipt thereof by the Seller (but in any event within 120 days after
the date of conveyance of such Qualified Replacement Mortgage).
(g) As to each Mortgage Loan released from the Trust in connection with the
conveyance of a Qualified Replacement Mortgage, the Trustee shall deliver on the
date of conveyance of such Qualified Replacement Mortgage and on the order of
the Seller (i) the original Note relating thereto, endorsed in blank, (ii) the
original Mortgage so released and all assignments relating thereto, including an
assignment of such Mortgage to the Seller and (iii) such other documents as
constituted the File with respect thereto.
(h) If a Mortgage assignment is lost or is returned from the recorder's
office unrecorded due to a defect therein, the Seller shall prepare a substitute
assignment or cure such defect, as the case may be, and thereafter cause such
substitute or cured assignment to be duly recorded.
Section 3.06 Acceptance by Trustee; Certain
Substitutions of Mortgage Loans;
Certification by Trustee.
(a) The Trustee agrees to execute and deliver on the Startup Day an
acknowledgment of receipt of the items delivered by the Seller or the Depositor
in the form attached as Exhibit E hereto, and declares that it will hold such
documents and any amendments, replacement or supplements thereto, as well as any
other assets included in the definition of Trust Estate and delivered to the
Trustee, as Trustee in trust upon and subject to the conditions set forth herein
for the benefit of the Owners. The Trustee agrees, for the benefit of the Owners
and the Certificate Insurer, to review such items within 45 days after the
Startup Day (or, with respect to any document delivered after the Startup Day,
within 45 days of receipt and with respect to any Qualified Replacement
Mortgage, within 45 days after the assignment thereof) and to deliver to the
Depositor, the Seller, the Master Servicer and the Certificate Insurer a
certification in the form attached hereto as Exhibit F (a "Pool Certification")
to the effect that, as to each Mortgage Loan listed in the Schedule of Mortgage
Loans (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such Pool Certification as not covered by such Pool
Certification), (i) all documents required to be delivered to it pursuant to
Section 3.05(b)(i) of this Agreement are in its possession, (ii) such documents
have been reviewed by it and have not been mutilated, damaged or torn and relate
to such Mortgage Loan and (iii) based on its examination and only as to the
foregoing documents, the information set forth in (i), (ii) and (v) of the
definition of the Schedule of Mortgage Loans, accurately reflects the
information set forth in the File, subject, in each case, to such exceptions as
provided in Section 3.06(b). The Trustee shall have no responsibility for
reviewing any File except as expressly provided in this subsection 3.06(a).
Without limiting the effect of the preceding sentence, in reviewing any File,
the Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment is in proper form, whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction or whether a blanket assignment is permitted in any
applicable jurisdiction, but shall only be required to determine whether a
document has been executed, that it appears to be what it purports to be and,
where applicable, that it purports to be recorded. The Trustee shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are other
than what they purport to be on their face, nor shall the Trustee be under any
duty to determine independently
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whether there are any intervening assignments or assumption or modification
agreements with respect to any Mortgage Loan.
(b) If the Trustee during such 45-day period finds any document
constituting a part of a File which is not executed, has not been received, or
is unrelated to the Mortgage Loans identified in the Schedule of Mortgage Loans,
or that any Mortgage Loan does not conform to the description thereof as set
forth in the Schedule of Mortgage Loans, the Trustee shall promptly so notify
the Depositor, the Seller, the Certificate Insurer and the Owners. In performing
any such review, the Trustee may conclusively rely on the Seller as to the
purported genuineness of any such document and any signature thereon. It is
understood that the scope of the Trustee's review of the items delivered by the
Seller pursuant to Section 3.05(b)(i) is limited solely to confirming that the
documents listed in Section 3.05(b)(i) have been executed and received, relate
to the Files identified in the Schedule of Mortgage Loans and conform to the
description thereof in the Schedule of Mortgage Loans. The Seller agrees to use
reasonable efforts to remedy a material defect in a document constituting part
of a File of which it is so notified by the Trustee. If, however, within 30 days
after the Trustee's notice to it respecting such defect the Seller has not
remedied the defect and the defect materially and adversely affects the interest
in the related Mortgage Loan of the Owners or of the Certificate Insurer, the
Seller will (or will cause an affiliate of the Seller to) on the next succeeding
Monthly Remittance Date (i) substitute in lieu of such Mortgage Loan a Qualified
Replacement Mortgage and deliver the Substitution Adjustment to the Master
Servicer for deposit in the Collection Account or (ii) purchase such Mortgage
Loan at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Master Servicer for deposit in the
Collection Account.
(c) In addition to the foregoing, the Trustee also agrees to make a review
during the 12th month after the Startup Day indicating the current status of the
exceptions previously indicated on the Pool Certification (the "Final
Certification"). After delivery of the Final Certification, the Trustee shall
provide to the Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
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ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.
On the Startup Day, upon the Trustee's receipt from the Depositor of an
executed Delivery Order in the form set forth as Exhibit G hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02 Sale of Certificates.
At 11:00 a.m. New York City time on the Startup Day (the "Closing"), at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York (or at
such other location acceptable to the Seller), the Seller will sell and convey
the Mortgage Loans and the money, instruments and other property related thereto
to the Depositor and the Depositor will sell and convey the Mortgage Loans and
the money, instruments and other property related thereto to the Trustee, and
the Trustee will deliver (i) to the Underwriters the Class A Certificates with
an aggregate Percentage Interest in each Class equal to 100%, registered in the
name of Cede & Co., or in such other names as the Underwriters shall direct,
against payment of the purchase price thereof by wire transfer of immediately
available funds to the Trustee for the Depositor, and (ii) to the respective
registered owners thereof, a Class X-1 Certificate and a Class X-2 Certificate,
each with a Percentage Interest equal to 100%, registered in the name of the
Seller, a Class R Certificate with a Percentage Interest equal to 99.999%,
registered in the name of the Seller and a Class R Certificate with a Percentage
Interest equal to .001%, registered in the name of the Trustee.
Upon the Trustee's receipt of the entire net proceeds of the sale of the
Class A Certificates, the Trustee shall remit the entire balance of such net
proceeds to the Depositor in accordance with instructions delivered by the
Depositor.
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ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms.
(a) The Certificates are pass-through
securities having the rights described therein and herein.
Notwithstanding references herein or therein with respect to the Certificates
to "principal" and "interest", no debt of any Person is represented thereby, nor
are the Certificates or the underlying Notes guaranteed by any Person (except
that the Notes may be recourse to the Mortgagors thereof to the extent permitted
by law and except for the rights of the Trustee on behalf of the Owners of the
Class A Certificates with respect to the Certificate Insurance Policies).
Subject to Section 8.09, the Certificates are payable solely from payments
received on or with respect to the Mortgage Loans, moneys in the Collection
Account, earnings on moneys and the proceeds of property held as a part of the
Trust Estate and, with respect to the Class A Certificates upon the occurrence
of certain events, from Insured Payments. Each Certificate entitles the Owner
thereof to receive monthly on each Distribution Date, in order of priority of
distributions with respect to such Class of Certificates as set forth in Section
7.03, a specified portion of such payments with respect to the Mortgage Loans
(and, with respect to the Owners of the Class A Certificates, Insured Payments
deposited in the Distribution Account), pro rata in accordance with such Owner's
Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the Trustee any
Certificate with respect to which the Trustee has made the final distribution
due thereon. Any such Certificate as to which the Trustee has made the final
distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement and the related Certificate
Insurance Policy, whether or not such Certificate is ever returned to the
Trustee, except to the extent of a Reimbursement Amount on such Class of
Certificates, in which case the Certificate Insurer will be subrogated to the
rights of such Owner and the Class of Certificate will not be deemed cancelled.
Section 5.02 Forms.
The Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates
and Class A-4 Certificates, the Class X Certificates and the Class R
Certificates shall be in substantially the forms set forth in Exhibits A, B and
C hereof, respectively, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Agreement or as may in the Trustee's judgment be necessary, appropriate or
convenient to comply, or facilitate compliance, with applicable laws, and may
have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
applicable securities laws or as may, consistently herewith, be determined by
the Authorized Officer of the Trustee executing such Certificates, as evidenced
by his execution thereof.
Section 5.03 Execution, Authentication and Delivery.
Each Certificate shall be executed on behalf of the Trust, by the manual or
facsimile signature of one of the Trustee's Authorized Officers and shall be
authenticated by the manual or facsimile signature of one of the Trustee's
Authorized Officers.
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Certificates bearing the manual signature of individuals who were at any
time the proper officers of the Trustee shall, upon proper authentication by the
Trustee, bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the execution and delivery of such
Certificates or did not hold such offices at the date of authentication of such
Certificates.
The initial Certificates shall be dated as of the Startup Day and delivered
at the Closing to the parties specified in Section 4.02 hereof. Subsequently
issued Certificates will be dated as of the issuance of the Certificate.
No Certificate shall be valid until executed and authenticated as set forth
above.
Section 5.04 Registration and Transfer of Certificates.
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Certificate Insurer, the Owners and the Trustee shall have
the right to inspect the Register during the Trustee's normal hours and to
obtain copies thereof, and the Trustee shall have the right to rely upon a
certificate executed on behalf of the Registrar by an Authorized Officer thereof
as to the names and addresses of the Owners of the Certificates and the
principal amounts and numbers of such Certificates.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender for
registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount or Percentage Interest of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate original principal amount or percentage interest and
bearing numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, upon the
direction of the Registrar, the Trustee shall execute, authenticate and deliver
the Certificate or Certificates which the Owner making the exchange is entitled
to receive.
(d) All Certificates issued upon any registration of transfer or exchange
of Certificates shall be valid evidence of the same ownership interests in the
Trust and entitled to the same benefits under this Agreement as the Certificates
surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by the Owner
thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
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(g) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Class A Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Class A Certificate of such Class. Upon initial issuance, the ownership of each
such Class A Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
On the Startup Day, the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-4 Certificates shall be issued in
denominations of no less than $25,000 and multiples of $1,000 in excess thereof
(except that one certificate in each class may be issued in an amount less than
$25,000 or in an integral multiple other than $1,000).
The Depositor and the Trustee are hereby authorized to execute and deliver
the Representation Letter with the Depository.
With respect to the Class A Certificates registered in the Register in the
name of Cede & Co., as nominee of the Depository, the Certificate Insurer, the
Depositor, the Master Servicer, the Seller and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Class A Certificates from time to time as
a Depository. Without limiting the immediately preceding sentence, the
Depositor, the Certificate Insurer, the Master Servicer, the Seller and the
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect
Participant with respect to the ownership interest in the Class A Certificates,
(ii) the delivery to any Direct or Indirect Participant or any other Person,
other than a registered Owner of a Class A Certificate as shown in the Register,
of any notice with respect to the Class A Certificates or (iii) the payment to
any Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of principal and interest by the mailing of checks or drafts to the registered
Owners of Class A Certificates appearing as registered Owners in the
registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing, qualified or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Depositor or the Trustee is unable
to locate a qualified successor, (ii) the Depositor at its sole option elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, beneficial owners having not less than 51% of
the Voting Rights evidenced by the Class A Certificates advise the Trustee and
the Depository through the Direct Participants in writing that the continuation
of a book-entry system through the Depository is no longer in the best interests
of beneficial owners, the Class A Certificates shall no longer be restricted to
being registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Depositor may determine
that the Class A Certificates shall be registered in the name of and deposited
with a successor depository operating a global book-entry system, as may be
acceptable to the Depositor and at the Depositor's expense, or such
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depository's agent or designee but, if the Depositor does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names registered Owners of Class A Certificates
transferring Class A Certificates shall designate, in accordance with the
provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates and all notices with respect to such Class A Certificates
shall be made and given, respectively, in the manner provided in the
Representation Letter.
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or stolen Certificate, there shall be first delivered to
the Trustee such security or indemnity as may be reasonably required by it to
hold the Trustee and the Certificate Insurer harmless, then, in the absence of
notice to the Trustee or the Registrar that such Certificate has been acquired
by a bona fide purchaser, the Trustee shall execute, authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like Class, tenor and aggregate principal
amount, bearing a number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the Registrar
or Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust.
Every new Certificate issued pursuant to this Section in exchange for or in
lieu of any mutilated, destroyed, lost or stolen Certificate shall constitute
evidence of a substitute interest in the Trust, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all other
Certificates of the same Class duly issued hereunder and such mutilated,
destroyed, lost or stolen Certificate shall not be valid for any purpose.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
Section 5.06 Persons Deemed Owners.
The Certificate Insurer, the Trustee and any agent of the Trustee may treat
the Person in whose name any Certificate is registered as the Owner of such
Certificate for the purpose of receiving distributions with respect to such
Certificate and for all other purposes whatsoever, and neither the Certificate
Issuer, the Trustee nor any agent of the Trustee shall be affected by notice to
the contrary.
Section 5.07 Cancellation.
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate cancelled as
provided in this
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Section, except as expressly permitted by this Agreement. All cancelled
Certificates may be held by the Trustee in accordance with its standard
retention policy.
Section 5.08 Limitation on Transfer of Ownership Rights.
(a) No sale or other transfer of record or beneficial ownership of a Class
R Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization or an agent of a Disqualified Organization. The
transfer, sale or other disposition of a Class R Certificate (whether pursuant
to a purchase, a transfer resulting from a default under a secured lending
agreement or otherwise) to a Disqualified Organization shall be deemed to be of
no legal force or effect whatsoever and such transferee shall not be deemed to
be an Owner for any purpose hereunder, including, but not limited to, the
receipt of distributions on such Class R Certificate. Furthermore, in no event
shall the Trustee accept surrender for transfer or registration of transfer, or
register the transfer, of any Class R Certificate nor authenticate and make
available any new Class R Certificate unless the Trustee has received an
affidavit from the proposed transferee in the form attached hereto as Exhibit H.
Each holder of a Class R Certificate by his acceptance thereof, shall be deemed
for all purposes to have consented to the provisions of this Section 5.08(a).
(b) No other sale or other transfer of record or beneficial ownership of a
Class X Certificate or a Class R Certificate shall be made unless such transfer
is exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event such a transfer is to be made within three years from the
Startup Day, (i) the Trustee shall require a written opinion of counsel
acceptable to and in form and substance satisfactory to the Depositor, the
Registrar, the Trustee and the Certificate Insurer in the event that such
transfer may be made pursuant to an exemption, describing the applicable
exemption and the basis therefor, from said Act and laws or is being made
pursuant to said Act and laws, which opinion of counsel shall not be an expense
of the Trustee, the Trust Estate, the Registrar, the Master Servicer, the
Seller, the Depositor or the Certificate Insurer, and (ii) the Trustee shall
require the transferee to execute an investment letter acceptable to and in form
and substance satisfactory to the Depositor, the Registrar, the Trustee and the
Certificate Insurer certifying to the Trustee, the Certificate Insurer, the
Registrar and the Depositor the facts surrounding such transfer, which
investment letter shall not be an expense of the Trustee, the Trust Estate, the
Certificate Insurer, the Registrar, the Master Servicer, the Seller or the
Depositor. The Owner of a Class X Certificate or a Class R Certificate desiring
to effect such transfer shall, and does hereby agree to, indemnify the Trustee,
the Certificate Insurer, the Depositor, the Servicer, the Registrar and the
Seller against any liability that may result if the transfer is not so exempt or
is not made in accordance with such federal and state laws.
(c) No transfer of a Class X or Class R Certificate shall be made unless
the Registrar and Trustee shall have received either: (i) a representation
letter from the transferee of such Class X or Class R Certificate, acceptable to
and in form and substance satisfactory to the Registrar, to the effect that such
transferee is not an employee benefit plan subject to Section 406 of ERISA nor a
plan or other arrangement subject to Section 406 of ERISA nor a plan or other
arrangement subject to Section 4975 of the Code (collectively, a "Plan"), nor is
acting on behalf of any Plan nor using the assets of any Plan to effect such
transfer or in the case of an insurance company purchasing such Certificates,
with funds from its general account, the transfer is covered by the Prohibited
Transaction Class Exemption 95-60 or (ii) in the event that any Class X or Class
R Certificates is purchased by a Plan, or by a person or entity acting on behalf
of any Plan or using the assets of any Plan to effect such transfer, an opinion
of counsel, acceptable to and in form and substance satisfactory to the
Depositor, the Trustee, the Certificate
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Insurer and the Registrar, which opinion of counsel shall not be at the expense
of the Trustee or the Trust, to the effect that the purchase or holding of any
Class X or Class R Certificates will not result in the assets of the Trust being
deemed to be "plan assets," will not cause the Trust to be subject to the
fiduciary requirements and prohibited transaction provisions of ERISA and the
Code, and will not subject the Depositor, Seller, Registrar, Master Servicer,
Certificate Insurer or the Trustee to any obligation or liability in addition to
those expressly undertaken under this Agreement. Notwithstanding anything else
to the contrary herein, any purported transfer of a Certificate to or on behalf
of any Plan without the delivery to the Trustee and the Certificate Insurer of
an opinion of counsel as described above shall be null and void and of no
effect.
(d) No sale or other transfer of any Class A Certificate may be made to an
affiliate of the Seller unless the Trustee and the Certificate Insurer shall
have been furnished with an opinion of counsel, at the expense of the Seller
acceptable to the Certificate Insurer and the Trustee experienced in federal
bankruptcy matters to the effect that such sale or transfer would not adversely
affect the character of the conveyance of the Mortgage Loans to the Trust as a
sale. To the extent any payment to an Owner of a Class A Certificate constitutes
an Insured Payment, such payment will not be made to the Seller, the Depositor
or the Master Servicer or any Subservicer. The Class R Certificate issued to
Trustee on the Startup Day may not be transferred or sold to any Person, except
to a Person who accepts the appointment of Tax Matters Person pursuant to
Section 11.18 hereof.
Section 5.09 Assignment of Rights.
An Owner may pledge, encumber, hypothecate or assign all or any part of its
right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.04 and Section 5.08 hereof.
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ARTICLE VI
COVENANTS
Section 6.01 Distributions.
On each Distribution Date, the Trustee will withdraw amounts from the
Distribution Account and make the distributions with respect to the Certificates
in accordance with the terms of the Certificates and this Agreement. Such
distributions shall be made (i) by check or draft mailed on each Distribution
Date or (ii) if requested by any Owner of (A) a Class A-1, Class A-2, Class A-3
or Class A-4 Certificate having an original principal balance of not less than
$1,000,000 or (B) a Class X Certificate or Class R Certificate having a
Percentage Interest of not less than 10% in writing not later than five Business
Days prior to the applicable Record Date (which request does not have to be
repeated unless it has been withdrawn), to such Owner by wire transfer to an
account within the United States designated no later than five Business Days
prior to the related Record Date, made on each Distribution Date, in each case
to each Owner of record on the immediately preceding Record Date.
Section 6.02 Money for Distributions to be Held in Trust; Withholding.
(a) All payments of amounts due and payable with respect to any Certificate
that are to be made from amounts withdrawn from the Distribution Account or from
Insured Payments shall be made by and on behalf of the Trustee, and no amounts
so withdrawn from the Distribution Account for payments of Certificates and no
Insured Payment shall be paid over to the Trustee except as provided in this
Section.
(b) Whenever the Trustee has appointed one or more Paying Agents pursuant
to Section 11.15 hereof, the Trustee will, on the Business Day immediately
preceding each Distribution Date, cause to be deposited with such Paying Agents
in immediately available funds an aggregate sum sufficient to pay the amounts
then becoming due (to the extent funds are then available for such purpose in
the Distribution Account for the Class to which such amounts are due) such sum
to be held in trust for the benefit of the Owners entitled thereto.
(c) The Trustee may at any time direct any Paying Agent to pay to the
Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
(d) Each Paying Agent, including the Trustee on behalf of the Trust, shall
comply with all requirements of the Code and applicable state and local law with
respect to the withholding from any distributions made by it to any Owner of any
applicable withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
(e) Any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed by the Owner of such Class A Certificate for the period then specified
in the escheat laws of the State of New York after such amount has become due
and payable shall be discharged from such trust and be paid to the Owners of the
Class R Certificates; and the Owner of such Class A Certificate shall
thereafter, as an unsecured general creditor, look only to the Owners of the
Class R Certificates for payment thereof (but only to the extent of the amounts
so paid to the Owners of the Class R Certificates) and all liability of the
Trustee or such
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Paying Agent with respect to such trust money shall thereupon cease; provided,
however, that the Trustee or such Paying Agent before being required to make any
such payment, may, at the expense of the Trust, cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not fewer
than 30 days from the date of such publication, any unclaimed balance of such
money then remaining will be paid to the Owners of the Class R Certificates. The
Trustee shall, at the direction of the Owners of a majority of the Percentage
Interest in the Class R Certificates also adopt and employ, at the expense of
the Trust, any other reasonable means of notification of such payment (including
but not limited to mailing notice of such payment to Owners whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Registrar, the Trustee or any Paying Agent, at the last address
of record for each such Owner).
Section 6.03 Protection of Trust Estate.
(a) The Trustee will hold the Trust Estate in trust for the benefit of the
Owners and the Certificate Insurer and, upon request of the Certificate Insurer
or, with the consent of the Certificate Insurer, at the request of the
Depositor, will from time to time execute and deliver all such supplements and
amendments hereto pursuant to Section 11.14 hereof and all instruments of
further assurance and other instruments, and will take such other action upon
such request from the Depositor or the Certificate Insurer, to:
(i) more effectively hold in trust all or any
portion of the Trust Estate;
(ii) perfect, publish notice of, or protect
the validity of any grant made or to be made by this
Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the rights of the
Trustee, and the ownership interests of the Owners and the Certificate
Insurer represented thereby, in such Trust Estate against the claims of all
Persons and parties.
The Trustee shall send copies of any request received from the Certificate
Insurer or the Depositor to take any action pursuant to this Section 6.03 to the
other parties hereto.
(b) The Trustee shall have the power to enforce, and shall enforce the
obligations and rights of the other parties to this Agreement, and of the
Certificate Insurer or the Owners, by action, suit or proceeding at law or
equity, and shall also have the power to enjoin, by action or suit in equity,
any acts or occurrences which may be unlawful or in violation of the rights of
the Certificate Insurer as such rights are set forth in this Agreement;
provided, however, that nothing in this Section shall require any action by the
Trustee unless the Trustee shall first (i) have been furnished indemnity
satisfactory to it and (ii) when required by this Agreement, have been requested
by the Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class X Certificates and the Class R Certificates; provided,
further, however, that if there is a dispute with respect to payments under the
Certificate Insurance Policies the Trustee's sole responsibility is to the
Owners.
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(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties hereunder, or adversely affect its rights and
immunities hereunder.
Section 6.04 Performance of Obligations.
The Trustee will not take any action that would release any Person from any
of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing its
duties hereunder pursuant to Section 10.03(g).
Section 6.05 Negative Covenants.
The Trustee will not permit the Trust to:
(i) sell, transfer, exchange or
otherwise dispose of any of the Trust Estate
except as expressly permitted by this Agreement;
(ii) claim any credit on, or make any deduction from the distributions
payable in respect of, the Certificates (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Owner by reason of the payment of any taxes levied or
assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty any
indebtedness of any Person except pursuant to this
Agreement;
(iv) dissolve or liquidate in whole or in
part, except pursuant to Article IX hereof;
or
(v) (A) permit the validity or effectiveness of this Agreement to be
impaired, or permit any Person to be released from any covenants or
obligations with respect to the Trust or to the Certificates under this
Agreement, except as may be expressly permitted hereby or (B) permit any
lien, charge, adverse claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden
the Trust Estate or any part thereof or any interest therein or the
proceeds thereof.
Section 6.06 No Other Powers.
The Trustee will not permit the Trust to engage in any business activity or
transaction other than those activities permitted by Section 2.03 hereof.
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Section 6.07 Limitation of Suits.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policies,
or for the appointment of a receiver or trustee of the Trust, or for any other
remedy with respect to an event
of default hereunder, unless:
(1) such Owner has previously given written notice to the Depositor,
the Certificate Insurer and the Trustee of such Owner's intention
to institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the Class A Certificates then Outstanding or, if
there are no Class A Certificates then Outstanding, by such
percentage of the Percentage Interests represented by the Class X
Certificates and the Class R Certificates, shall have made written
request to the Trustee to institute such Proceeding in its own
name as Trustee establishing the Trust;
(3) such Owner or Owners have offered to
the Trustee reasonable indemnity against the
costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt
of such notice, request and offer of
indemnity has failed to institute such
proceeding;
(5) as long as any Class A Certificates are Outstanding, the
Certificate Insurer consented in writing thereto (unless the
Certificate Insurer is the party against whom the proceeding is
directed); and
(6) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Owners of a
majority of the Percentage Interests represented by the Class A
Certificates or, if there are no Class A Certificates then
Outstanding, by such majority of the Percentage Interests
represented by the Class X Certificates and the Class R
Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates and each conforming to
paragraphs (1)-(6) of this Section 6.07, the Certificate Insurer in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provision of this Agreement (unless the Certificate Insurer is the
party against whom the proceeding is directed).
Section 6.08 Unconditional Rights of Owners to Receive Distributions.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
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Section 6.09 Rights and Remedies Cumulative.
Except as otherwise provided herein, no right or remedy herein conferred
upon or reserved to the Trustee, the Certificate Insurer or the Owners is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. Except as otherwise provided herein, the assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 6.10 Delay or Omission Not Waiver.
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement with respect to
any event described in Section 8.20(a) or (b) shall impair any such right or
remedy or constitute a waiver of any such event or an acquiescence therein.
Every right and remedy given by this Article VI or by law to the Trustee, the
Certificate Insurer or the Owners may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, the Certificate Insurer or the
Owners, as the case may be.
Section 6.11 Control by Owners.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class X Certificates and the Class R Certificates then
Outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee with respect to the Certificates or
exercising any trust or power conferred on the Trustee with respect to the
Certificates or the Trust Estate, including, but not limited to, those powers
set forth in Section 6.03 and Section 8.20 hereof, provided that:
(i) such direction shall not be in conflict with
any rule of law or with this Agreement;
(ii) the Trustee shall have been provided with
indemnity satisfactory to it; and
(iii) the Trustee may take any other action deemed
proper by the Trustee, as the case may
be, which is not inconsistent with such
direction; provided, however, that the
Trustee need not take any action which it
determines might involve it in liability or
may be unjustly prejudicial to the Owners
not so directing.
Section 6.12 Indemnification.
The Depositor agrees to indemnify and hold the Trustee, the Certificate
Insurer and each Owner harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Trustee, the Certificate Insurer and any Owner
may sustain in any way related to the negligent or willful failure of the
Depositor to perform its duties in compliance with the terms of this Agreement.
The Depositor shall immediately notify the Trustee, the Certificate Insurer and
each Owner if such a claim is made by a third party with respect to this
Agreement, and the Depositor shall assume (with the consent of the Trustee) the
defense of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay,
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discharge and satisfy any judgment or decree which may be entered against the
Master Servicer, the Seller, the Trustee, the Certificate Insurer and/or any
Owner in respect of such claim. The Trustee shall reimburse the Depositor from
amounts otherwise distributable on the Class X or Class R Certificates for all
amounts advanced by it pursuant to the preceding sentence, except when the claim
relates directly to the failure of the Depositor to perform its duties in
compliance with the terms of this Agreement based upon an opinion of counsel (at
the expense of the Depositor) delivered to the Trustee and the Certificate
Insurer. In addition to the foregoing, the Seller agrees to indemnify and hold
the Trustee, the Certificate Insurer and each Owner harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments, and other costs, fees and expenses that the Trustee, the Certificate
Insurer and any Owner may sustain in any way related to the breach by the Seller
of its representations and warranties set forth in Section 3.04(a) hereof with
respect to a Mortgage Loan if such Mortgage Loan qualifies as a "high cost
mortgage" pursuant to Section 226.32 of the Truth-in-Lending Act, as amended.
The provisions of this Section 6.12 shall survive the termination of this
Agreement and the resignation or removal of the Trustee hereunder and the
payment of the outstanding Certificates.
Section 6.13 Access to Owners of Certificates' Names and Addresses. (a) If
any Owner (for purposes of this Section 6.13, an "Applicant") applies in writing
to the Trustee, and such application states that the Applicant desires to
communicate with other Owners 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 Trustee shall, at the
expense of such Applicant, within ten (10) Business Days after the receipt of
such application, furnish or cause to be furnished to such Applicant a list of
the names and addresses of the Owners of record as of the most recent Record
Date.
(b) Every Owner, by receiving and holding such list, agrees with the
Trustee that the Trustee shall not be held accountable in any way by reason of
the disclosure of any information as to the names and addresses of the owners
hereunder, regardless of the source from which such information was derived.
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ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money.
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement or the Certificate Insurance Policies,
including (a) all payments due on the Mortgage Loans in accordance with the
respective terms and conditions of such Mortgage Loans and required to be paid
over to the Trustee by the Master Servicer or by any Sub-Servicer and (b)
Insured Payments. The Trustee shall hold all such money and property received by
it, other than pursuant to or as contemplated by Section 6.02(e) hereof, as part
of the Trust Estate and shall apply it as provided in this Agreement.
Section 7.02 Establishment of Accounts;
(a) The Depositor shall cause to be established on the Startup Day, and the
Trustee shall maintain, at the Corporate Trust Office, the Distribution Account,
which is to be held by the Trustee on behalf of the Owners of the Certificates,
the Trustee and the Certificate Insurer, as their interests may appear.
(b) [Reserved.]
(c) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer) with respect to the related Distribution Date, the
amount that is on deposit in the Distribution Account as of such Distribution
Date for the Fixed Rate Group (disregarding the amount of any Insured Payments
as well as any amounts that cannot be distributed to the Owners of the Class A
Certificates, if any, by the Trustee as a result of a proceeding under the
United States Bankruptcy Code), which amount will be equal to the sum of (x) the
amount on deposit therein with respect to such Fixed Rate Group excluding the
amount of any Total Monthly Excess Cashflow from the Fixed Rate Group included
in such amount plus (y) any amount of Total Monthly Excess Cashflow from the
Adjustable Rate Group to be applied on such Distribution Date to the Fixed Rate
Certificates. The amount described in clause (x) of the preceding sentence with
respect to each Distribution Date is the "Fixed Rate Group Available Funds"; the
sum of the amounts described in clauses (x) and (y) of the preceding sentence
with respect to each Distribution Date is the "Fixed Rate Group Total Available
Funds."
(d) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer) with respect to the related Distribution Date, the
amount that is on deposit in the Distribution Account as of such Distribution
Date for the Adjustable Rate Group (disregarding the amount of any Insured
Payments as well as any amounts that cannot be distributed to the Owners of the
Class A Certificates, if any, by the Trustee as a result of a proceeding under
the United States Bankruptcy Code), which amount will be equal to the sum of (x)
the amount on deposit therein with respect to such Group excluding the amount of
any Total Monthly Excess Cashflow from the Adjustable Rate Group included in
such amount plus (y) any amount of Total Monthly Excess Cashflow from the Fixed
Rate Group to be applied on such Distribution Date to the Class A-4
Certificates. The amount described in clause (x) of the preceding sentence with
respect to each Distribution Date is the "Adjustable Rate Group Available
Funds"; the sum of the amounts
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described in clauses (x) and (y) of the preceding sentence with respect to each
Distribution Date is the "Adjustable Rate Group Total Available Funds."
Collectively, the Fixed Rate Group Total Available Funds and the Adjustable Rate
Group Total Available Funds is the "Total Available Funds."
Section 7.03 Flow of Funds.
(a) With respect to the Fixed Rate Group, the Trustee shall deposit to the
Distribution Account, without duplication, upon receipt, any Insured Payments
relating to such Group, the proceeds of any liquidation of the assets of the
Trust insofar as such assets relate to the Fixed Rate Group, all remittances
made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such assets
relate to the Fixed Rate Group, and the Fixed Rate Group Monthly Remittance
Amount, to the extent remitted by the Master Servicer.
(b) With respect to the Adjustable Rate Group, the Trustee shall deposit to
the Distribution Account without duplication, upon receipt, any Insured Payments
relating to such Group, the proceeds of any liquidation of the assets of the
Trust insofar as such assets relate to the Adjustable Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Adjustable Rate Group and the Adjustable Rate Group Monthly
Remittance Amount, to the extent remitted by the Master Servicer.
(c) With respect to the Distribution Account, on each Distribution Date,
the Trustee shall make the following allocations, disbursements and transfers
for each Mortgage Loan Group from amounts deposited therein pursuant to
subsections (a) and (b), respectively, in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, on each Distribution Date, the Trustee shall allocate an amount
equal to the sum of (x) the Total Monthly Excess Spread with respect to such
Mortgage Loan Group and Distribution Date plus (y) any Subordination Reduction
Amount with respect to such Mortgage Loan Group and Distribution Date (such sum
being the "Total Monthly Excess Cashflow" with respect to such Mortgage Loan
Group and Distribution Date) with respect to such Mortgage Loan Group in the
following order of priority:
(A) first, such Total Monthly Excess
-----
Cashflow with respect to each Mortgage
Loan Group shall be allocated to the
payment of the related Class A
Distribution Amount pursuant to
clauses (iii)(A) or
(iii)(D), as applicable, below
on such Distribution Date with
respect to the related Mortgage Loan
Group in an amount equal to the
amount, if any, by which (x) the
related Class A Distribution Amount
(calculated for this purpose only by
reference to clause (b) of the
definition of the Fixed Rate Group
Principal Distribution Amount or
Adjustable Rate Group Principal
Distribution Amount, as the case may
be, and without any Subordination
Increase Amount with respect to the
related Mortgage Loan Group) for
such Distribution Date exceeds (y)
the Available Funds with respect to
such Mortgage Loan Group for such
Distribution Date (the amount of such
difference being the "Fixed Rate
Group Available Funds Shortfall"
with respect to the Fixed Rate
Group, and the "Adjustable Rate
Group Available Funds Shortfall"
with respect to the Adjustable Rate
Group);
(B) second, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocation described in clause (A)
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above shall be allocated against any
Available Funds Shortfall with respect to
the other Mortgage Loan Group;
(C) third, any portion of the Total Monthly
-----
Excess Cashflow with respect to
such Mortgage Loan Group
remaining after the allocations
described in clauses (A) and (B)
above shall be disbursed to the
Certificate Insurer in respect of
amounts owed on account of any
Reimbursement Amount with respect to
the related Mortgage Loan Group; and
(D) fourth, any portion of the Total
------
Monthly Excess Cashflow with
respect to such Mortgage Loan Group
remaining after the allocations
described in clauses (A), (B)
and (C) above shall be disbursed to
the Certificate Insurer in respect of
any Reimbursement Amount with respect
to the other Mortgage Loan Group.
(ii) second, on each Distribution Date, the
------
Trustee shall apply the amount, if any,
of the Total Monthly Excess Cashflow
with respect to a Mortgage Loan Group
on a Distribution Date remaining after the
allocations described in clause (i) above
(the "Net Monthly Excess Cashflow")
for such Mortgage Loan Group and
Distribution Date in the following order
of priority:
(A) first, such Net Monthly Excess
-----
Cashflow shall be used to reduce to
zero, through the allocation of a
Subordination Increase Amount to the
payment of the related Class A
Distribution Amount pursuant to clause
(iii) below, any Subordination
Deficiency Amount with respect to the
related Mortgage Loan Group as of
such Distribution Date;
(B) second, any Net Monthly Excess
Cashflow remaining after the application
described in clause (A) above shall be used to reduce to
zero, through the allocation of a Subordination Increase
Amount to the payment of the related Class A Distribution
Amount pursuant to clause (iii) below, the Subordination
Deficiency Amount, if any, with respect to the other Mortgage
Loan Group; and
(C) third, any Net Monthly Excess Cashflow remaining after the
applications described in clauses (A) and (B) above shall be
paid to the Master Servicer to the extent of any unreimbursed
P&I Advances and unreimbursed Servicing Advances:
(iii) third, following the making by the
-----
Trustee of all allocations, transfers and
disbursements described above under this
subsection (c), from amounts (including
any related Insured Payment) then on deposit
in the Distribution Account with respect to
the related Mortgage Loan Group, the
Trustee shall distribute:
(A) to the Owners of the Class A
Certificates of the related Mortgage
Loan Group, the Fixed Rate Group
Current Interest or Class A-4
Current Interest, as applicable, on
a pro rata basis without any priority
among such Class A Certificates,
until the applicable Class A
Certificate Termination Date;
(B) to the Certificate Insurer, on each Distribution Date for the
related Mortgage Loan Group, beginning with the Distribution
Date which occurs in April 1997,
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the prorated Insurance Premium Amount determined by the relative
Certificate Principal Balance of the related Classes of Class A
Certificates for such
Distribution Date;
(C) to the Trustee, the Trustee Fees
with respect to such Mortgage Loan
Group then due;
(D) to the Owners of the related Class
of Class A Certificates, (I)
the Fixed Rate Group Principal
Distribution Amount shall be distributed
as follows: (a) first, to the
Owners of the Class A-1
Certificates until the Class A-1
Certificate Termination Date, (b)
second, to the Owners of the
Class A-2 Certificates until the
Class A-2 Certificate Termination
Date and (c) third, to the Owners
of the Class A-3 Certificates
until the Class A-3 Certificate
Termination Date and (II) the
Adjustable Rate Group Principal
Distribution Amount shall be distributed
to the Owners of the Class A-4
Certificates until the Class A-4
Certificate Termination Date;
(E) to the Class A-4 Certificates, the
Basis Risk Carryover Amount
outstanding on such Distribution Date;
(F) to the Owners of the related Class
of Class A Certificates, any Net
Prepayment Interest Shortfalls or the
interest portion of reductions due to
the Relief Act incurred by such
Class of Certificates which remain
outstanding on such Distribution Date,
on a pro rata basis among such
Classes of Certificates;
(G) to the Depositor and the Master
Servicer to the extent of costs,
expenses and liabilities incurred
pursuant to Section 8.05 below;
(H) to the Owners of the Class X
Certificates, the Class X-1
Distribution Amount and Class X-2
Distribution Amount; and
(I) to the Owners of the Class R Certificates, any amounts
remaining in the Distribution Account.
(d) Notwithstanding Section 7.03(c) above,
on any Distribution Date during the continuance of any
Certificate Insurer Default:
(i) Any amounts otherwise payable to the Certificate Insurer as
Insurance Premium Amounts or Reimbursement Amounts shall be
retained in the Distribution Account as Total Available Funds;
and
(ii) If there is a Subordination Deficit
for the Fixed Rate Group, then the
Class A Principal Distribution
Amount for the Fixed Rate
Certificates for such Distribution Date
shall be distributed pro rata to the
Owners of any Outstanding Class A
Certificates on such Distribution Date.
(e) Notwithstanding clause (c)(iii) above, the aggregate amounts
distributed on all Distribution Dates to the Owners of the Class A Certificates
on account of principal pursuant to clause (c)(iii)(D) shall not exceed the
original Certificate Principal Balance of the related Certificates.
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(f) Upon receipt of Insured Payments from the Certificate Insurer on behalf
of the Owners of the Class A Certificates, the Trustee shall deposit such
Insured Payments in the Distribution Account and shall distribute such Insured
Payments, or the proceeds thereof, (i) in the case of the Fixed Rate
Certificates, through the Distribution Account to the Owners of such
Certificates and (ii) in the case of the Class A-4 Certificates, through the
Distribution Account to the Owners of such Certificates.
(g) Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Class A Certificates which is
made with moneys received pursuant to the terms of a Certificate Insurance
Policy shall not be considered payment of such Certificates from the Trust and
shall not result in the payment of or the provision for the payment of the
principal of or interest on such Certificates within the meaning of Section
7.03. The Depositor, the Master Servicer and the Trustee acknowledge, and each
Owner by its acceptance of a Certificate agrees, that without the need for any
further action on the part of the Certificate Insurer, the Depositor, the Master
Servicer, the Trustee or the Registrar (a) to the extent the Certificate Insurer
makes payments, directly or indirectly, on account of principal of or interest
on any Class A Certificates to the Owners of such Certificates, the Certificate
Insurer will be fully subrogated to the rights of such Owners and (b) the
Certificate Insurer shall be paid such principal and interest only from the
sources and in the manner provided herein for the payment of such principal and
interest. In the event that the Owners of the Class A Certificates shall have
received the full amount of the Class A Distribution Amount for such
Distribution Date, the Certificate Insurer shall be entitled to receive the
related Reimbursement Amount pursuant to Section 7.03(c)(i) hereof. The Trustee
or Paying Agent shall (i) receive as attorney-in-fact of each Owner of Class A
Certificates any Insured Payment from the Certificate Insurer and (ii) disburse
the same to the Owners of the related Class A Certificates as set forth in
Section 7.03(c)(iii).
It is understood and agreed that the intention of the parties is that the
Certificate Insurer shall not be entitled to receive all or any portion of
Reimbursement Amounts unless on such Distribution Date the Owners of the Class A
Certificates shall also have received the full amount of the Class A
Distribution Amount for such Distribution Date.
The rights of the Owners to receive distributions from the proceeds of the
Trust Estate, and all ownership interests of the Owners in such distributions,
shall be as set forth in this Agreement. In this regard, all rights of the
Owners of the Class X Certificates and the Class R Certificates to receive
distributions in respect of the Class X Certificates and the Class R
Certificates, and all ownership interests of the Owners of the Class X
Certificates and the Class R Certificates in and to such distributions, shall be
subject and subordinate to the preferential rights of the holders of the Class A
Certificates to receive distributions thereon and the ownership interests of
such Owners in such distributions, as described herein. In accordance with the
foregoing, the ownership interests of the Owners of the Class X Certificates and
the Class R Certificates in amounts deposited in the Accounts from time to time
shall not vest unless and until such amounts are distributed in respect of the
Class X Certificates and the Class R Certificates in accordance with the terms
of this Agreement. Notwithstanding anything contained in this Agreement to the
contrary, the Owners of the Class X Certificates and the Class R Certificates
shall not be required to refund any amount properly distributed on the Class X
Certificates and the Class R Certificates pursuant to this Section 7.03.
Section 7.04 Reserved.
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Section 7.05 Investment of Accounts.
(a) Consistent with any requirements of the Code, all or a portion of the
Distribution Account held by the Trustee for the benefit of the Owners shall be
invested and reinvested by the Trustee in the name of the Trustee for the
benefit of the Owners and the Certificate Insurer, as directed in writing by the
Master Servicer, in one or more Permitted Investments bearing interest or sold
at a discount. If the Master Servicer shall have failed to give investment
directions to the Trustee then the Trustee shall invest in money market funds
described in Section 7.07(i) to be redeemable without penalty no later than the
Business Day immediately preceding the next Distribution Date. The bank serving
as Trustee or any affiliate thereof may be the obligor on any investment which
otherwise qualifies as an Permitted Investment. No investment in any Account
shall mature later than the Business Day immediately preceding the next
Distribution Date.
(b) If any amounts are needed for disbursement from any Account held by the
Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. No investments will be
liquidated prior to maturity unless the proceeds thereof are needed for
disbursement.
(c) Subject to Section 10.01 hereof, the Trustee shall not in any way be
held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any Permitted Investment included therein (except to
the extent that the bank serving as Trustee is the obligor thereon).
(d) All income or other gain from investments in any Account held by the
Trustee shall be deposited in such Account immediately on receipt, and any loss
resulting from such investments shall be charged to such Account, as
appropriate, subject to the provisions of Section 8.08(b) requiring that the
Master Servicer contribute funds in an amount equal to such loss on such
Accounts and permitting the Master Servicer to retain all income or gain with
respect to investments of funds on such Accounts.
Section 7.06 Payment of Trust Expenses.
(a) The Trustee shall make demand on the Master Servicer to pay the amount
of the reasonable expenses of the Trust (other than payments of premiums to the
Certificate Insurer) (including Trustee's fees and expenses not covered by
Section 7.03(c)(iii)(C)) and the Master Servicer shall promptly pay such
reasonable expenses directly to the Persons to whom such amounts are due.
(b) The Master Servicer shall pay directly the reasonable fees and expenses
of counsel to the Trustee.
Section 7.07 Permitted Investments.
The following are Permitted Investments:
(a) direct general obligations of, or obligations fully and unconditionally
guaranteed as to the timely payment of principal and interest by, the United
States or any agency or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States, Federal Housing
Administration debentures, FHLMC senior debt obligations, and FNMA senior debt
obligations, but excluding any of such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or call for redemption;
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(b) Federal Housing Administration debentures;
(c) Consolidated senior debt obligations of any
Federal Home Loan Banks;
(d) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated A-1 or
better by Standard & Poor's and P-1 or better by Moody's;
(e) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is Baa3 or better by Moody's and BBB or better by
Standard & Poor's) which has combined capital, surplus and undivided profits of
at least $50,000,000 which deposits are insured by the FDIC and held up to the
limits insured by the FDIC;
(f) Investment agreements approved by the
Certificate Insurer provided:
1. The agreement is with a bank or insurance company which has unsecured,
uninsured and unguaranteed senior debt obligation rated Aa2 or better by Moody's
and AA or better by Standard & Poor's, or is the lead bank of a parent bank
holding company with an uninsured, unsecured and unguaranteed senior debt
obligation meeting such rating requirements, and
2. Moneys invested thereunder may be withdrawn without any penalty, premium
or charge upon not more than one day's notice (provided such notice may be
amended or canceled at any time prior to the withdrawal date), and
3. The agreement is not subordinated to any other
obligations of such insurance company or bank, and
4. The same guaranteed interest rate will be
paid on any future deposits made pursuant to such
agreement, and
5. The Trustee receives an opinion of
counsel that such agreement is an enforceable obligation
of such insurance company or bank;
(g) Repurchase agreements collateralized by securities described in (a)
above with any registered broker/dealer subject to the Securities Investors
Protection Corporation's jurisdiction and subject to applicable limits therein
promulgated by Securities Investors Protection Corporation or any commercial
bank, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed
short-term or long-term obligation rated P-1 or Aa2, respectively, or better by
Moody's and A-1+ or AA, respectively, or better by Standard & Poor's, provided:
a. A master repurchase agreement or specific
written repurchase agreement governs the transaction,
and
b. The securities are held free and clear of any lien by the Trustee or
an independent third party acting solely as agent for the Trustee, and such
third party is (a) a Federal Reserve Bank, (b) a bank which is a member of
the FDIC and which has combined capital, surplus and undivided profits of
not less than $125 million, or (c) a bank approved in writing for such
purpose by the Certificate Insurer, and the Trustee shall have received
written confirmation from
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such third party that it holds such securities, free
and clear of any lien, as agent for the Trustee,
and
c. A perfected first security interest under
the Uniform Commercial Code, or book entry
procedures prescribed at 31 CFR 306.1 et
seq. or 31 CFR 350.0 et seq., in
such securities is created for the benefit of the
Trustee, and
d. The repurchase agreement has a term of thirty days or less and the
Trustee will value the collateral securities no less frequently than weekly
and will liquidate the collateral securities if any deficiency in the
required collateral percentage is not restored within two business days of
such valuation, and
e. The fair market value of the collateral securities in relation to
the amount of the repurchase obligation, including principal and interest,
is equal to at least 106%.
(h) Commercial paper (having original maturities of not more than 270 days)
rated in the highest short-term rating categories of Standard & Poor's and
Moody's; and
(i) Investments in no load money market funds
rated AAAm or AAAm-G by Standard & Poor's and
Aaa by Moody's;
provided that no instrument described above shall evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that all instruments described hereunder shall mature at par on or prior to the
next succeeding Distribution Date unless otherwise provided in this Agreement
and that no instrument described hereunder may be purchased at a price greater
than par if such instrument may be prepaid or called at a price less than its
purchase price prior to stated maturity.
Section 7.08 Accounting and Directions by
Trustee.
On the third Business Day prior to each Distribution Date occurring on or
prior to the later to occur of the Class A-1 Certificate Termination Date, Class
A-2 Certificate Termination Date, Class A-3 Certificate Termination Date and
Class A-4 Certificate Termination Date, the Trustee shall determine, no later
than 12:00 noon New York time on such date, whether an Insured Payment will be
required to be made by the Certificate Insurer on the following Distribution
Date. If the Trustee determines that an Insured Payment will be required to be
made by the Certificate Insurer on the following Distribution Date then no later
than 12:00 noon on the third Business Day immediately preceding the related
Distribution Date the Trustee shall furnish the Certificate Insurer and the
Depositor with a completed Notice in the form set forth as Exhibit A to the
applicable Certificate Insurance Policy. The Notice shall specify the amount of
Insured Payment and shall constitute a claim for an Insured Payment pursuant to
such Certificate Insurance Policy.
Section 7.09 Reports by Trustee to Owners
and Certificate Insurer.
(a) On each Distribution Date the Trustee shall report in writing to the
Depositor, each Owner, the Certificate Insurer, the Underwriters, Standard &
Poor's and Moody's:
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(i) the amount of the related distribution to Owners of each Class of
Certificates allocable to principal, separately identifying the aggregate
amount of any Prepayments included therein, any principal portion of any
Carry Forward Amount included in such distribution and any remaining
principal portion of any Carry Forward Amount after giving effect to such
distribution;
(ii) the amount of such distribution to Owners of such Class of
Certificates allocable to interest, any Compensating Interest, any interest
portion of any Carry Forward Amount included in such distribution, any
remaining interest portion of any Carry Forward Amount after giving effect
to such distribution, any amount paid on account of any outstanding Basis
Risk Carryover Amount and any remaining Basis Risk Carryover Amount after
giving effect to such distribution;
(iii) the Certificate Principal Balance of each Class of Class A
Certificates after giving effect to the distribution of principal on such
Distribution Date;
(iv) the aggregate Loan Balance of the
Mortgage Loans in each Loan Group for the
following Distribution Date;
(v) the related amount of the Servicing Fees Insurance Premium Amount and
Trustee Fee paid to or retained by the Master Servicer or paid to the
Certificate Insurer or the Trustee;
(vi) the Pass-Through Rate for each such Class of Class A Certificates
with respect to the current Accrual Period;
(vii) the amount of P&I Advances and Servicing Advances, stated separately,
included in the distribution on such Distribution Date and the aggregate
amount of P&I Advances and Servicing Advances, stated separately,
outstanding as of the close of business of such Distribution Date;
(viii) the number and aggregate Loan Balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure)(1) 1 to 30 days,
(2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in
foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to
90 days and (4) 91 or more days, as of the close of business on the last
day of the calendar month preceding such Distribution Date to the extent
not collected by the related Determination Date;
(ix) with respect to any Mortgage Loan that became an REO Property during
the preceding calendar month, the loan number and principal balance of such
Mortgage Loan as of the close of business on the Determination Date
preceding such Distribution Date and the date of acquisition thereof;
(x) the total number and principal balance of any REO Properties as of
the close of business on the Determination Date preceding such Distribution
Date;
(xi) the amount of any Insured Payment included in the amounts distributed
to the holders of each Class of the Class A Certificates on such
Distribution Date;
(xii) the aggregate Loan Balance of all Mortgage Loans and the aggregate
Loan Balance of the Mortgage Loans in each Loan Group after giving effect
to any payment of principal on such Distribution Date;
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(xiii) the Subordinated Amount and Subordination Deficit for each Loan
Group, if any, remaining after giving effect to all distributions and
transfers on such Distribution Date;
(xiv) based upon information furnished by the Master Servicer such
information as may be required by Section 6049(d)(7)(C) of the Code and the
regulations promulgated thereunder to assist the holders of the Class A
Certificates in computing their market discount;
(xv) the total of any Substitution Adjustments or Loan Purchase Price
amounts included in such distribution with respect to each Loan Group;
(xvi) the weighted average Mortgage Rate of the
Mortgage Loans with respect to each Loan Group;
(xvii) the largest Loan Balance outstanding; and
(xviii) such other information as the Certificate Insurer may reasonably
request with respect to delinquent Mortgage Loans.
The Master Servicer shall provide to the Trustee the information described
in Section 8.08(d)(ii) and in clause (b) below no later than 12:00 p.m., New
York time, on the second Business Day following the Determination Date to enable
the Trustee to perform its reporting obligations under this Section, and such
obligations of the Trustee under this Section are conditioned upon such
information being received and the information provided shall be based solely
upon information contained in the monthly servicing report provided by the
Master Servicer to the Trustee pursuant to Section 8.08(d)(ii) hereof.
(b) The Master Servicer shall furnish to the Trustee and to the Certificate
Insurer, during the term of this Agreement, such periodic, special, or other
reports or information not specifically provided for herein, as any be
necessary, reasonable, or appropriate with respect to the Trustee or the
Certificate Insurer, as the case may be, or otherwise with respect to the
purposes of this Agreement, all such reports or information to be provided by
and in accordance with such applicable instructions and directions as the
Trustee or the Certificate Insurer may reasonably require.
Section 7.10 Reports by Trustee.
(a) The Trustee shall, at the request of the Depositor, the Seller or the
Certificate Insurer, transmit promptly to the Depositor, the Seller and the
Certificate Insurer copies of all accountings of receipts in respect of the
Mortgage Loans furnished to it by the Master Servicer and shall notify the
Depositor, the Seller and the Certificate Insurer if any Monthly Remittance
Amount has not been received by the Trustee when due.
(b) The Trustee shall report to the Certificate Insurer and each Owner with
respect to any written notices it may from time to time receive which provide an
Authorized Officer with actual knowledge that any of the statements set forth in
Section 3.04(b) hereof are inaccurate.
Section 7.11 Preference Payments.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the
Certificate Insurer of (i) a certified copy of such order, (ii) an opinion of
counsel satisfactory to the Certificate Insurer that such order is final and not
subject to
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appeal, (iii) an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Owners relating to or arising under the Class A Certificates
against the debtor which made such Preference Amount or otherwise with respect
to such Preference Amount and (iv) appropriate instruments to effect the
appointment of the Certificate Insurer as agent for such owner in any legal
proceeding related to such Preference Amount, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents are
received after 12:00 noon New York City time on such Business Day, they will be
deemed to be received on the following Business Day. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Trustee or any Owner of Class A
Certificate directly (unless an Owner of a Class A Certificate has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order, in which case such payment shall be disbursed
to the Trustee for distribution to such Owner upon proof of such payment
reasonably satisfactory to the Certificate Insurer).
Each Owner of a Class A Certificate, by its purchase of Class A
Certificates, the Master Servicer and the Trustee hereby agree that the
Certificate Insurer may at any time during the continuation of any proceeding
relating to a preference claim direct all matters relating to such preference
claim, including, without limitation, the direction of any appeal of any order
relating to such preference claim and the posting of any surety or performance
bond pending any such appeal. In addition and without limitation of the
foregoing, the Certificate Insurer shall be subrogated to the rights of the
Master Servicer, the Trustee and the Owner of each Class A Certificate in the
conduct of any such preference claim, including, without limitation, all rights
of any party to an adversary proceeding action with respect to any court order
issued in connection with any such preference claim.
Each Owner of a Class A Certificate will promptly notify the Trustee in
writing upon the receipt of a court order relating to a Preference Amount and
will be required to enclose a copy of such order with such notice to the
Trustee.
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ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.01 Master Servicer and Sub-Servicers.
Acting directly or through one or more Sub-Servicers as provided in Section
8.03, the Master Servicer shall service and administer the Mortgage Loans in
accordance with this Agreement and the servicing standards set forth in the FNMA
Guide and shall have full power and authority, acting alone, to do or cause to
be done any and all things in connection with such servicing and administration
which it may deem in its reasonable opinion, necessary or desirable. It is the
intent of the parties hereto that the Master Servicer shall have all of the
servicing obligations hereunder which a lender would have under the FNMA Guide
(as such provisions relate to first or second lien mortgages); provided,
however, that to the extent that such standards, such obligations or the FNMA
Guide are amended by FNMA after the date hereof and the effect of such amendment
would be to impose upon the Master Servicer any material additional costs or
other burdens relating to such servicing obligations, the Master Servicer may,
at its option, determine not to comply with such amendment.
Subject to Section 8.03 hereof, the Master Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Mortgage Loans through a Sub-Servicer as it may from time to
time designate, but no such designation of a Sub-Servicer shall serve to release
the Master Servicer from any of its obligations under this Agreement. Such Sub-
Servicer shall have all the rights and powers of the Master Servicer with
respect to such Mortgage Loans under this Agreement.
Without limiting the generality of the foregoing, but subject to Sections
8.13 and 8.14, the Master Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Trustee to execute and deliver, and may be
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners and the Trustee or any of them, (i) any and all instruments
of satisfaction or cancellation or of partial or full release or discharge and
all other comparable instruments with respect to the Mortgage Loans and with
respect to the Mortgaged Properties, and (ii) to institute foreclosure
proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of
any Mortgaged Property in the name of the Trustee; provided, however, that to
the extent any instrument described in clause (i) preceding would be delivered
by the Master Servicer outside of its usual procedures for mortgage loans held
in its own portfolio, the Master Servicer shall, prior to executing and
delivering such instrument, obtain the prior written consent of the Certificate
Insurer, and provided further, however, that Section 8.14(a) shall constitute an
authorization from the Trustee to the Master Servicer to execute an instrument
of satisfaction (or assignment of mortgage without recourse) with respect to any
Mortgage Loan paid in full (or with respect to which payment in full has been
escrowed). The Trustee shall execute any documentation furnished to it by the
Master Servicer for recordation by the Master Servicer in the appropriate
jurisdictions as shall be necessary to effectuate the foregoing. Subject to
Sections 8.13 and 8.14, the Trustee shall execute any authorizations and other
documents as the Master Servicer or such Sub-Servicer shall reasonably request
that are furnished to the Trustee to enable the Master Servicer and such
Sub-Servicer to carry out their respective servicing and administrative duties
hereunder.
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The Master Servicer shall give prompt notice to the Trustee and the
Certificate Insurer of any action, of which the Master Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
Servicing Advances incurred by the Master Servicer or any Sub-Servicer in
connection with the servicing of the Mortgage Loans (including any penalties in
connection with the payment of any taxes and assessments or other charges) on
any Mortgaged Property shall be recoverable by the Master Servicer or such
Sub-Servicer to the extent described in Section 8.09(b) hereof.
Section 8.02 Collection of Certain Mortgage Loan Payments.
The Master Servicer shall use reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any applicable Insurance Policy, follow collection procedures
for all Mortgage Loans at least as rigorous as those described in the FNMA
Guide. Consistent with the foregoing, the Master Servicer may in its discretion
waive or permit to be waived any late payment charge, prepayment charge,
assumption fee or any penalty interest in connection with the prepayment of a
Mortgage Loan or any other fee or charge which the Master Servicer would be
entitled to retain hereunder as servicing compensation. In the event the Master
Servicer shall consent to the deferment of the due dates for payments due on a
Note, the Master Servicer shall nonetheless make payment of any required P&I
Advance with respect to the payments so extended to the same extent as if such
installment were due, owing and Delinquent and had not been deferred, and shall
be entitled to reimbursement therefor in accordance with Section 8.09(a) hereof.
The Master Servicer may waive, modify or vary terms of the Mortgage Loans
provided that no such action will (A) decrease the interest rate on the Mortgage
Loan, (B) defer or forgive the payment of principal or interest (except with
respect to liquidation of such Mortgage Loan) or (C) extend the final maturity
date of such Mortgage Loan, provided, however, that no such modification shall
be permitted to the extent that it would result in the occurrence of a
prohibited transaction. In addition, if the aggregate principal balance of the
Mortgage Loans with respect to such waivers, modifications or variations which
have been granted equals or exceeds 3% of the Original Aggregate Loan Balance of
the Mortgage Loans, any further waivers, modifications or variations shall
require the Certificate Insurer's prior written consent. The Certificate Insurer
shall respond to any written request of the Master Servicer for a waiver,
modification or variation of a Mortgage Loan within two weeks of the date of
such written request.
Section 8.03 Sub-Servicing Agreements Between
Master Servicer and Sub-Servicers.
The Master Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with one or more institutions
that are in compliance with the laws of each state necessary to enable each of
them to perform their obligations under such Sub-Servicing Agreements and either
(x) is NF Investments, Inc., (y)(i) has been designated an approved
seller-servicer by FHLMC or FNMA and (ii) has equity of at least $1,500,000, as
determined in accordance with generally accepted accounting principles or (z) is
a Master Servicer Affiliate. The Master Servicer shall give notice to the
Trustee, the Certificate Insurer and the Rating Agencies of the appointment of
any Sub-Servicer. For purposes of this Agreement, the Master Servicer shall be
deemed to have received payments on Mortgage Loans when any Sub-Servicer has
received such payments. Each Sub-Servicer shall be required to service the
Mortgage Loans in accordance with this Agreement and any such Sub-Servicing
Agreement shall be consistent with and not violate the provisions of this
Agreement. Each Sub-Servicing Agreement shall provide that a successor Master
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Servicer shall have the option to terminate such agreement without payment of
any termination fees if the original Master Servicer is terminated or resigns.
Section 8.04 Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any Sub-Servicing
Agreement in accordance with the terms and conditions of such Sub-Servicing
Agreement and to either itself directly service the related Mortgage Loans or
enter into a Sub-Servicing Agreement with a successor Sub-Servicer which
qualifies under Section 8.03.
Section 8.05 Liability of Master Servicer; Indemnification .
(a) The Master Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer and the Master Servicer shall be obligated to the
same extent and under the same terms and conditions as if it alone were
servicing and administering the Mortgage Loans. The Master Servicer shall be
entitled to enter into any agreement with a Sub-Servicer for indemnification of
the Master Servicer by such Sub-Servicer and nothing contained in such
Sub-Servicing Agreement shall be deemed to limit or modify this Agreement.
(b) The Master Servicer (except the Trustee if it is required to succeed
the Master Servicer hereunder) agrees to indemnify and hold the Trustee, the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, Judgments, and any
other costs, fees and expenses that the Trustee, the Certificate Insurer and any
Owner may sustain in any way related to the failure of the Master Servicer to
perform its duties and service the Mortgage Loans in compliance with the terms
of this Agreement. The Master Servicer shall immediately notify the Trustee, the
Certificate Insurer and each Owner if a claim is made by a third party with
respect to this Agreement, and the Master Servicer shall assume (with the
consent of the Trustee and the Certificate Insurer) the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Master Servicer, the Trustee, the Certificate Insurer
and/or Owner in respect of such claim. The Trustee shall reimburse the Master
Servicer from amounts otherwise distributable on the Class R Certificates for
all amounts advanced by it pursuant to the preceding sentence except when the
claim relates directly to the failure of the Master Servicer to service and
administer the Mortgage Loans in compliance with the terms of this Agreement
based upon an opinion of counsel (at the expense of the Master Servicer)
delivered to the Trustee and the Certificate Insurer. The provisions of this
Section 8.05 shall survive the termination of this Agreement and the payment of
the outstanding Certificates.
(c) Neither the Depositor, the Master Servicer, nor any of the directors,
officers, employees or agents of the Depositor or the Master Servicer shall be
under any liability to the Trust Fund or the Owners 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 Master Servicer or any such Person against
any breach of warranties or representations made herein, or against any specific
liability imposed on the Master Servicer for a breach of the servicing standards
set forth in the FNMA Guide, or against any liability which would otherwise be
imposed by reason of its respective willful misfeasance, bad faith, fraud or
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negligence in the performance of its duties or by
reasons of negligent disregard of its respective
obligations or duties hereunder.
The Depositor, the Master Servicer, and any director, officer, employee or
agent of the Depositor or the Master Servicer, 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. Pursuant
to Section 7.03(c)(iii)(G), the Depositor, the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master Servicer 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 incurred in
connection with any legal action incurred by reason of its respective
misfeasance, bad faith, fraud or negligence, a breach of a representation or
warranty hereunder or (in the case of the Master Servicer) a breach of the
servicing standards set forth in the FNMA Guide in the performance of its
respective duties or by reason of negligent disregard or its respective
obligations or duties hereunder. Neither the Depositor nor the Master 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 Master Servicer 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.
Section 8.06 No Contractual Relationship Between Sub-Servicer,
Trustee or the Owners.
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
Sub-Servicer and the Master Servicer alone and the Trustee and the Owners shall
not be deemed parties thereto and shall have no claims, rights, obligations,
duties or liabilities with respect to any Sub-Servicer except as set forth in
Section 8.07.
Section 8.07 Assumption or Termination of Sub-Servicing
Agreement by Trustee.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed
that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer shall be
assumed simultaneously by the Trustee without act or deed on the part of the
Trustee; provided, however, that the successor Master Servicer may terminate the
Sub-Servicer as provided in Section 8.03.
The terminated Master Servicer shall, upon the reasonable request of the
Trustee, but at the expense of the Master Servicer, deliver to the assuming
party documents and records relating to each Sub-Servicing Agreement and an
accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party.
Section 8.08 Collection Account.
(a) The Master Servicer shall establish and
maintain the Collection Account to be held as an Eligible
Account. The Collection Account shall be entitled
"Bankers Trust Company of California, N.A.,
as Trustee under the Pooling and Servicing Agreement
dated as of December 31, 1996". The
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Master Servicer shall notify the Trustee (who will in turn notify the Owners)
and the Certificate Insurer if there is a change in the name, account number or
institution holding the Collection Account.
Subject to subsection (c) below, the Master Servicer shall deposit all
receipts pursuant to subsection (c) below and related to the Mortgage Loans to
the Collection Account on a daily basis (but no later than the first Business
Day after receipt).
(b) All funds in the Collection Account shall be held (i) uninvested or
(ii) invested in Permitted Investments. Any investments of funds in the
Collection Account shall mature or be withdrawable at par on or prior to the
immediately succeeding Monthly Remittance Date. The Collection Account shall be
held in trust in the name of the Trustee for the benefit of the Owners. Any
investment earnings on funds held in the Collection Account shall be for the
account of the Master Servicer and may only be withdrawn from the Collection
Account by the Master Servicer immediately following the remittance of the
Monthly Remittance Amount (and the Total Monthly Excess Spread included therein)
by the Master Servicer. Prior to each Monthly Remittance Date, the Master
Servicer shall deposit into the Collection Account the net amount of any
investment losses on such funds during the related Prepayment Period. Any
references herein to amounts on deposit in the Collection Account shall refer to
amounts net of such investment earnings.
(c) The Master Servicer shall deposit to the Collection Account on the
Business Day after receipt all principal and interest collections on the
Mortgage Loans received after the Cut-Off Date including any Prepayments and Net
Liquidation Proceeds, other recoveries or amounts related to the Mortgage Loans
received by the Master Servicer and any income from REO Properties, but net of
(i) the Servicing Fee with respect to each Mortgage Loan and other servicing
compensation to the Master Servicer as permitted by Section 8.15 hereof, (ii)
Net Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed the
sum of (I) the Loan Balance of the related Mortgage Loan immediately prior to
liquidation, plus (II) accrued and unpaid interest on such Mortgage Loan (net of
the Servicing Fee) to the date of such liquidation, (iii) reimbursements for P&I
Advances and (iv) reimbursements for amounts deposited in the Collection Account
representing payments of principal and/or interest on a Note by a Mortgagor
which are subsequently returned by a depository institution as unpaid.
(d) (i) The Master Servicer may make withdrawals for its own account from
the amounts on deposit in the Collection Account, with respect to each Mortgage
Loan Group, for the following purposes:
(A) to withdraw investment earnings on amounts on deposit in the
Collection Account:
(B) to the extent not reimbursed or paid
pursuant to any other clause of this
Section 8.08(d)(i), to reimburse or pay
the Master Servicer, the Trustee and/or
the Depositor for unpaid items incurred by
or on behalf of such Person pursuant
to any 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 (B)
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;
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(C) to withdraw amounts that have been deposited
to the Collection Account in error; and
(D) to clear and terminate the Collection Account following the
termination of the Trust pursuant to Article IX.
(ii) The Master Servicer shall (a) remit to the Trustee for deposit in the
Distribution Account by wire transfer, or otherwise make funds available in
immediately available funds, without duplication, the Monthly Remittance Amount
allocable to a Due Period not later than the related Monthly Remittance Date and
Loan Purchase Prices and Substitution Adjustments two Business Days following
the related purchase or substitution, and (b) no later than by 12:00 p.m., New
York time on the second Business Day after the Determination Date immediately
preceding the related Distribution Date, deliver to the Trustee and the
Certificate Insurer a monthly servicing report via electronic medium, with
respect to each Mortgage Loan Group, containing the following information: (i)
principal and interest collected, Liquidated Loans, summary and detailed
delinquency reports, Liquidation Proceeds and other similar information
concerning the servicing of the Mortgage Loans and (ii) the information
described in Section 7.09(b). In addition, the Master Servicer shall inform the
Trustee and the Certificate Insurer on each Monthly Remittance Date, with
respect to each Mortgage Loan Group, of the amounts of any Loan Purchase Prices
or Substitution Adjustments so remitted during the related Due Period.
Section 8.09 P&I Advances and Servicing Advances.
(a) Subject to the third paragraph of this subsection (a), the Master
Servicer will be obligated on each Monthly Remittance Date to remit to the
Trustee from its own funds for deposit into the Distribution Account an amount
equal to (i) interest on the Mortgage Loans due during the related Due Period
but uncollected as of the related Determination Date (net of the Servicing Fee)
and (ii) principal on the Mortgage Loans required to be paid during the related
Due Period but uncollected as of the related Determination Date, other than any
"balloon" payments (such amount, a "P&I Advance"). P&I Advances include, but are
not limited to, any amount advanced due to the invocation by a Mortgagor of the
relief provisions of the Relief Act.
The Master Servicer shall be permitted to reimburse itself for any P&I
Advances paid from the Master Servicer's own funds from collections on any
Mortgage Loan in the related Mortgage Loan Group deposited to the Collection
Account subsequent to the related Determination Date, and shall deposit into the
Collection Account with respect thereto (i) collections from the Mortgagor whose
Delinquency gave rise to the shortfall which resulted in such P&I Advance and
(ii) Net Liquidation Proceeds recovered on account of the related Mortgage Loan
to the extent of the amount of P&I Advances related thereto. If not recovered
from the related Mortgagor or the related Net Liquidation Proceeds, the Master
Servicer shall recover P&I Advances pursuant to Section 7.03(c)(ii)(C).
Notwithstanding the foregoing, the Master Servicer shall not be obligated
to make a P&I Advance as to any Mortgage Loan if the Master Servicer determines
that such P&I Advance, if made, would be a Nonrecoverable Advance. The Master
Servicer shall give written notice of such determination to the Trustee and the
Certificate Insurer; and the Trustee shall promptly furnish a copy of such
notice to the Owners; provided, that the Master Servicer shall be entitled to
recover any unreimbursed P&I Advances from the aforesaid Liquidation Proceeds
prior to the payment of the Liquidation Proceeds to any other party to this
Agreement.
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(b) The Master Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, (each such
expenditure, a "Servicing Advance") including, but not limited to, the cost of
(i) Preservation Expenses, (ii) any enforcement or judicial proceedings,
including foreclosures, (iii) the management and liquidation of REO Property and
(iv) advances required by Section 8.13(a), but the Master Servicer shall not be
obligated to make any such Servicing Advance if the Master Servicer determines
that such Servicing Advance, if made, would be a Nonrecoverable Advance. The
Master Servicer may recover Servicing Advances (x) from the Mortgagors to the
extent permitted by the Mortgage Loans or, if not recovered from the Mortgagor
on whose behalf such Servicing Advance was made, from Liquidation Proceeds
realized upon the liquidation of the related Mortgage Loan and (y) as provided
in Section 7.03(c)(ii)(C). The Master Servicer shall be entitled to recover the
Servicing Advances from the aforesaid Liquidation Proceeds prior to the payment
of the Liquidation Proceeds to any other party to this Agreement. Except as
provided in the previous sentence, in no case may the Master Servicer recover
Servicing Advances from the principal and interest payments on any Mortgage Loan
or from any amounts relating to any other Mortgage Loan except as provided in
Section 7.03(c)(ii)(C).
Section 8.10 Compensating Interest: Repurchase of Mortgage Loans.
(a) If a Prepayment of a Mortgage Loan occurs during any Prepayment
Period which gives rise to a Prepayment Interest Shortfall, any difference
between the interest collected from the Mortgagor and the full month's interest
at the Mortgage Rate less the Servicing Fee ("Compensating Interest") that is
due shall be deposited by the Master Servicer (but not in excess of one-half of
the Servicing Fee for the related Due Period on such Mortgage Loan) to the
Collection Account on the related Monthly Remittance Date and shall be included
in the Monthly Remittance to be made available to the Trustee on such Monthly
Remittance Date.
(b) The Master Servicer, and in the absence of the exercise thereof by
the Master Servicer, the Certificate Insurer, has the right and the option, but
not the obligation, to purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Master Servicer pursuant to Section 8.13; provided, however, that
(i) the Master Servicer or the Certificate Insurer, as the case may be, may not
purchase any such Mortgage Loan unless the Master Servicer or the Certificate
Insurer, as the case may be, has delivered to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Master Servicer or
the Certificate Insurer, as the case may be, and the Trustee to the effect that
such a purchase would not constitute a Prohibited Transaction for the Trust or
otherwise subject the Trust to tax and would not jeopardize the status of the
Trust as a REMIC. Any such Mortgage Loan so purchased shall be purchased by the
Master Servicer or the Certificate Insurer as the case may be on a Monthly
Remittance Date at a purchase price equal to the Loan Purchase Price thereof,
which purchase price shall be deposited in the Collection Account and the Master
Servicer shall provide the Certificate Insurer and the Trustee with a
Liquidation Report in the form of Exhibit L hereto with respect to each such
Mortgage Loan.
(c) The Net Liquidation Proceeds from the disposition of any REO Property
shall be deposited in the Collection Account and remitted to the Trustee as part
of the Monthly Remittance Amount remitted by the Master Servicer to the Trustee.
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Section 8.11 Maintenance of Insurance.
(a) The Master Servicer on behalf of the Trustee, as mortgagee, shall use
its reasonable efforts in accordance with the servicing standards set forth in
the FNMA Guide to cause the related Mortgagor to maintain for each Mortgage Loan
(other than any Mortgage Loan as to which the related Mortgaged Property has
become an REO Property), and if the Mortgagor 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 (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, and (B) such other insurance as
provided in the related Mortgage Loan. The Master Servicer shall maintain 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
Master Servicer shall maintain, from a Qualified Insurer, with respect to each
REO Property such other insurance as provided in the related Mortgage Loan. Any
amounts collected by the Master Servicer under any such policies (other than
amounts to be applied to the restoration and repair of the related Mortgaged
Property or amounts to be released to the Mortgagor in accordance with the terms
of the related Mortgage) shall be deposited into the Collection Account pursuant
to Section 8.08(c), subject to withdrawal pursuant to Section 8.08(d). Any cost
incurred by the Master Servicer in maintaining any such insurance shall not, for
the purpose of calculating distributions to Owners, 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 Mortgagor or to be maintained by the Master Servicer other than pursuant to
the terms of the related Mortgage, Note or other 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 Master
Servicer will use its reasonable efforts in accordance with the servicing
standards set forth in the FNMA Guide to cause the related Mortgagor to maintain
or will itself obtain (subject to the provisions of this Agreement concerning
Nonrecoverable Advances) flood insurance in respect thereof. 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 Master 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 Master
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 8.01; provided, however, that the Master Servicer
shall not be responsible for any shortfall in insurance proceeds resulting from
an insurer's
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refusal or inability to pay a claim. Costs of the Master Servicer of maintaining
insurance policies pursuant to this Section 8.11 shall be paid by the Master
Servicer as a Servicing Advance and shall be reimbursable to the Master
Servicer.
The Master Servicer agrees to prepare and present, on behalf of itself, the
Trustee and the Owners, claims under each related insurance policy maintained
pursuant to this Section 8.11 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 Master Servicer shall require that all insurance policies required
hereunder shall name the Trustee or the Master 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 Master Servicer before termination
to the extent required by the related Mortgage, Note, or other Mortgage Loan
documents.
(b) (I) If the Master Servicer obtains and maintains a blanket insurance
policy with a Qualified Insurer at its own expense insuring against fire and
hazard losses 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 8.11(a), it being
understood and agreed that such policy may contain a deductible clause, in which
case the Master Servicer 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 8.11(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. In connection with its activities as Master Servicer
hereunder, the Master Servicer agrees to prepare and present, on behalf of
itself, the Trustee and Owners, 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 Master Servicer 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 Mortgaged Property than the insurance required to
be maintained pursuant to Section 8.11(a), the Master Servicer shall
conclusively be deemed to have satisfied its obligations to maintain insurance
pursuant to Section 8.11(a). Such policy may contain a deductible clause, in
which case the Master Servicer 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 8.11(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.
Section 8.12 Due-on-Sale Clauses; Assumption and
Substitution Agreements.
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise its rights to accelerate the
maturity of the related Mortgage Loan under any "due-on-sale" clause contained
in the related Mortgage or Note; provided, however, that the Master Servicer
shall not exercise any such right if the "due-on-sale" clause, in the reasonable
belief of the Master Servicer, is not enforceable under applicable law. An
opinion of counsel at the expense of the Master
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Servicer delivered to the Trustee, the Depositor and the Certificate Insurer to
the foregoing effect shall conclusively establish the reasonableness of such
belief. ln such event, the Master Servicer shall make reasonable efforts to
enter into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Note and, unless prohibited by applicable law or the
Mortgage Documents, the Mortgagor remains liable thereon. If the foregoing is
not permitted under applicable law, the Master Servicer is authorized to enter
into a substitution of liability agreement with such person, pursuant to which
the original Mortgagor is released from liability and such person is substituted
as Mortgagor and becomes liable under the Note; provided, however, that to the
extent any such substitution of liability agreement would be delivered by the
Master Servicer outside of its usual procedures for mortgage loans held in its
own portfolio the Master Servicer shall, prior to executing and delivering such
agreement, obtain the prior written consent of the Certificate Insurer. The
Mortgage Loan, as assumed, shall conform in all respects to the requirements,
representations and warranties of this Agreement. The Master Servicer shall
notify the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original copy of such assumption or
substitution agreement (indicating the File to which it relates) which copy
shall be added by the Trustee to the related File and which shall, for all
purposes, be considered a part of such File to the same extent as all other
documents and instruments constituting a part thereof. The Master Servicer shall
be responsible for recording any such assumption or substitution agreements. In
connection with any such assumption or substitution agreement, the required
monthly payment on the related Mortgage Loan shall not be changed but shall
remain as in effect immediately prior to the assumption or substitution, the
stated maturity or outstanding principal amount of such Mortgage Loan shall not
be changed nor shall any required monthly payments of principal or interest be
deferred or forgiven. Any fee collected by the Master Servicer or the
Sub-Servicer for consenting to any such conveyance or entering into an
assumption or substitution agreement shall be retained by or paid to the Master
Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Master Servicer
may be restricted by law from preventing, for any reason whatsoever.
Section 8.13 Realization Upon Defaulted Mortgage Loans; Inspection.
(a) The Master Servicer shall foreclose upon or otherwise comparably effect
the ownership in the name of the Trustee on behalf of the Trust of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of Delinquent payments and which the
Master Servicer has not purchased pursuant to Section 8.10(b). Subject to
Section 8.09, in connection with such foreclosure or other conversion, the
Master Servicer shall exercise such of the rights and powers vested in it
hereunder, and use the same degree of care and skill in their exercise or use,
as prudent mortgage lenders would exercise or use under the circumstances in the
conduct of their own affairs and consistent with the servicing standards set
forth in the FNMA Guide, including, but not limited to, advancing funds for the
payment of taxes, amounts due with respect to Senior Liens, and insurance
premiums. Any amounts so advanced shall constitute "Servicing Advances" within
the meaning of Section 8.09(b) hereof. The Master Servicer shall sell any REO
Property within 23 months of its acquisition by the Trust, at such price as the
Master Servicer deems necessary to comply with this covenant unless at least 61
days prior to the second anniversary of the Trust's acquisition of such property
the Trustee has requested an extension of time from the IRS in which to dispose
of such property and the Trustee obtains for the Certificate Insurer, Trustee
and the
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Master Servicer an opinion of counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee, addressed to the
Certificate Insurer, the Trustee and the Master Servicer, to the effect that the
holding by the Trust of such REO Property for any greater period will not result
in the imposition of taxes on "Prohibited Transactions" of the Trust or any
REMIC therein as defined in Section 860F of the Code or cause the Trust to fail
to qualify as a REMIC under the REMIC Provisions at any time that any
Certificates are outstanding. Notwithstanding the generality of the foregoing
provisions, the Master Servicer shall manage, conserve, protect and operate each
REO Property for the Owners solely for the purpose of its prompt 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 or
result in the receipt by the Trust of any income from "non-permitted assets"
within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from
foreclosure property" which is subject to taxation under the REMIC Provisions.
Pursuant to its efforts to sell such REO Property, the Master Servicer shall
either itself or through an agent selected by the Master Servicer protect and
conserve such REO Property in the same manner and to such extent as is customary
in the locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Owners, rent the same, or
any part thereof, as the Master Servicer deems to be in the best interest of the
Owners for the period prior to the sale of such REO Property. The Master
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on or under a Mortgaged Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Property. The Master Servicer shall not take any such action with respect to any
Mortgaged Property known by the Master Servicer to contain such wastes or
substances or to be within one mile of the site of such wastes or substances,
without the prior written consent of the Certificate Insurer.
(b) The Master Servicer shall determine, with respect to each defaulted
Mortgage Loan and in accordance with the procedures set forth in the FNMA Guide,
when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts it expects to recover from or on account of such
defaulted Mortgage Loan (exclusive of any possibility of a deficiency judgment),
whereupon such Mortgage Loan shall become a "Liquidated Loan". After a Mortgage
Loan has become a Liquidated Loan, the Master Servicer shall promptly prepare
and forward to the Depositor, the Trustee and the Certificate Insurer a report
detailing the Liquidation Proceeds received from the Liquidated Loan, expenses
incurred with respect thereto, and any loss incurred in connection therewith,
such report in the form attached hereto as Exhibit L.
(c) The Master Servicer shall not acquire any personal property pursuant to
this Section 8.13 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 Master Servicer; or (ii) the Master Servicer shall have obtained an opinion
of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee addressed to the Certificate Insurer, the
Trustee and the Master Servicer, to the effect that the holding of such personal
property as part of the Trust will not cause the imposition of taxes on a
Prohibited Transaction or cause either the Master REMIC or the Subsidiary REMIC
to fail to qualify as a REMIC under the REMIC provisions.
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Section 8.14 Trustee to Cooperate; Release of Files.
(a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise), or the
receipt by the Master Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Master Servicer shall
deliver to the Trustee a completed "Request for Release of Documents." Upon
receipt of such Request for Release of Documents, the Trustee shall promptly
release the related File, in trust to (i) the Master Servicer, or (ii) such
other party identified in the related Request for Release. Upon any such payment
in full, or the receipt of such notification that such funds have been placed in
escrow, the Master Servicer is authorized to give, as attorney-in-fact for the
Trustee as the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Mortgaged Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In lieu of executing any such satisfaction
or assignment, as the case may be, the Master Servicer may prepare and submit to
the Trustee a satisfaction (or assignment without recourse, if requested by the
Person or Persons entitled thereto) in form for execution by the Trustee with
all requisite information completed by the Master Servicer; in such event, the
Trustee shall execute and acknowledge such satisfaction or assignment, as the
case may be, and deliver the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any Mortgage
Loan, including, without limitation, foreclosure or other comparable conversion
of a Mortgage Loan or collection under any applicable Insurance Policy, the
Trustee shall (except in the case of the payment or liquidation pursuant to
which the related File is released to an escrow agent or an employee, agent or
attorney of the Trustee), upon request of the Master Servicer and delivery to
the Trustee of a Request for Release signed by an Authorized Officer of the
Master Servicer, release the related File to the Master Servicer and shall
execute such documents as shall be necessary to the prosecution of any such
proceedings, including, without limitation, an assignment without recourse of
the related Mortgage to the Master Servicer; provided that there shall not be
released and unreturned at any one time more than 10% of the entire number of
Files. Such receipt shall obligate the Master Servicer to return the File to the
Trustee when the need therefor by the Master Servicer no longer exists unless
the Mortgage Loan shall be liquidated, in which case, upon receipt of a Request
for Release evidencing such liquidation, the receipt shall be released by the
Trustee to the Master Servicer.
(c) The Master Servicer shall have the right to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations,
(iii) removal, demolition or division of properties subject to Mortgages and
(iv) second mortgage subordination agreements. No application for approval shall
be considered by the Master Servicer unless: (x) the provisions of the related
Note and Mortgage have been complied with; (y) the Loan-to-Value Ratio and
debt-to-income ratio after any release does not exceed the maximum Loan-to-Value
Ratio and debt-to-income ratio established in accordance with the underwriting
standards of the Mortgage Loans and any increase in the Loan-to-Value Ratio
shall not exceed 15% unless approved in writing by the Certificate Insurer; and
(z) the lien priority of the related Mortgage is not affected. Upon receipt by
the Trustee of an Officer's Certificate executed on behalf of the Master
Servicer setting forth the action proposed to be taken in respect of a
particular Mortgage Loan and certifying that the criteria set forth in the
immediately preceding sentence have been satisfied, the Trustee shall execute
and deliver to the Master Servicer the consent or partial release so requested
by the Master Servicer. A proposed form
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of consent or partial release, as the case may be, shall accompany any Officer's
Certificate delivered by the Master Servicer pursuant to this paragraph. The
Master Servicer shall notify the Certificate Insurer and the Rating Agencies if
an application is approved under clause (y) above without approval in writing by
the Certificate Insurer.
Section 8.15 Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan. The Master Servicer shall be entitled to retain additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, late payment charges, prepayment penalties, or any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Collection Account pursuant to Section 8.08(c)(iii) and similar items, to
the extent collected from Mortgagors.
Section 8.16 Annual Statement as to Compliance.
The Master Servicer, at its own expense, will deliver to the Trustee, the
Depositor, the Certificate Insurer and the Rating Agencies, on or before March
31 of each year, commencing in 1998, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the activities of the Master Servicer
during such preceding calendar year and of performance under this Agreement has
been made under such officers' supervision, (ii) to the best of such officers'
knowledge, based on such review, the Master Servicer has fulfilled all its
obligations under this Agreement for such year, or, if there has been a default
in the fulfillment of all such obligations, specifying each such default known
to such officers and the nature and status thereof including the steps being
taken by the Master Servicer to remedy such default, and (iii) the Master
Servicer's short-term commercial paper rating.
Section 8.17 Annual Independent Certified Public Accountants' Reports.
(a) On or before March 31 of any year, commencing in 1998, the Master
Servicer, at its own expense (or if the Trustee is then acting as Master
Servicer, at the expense of the Depositor, which in no event shall exceed $1,000
per annum), shall cause to be delivered to the Trustee, the Certificate Insurer
and the Rating Agencies a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to the Certificate
Insurer, dated as of the date of the Master Servicer's fiscal audit for
subsequent letters, stating that such firm has examined the Master Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers, and stating, such firm's conclusions
relating thereto.
(b) As long as Block Financial Corporation is acting as Master Servicer,
all references in subsection (a) above to the "Master Servicer" shall be deemed
to be references to the Sub-Servicer.
(c) The Master Servicer shall, on behalf of the Trust, prepare, sign and
file with the Securities and Exchange Commission any and all reports, statements
and information respecting the Trust which the Master Servicer or the Trustee
determines are required to be filed with the Securities and Exchange Commission
pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, 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 Securities and
Exchange Commission, within fifteen days of the Startup Day, a Current Report on
Form 8-K together with this Agreement.
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Section 8.18 Access to Certain Documentation and
Information Regarding the Mortgage Loans.
The Master Servicer shall provide to the Trustee, the Certificate Insurer
and the supervisory agents and examiners of each of the foregoing (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
designated by it.
Section 8.19 Merger or Consolidation of the
Master Servicer; Assignment.
Subject to the following paragraph, the Master Servicer will keep in full
effect its existence, rights and good standing as a corporation under the laws
of the State of Delaware 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.
The Master 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
Master Servicer and shall be deemed to have assumed all of the liabilities of
the Master Servicer hereunder, if each of he 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 8.20 Removal of Master Servicer;
Resignation of Master Servicer.
(a) The Certificate Insurer (or the Owners, with the consent of the
Certificate Insurer pursuant to Section 6.11 hereof) may direct the Trustee to
remove the Master Servicer upon the occurrence of any of the following events:
(i) The Master Servicer shall (I) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian or similar entity with
respect to itself or its property, (II) admit in writing its inability to
pay its debts generally as they become due, (III) make a general assignment
for the benefit of creditors, (IV) be adjudicated a bankrupt or insolvent,
(V) commence a voluntary case under the federal bankruptcy laws of the
United States of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer admitting
the material allegations of a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding or (VI) take corporate action for
the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the Master
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Master
Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or similar entity with respect
to
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the Master Servicer or of all or any substantial part of its assets, or
other like relief in respect thereof under any bankruptcy or insolvency
law, and, if such proceeding is being contested by the Master Servicer in
good faith, the same shall (A) result in the entry of an order for relief
or any such adjudication or appointment or (B) continue undismissed or
pending and unstayed for any period of seventy-five (75) consecutive days;
or
(iii) The Master Servicer shall fail to perform in any material respect any
one or more of its obligations hereunder and shall continue in default
thereof for a period of thirty (30) days (except that there shall be no
grace period for a failure by the Master Servicer to remit the Monthly
Remittance Amount to the Trustee as provided in Section 8.08(d)(ii)(a))
after the earlier of (a) actual knowledge of an officer of the Master
Servicer or (b) receipt of notice from the Trustee or the Certificate
Insurer of said failure; provided, however, that if the Master Servicer can
demonstrate to the reasonable satisfaction of the Certificate Insurer that
it is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Certificate Insurer; or
(iv) The Master Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.02 which materially
and adversely affects the interests of the Owners or the Certificate
Insurer for a period of sixty (60) days after the earlier of the Master
Servicer's discovery or receipt of notice thereof; provided, however, that
if the Master Servicer can demonstrate to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The merger, consolidation or other combination of the Master Servicer
with or into any other entity, unless such merger, consolidation or other
combination is in accordance with Section 8.19.
(b) The Certificate Insurer may instruct the Trustee to remove the Master
Servicer upon (a) the failure by the Master Servicer to make any required
Servicing Advance when due or (b) the failure of the Master Servicer to make any
required P&I Advance or to pay any Compensating Interest when due.
The Certificate Insurer may also remove the Master Servicer as follows: (i)
upon the failure of the Master Servicer to satisfy the Servicer Termination
Test, (ii) Realized Losses over any one twelve-month period exceed 1.50% of the
Original Aggregate Loan Balance of the Mortgage Loans or (iii) the 90 +
Delinquency Percentage (Rolling Three Month) for the Mortgage Loans exceeds
10.00% of the Original Aggregate Loan Balance of the Mortgage Loans.
(c) If any event described in subsection (b) above occurs and is
continuing, the Certificate Insurer may terminate the Master Servicer in
accordance with this Section and the Trustee shall act as successor Master
Servicer.
The Certificate Insurer agrees to use its best efforts to inform the
Trustee of any materially adverse information regarding the Master Servicer's
servicing activities that comes to the attention of the Certificate Insurer from
time to time.
(d) If any event described in sections (a) and (b) above occurs and is
continuing, the Certificate Insurer shall notify the Owners of the Class R
Certificates in writing if the Certificate
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Insurer intends to terminate the Master Servicer in its capacity as Master
Servicer under this Agreement.
(e) The Master Servicer may assign its rights and delegate its 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 and the Certificate Insurer,
(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 8.19,
and (C) shall execute and deliver to the Trustee and the Certificate Insurer an
agreement, in form and substance reasonably satisfactory to the Trustee and the
Certificate Insurer, 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 Master Servicer 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 and the Certificate Insurer, each Rating
Agency's rating or ratings of the 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 Master Servicer 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 8.20(e); 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 Master Servicer hereunder. The Master Servicer
shall not resign from the obligations and duties hereby imposed on it, except
upon determination that its duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such a conflict being of a type and nature carried on by the Master
Servicer at the date of this Agreement. Any such determination permitting the
resignation of the Master Servicer shall be evidenced by an opinion of counsel
to such effect which shall be delivered to the Trustee and the Certificate
Insurer.
(f) No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor Master Servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with this Section.
(g) Upon removal or resignation of the Master Servicer, the Master Servicer
at its own expense also shall promptly deliver or cause to be delivered to a
successor servicer or the Trustee all the books and records (including, without
limitation, records kept in electronic form) that the Master Servicer has
maintained for the Mortgage Loans, including all tax bills, assessment notices,
insurance premium notices and all other documents as well as all original
documents then in the Master Servicer's possession.
(h) Any collections then being held by the Master Servicer prior to its
removal and any collections received by the Master Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the successor Master Servicer.
(i) Upon removal or resignation of the Master Servicer, the Trustee (x) may
solicit bids for a successor servicer as described below, and (y) pending the
appointment of a successor servicer as a result of soliciting such bids, shall
serve as Master Servicer. The Trustee shall, if it is unable to
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obtain a qualifying bid and is prevented by law from acting as Master Servicer,
appoint, or petition a court of competent jurisdiction to appoint, any housing
and home finance institution, bank or mortgage servicing institution which has
been designated as an approved seller-servicer by FNMA or FHLMC for first and
second mortgage loans and having equity of not less than $1,500,000 (or such
lower level as may be acceptable to the Certificate Insurer), as determined in
accordance with generally accepted accounting principles and acceptable to the
Certificate Insurer and the Owners of the Class R Certificates (provided that if
the Certificate Insurer and such Owners cannot agree within a reasonable period
of time as to the acceptability of such successor Master Servicer, the decision
of the Certificate Insurer shall control) as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. The compensation of any
successor Master Servicer (including, without limitation, the Trustee) so
appointed shall be the aggregate Servicing Fee, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 8.08 and 8.15; provided, however, that if the
Trustee acts as successor Master Servicer then the Seller agrees to pay to the
Trustee at such time that the Trustee becomes such successor Master Servicer a
set-up fee of twenty-five dollars ($25.00) for each Mortgage Loan then included
in the Trust Estate. The Trustee shall be obligated to serve as successor Master
Servicer whether or not the fee described in the preceding sentence is paid by
the Seller, but shall in any event be entitled to receive, and to enforce
payment of, such fee from the Seller.
(j) ln the event the Trustee solicits bids as provided above, the Trustee
shall solicit, by public announcement, bids from housing and home finance
institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Master Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 8.08 and 8.15. Within thirty days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest satisfactory bid as to the price they
will pay to obtain servicing. The Trustee shall deduct from any sum received by
the Trustee from the successor Master Servicer in respect of such sale, transfer
and assignment all costs and expenses of any public announcement and of any
sale, transfer and assignment of the servicing rights and responsibilities
hereunder. After such deductions, the remainder of such sum less any amounts due
the Trustee or the Trust from the Master Servicer shall be paid by the Trustee
to the removed Master Servicer at the time of such sale, transfer and assignment
to the successor Master Servicer.
(k) The Trustee and such successor Master Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The Master Servicer agrees to cooperate with the Trustee and any
successor Master Servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor Master Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Master Servicer, as applicable, all amounts which then have been or
should have been deposited in the Collection Account by the Master Servicer or
which are thereafter received with respect to the Mortgage Loans. Neither the
Trustee nor any other successor Master Servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Master Servicer to deliver,
or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority
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having jurisdiction over the Master Servicer. Subject to subsection (j), if the
Master Servicer resigns or is replaced hereunder, the Master Servicer agrees to
reimburse the Trust, the Owners and the Certificate Insurer for the costs and
expenses associated with the transfer of servicing to the replacement Master
Servicer, but subject to a maximum reimbursement to all such parties in the
amount of twenty-five dollars ($25.00) for each Mortgage Loan then included in
the Trust Estate.
(l) The Trustee or any other successor Master Servicer, upon assuming the
duties of Master Servicer hereunder, shall immediately make all required P&I
Advances and deposit them to the Collection Account which the Master Servicer
has theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
shall only be required to make P&I Advances (including the P&I Advances
described in this clause (I)) if, in the Trustee's reasonable good faith
judgment, such P&I Advances will ultimately be recoverable from the Mortgage
Loans.
(m) The Trustee shall give notice to the Certificate Insurer, to the
Mortgagors, to Moody's and to Standard & Poor's of the transfer of the servicing
to the successor Master Servicer.
(n) The Trustee shall give notice to the Certificate Insurer, the Owners,
the Trustee, the Seller, Moody's and Standard & Poor's of the occurrence of any
event described in paragraphs (a) or (b) above of which the Trustee is aware.
Section 8.21 Inspections by Certificate Insurer; Errors and Omissions
Insurance. (a) Upon reasonable notice, the Trustee, the Certificate Insurer or
any agents thereof may inspect the Master Servicer's servicing operations and
discuss the servicing operations of the Master Servicer during the Master
Servicer's normal business hours with any of its officers or directors;
provided, however, that the costs and expenses incurred by the Master Servicer
or its agents or representatives in connection with any such examinations or
discussions shall be paid by the Master Servicer;
(b) The Master Servicer agrees to maintain errors and omissions coverage
and a fidelity bond, each at least to the extent required by Section 305 of Part
I of the FNMA Guide or any successor provision thereof; provided, however, that
if the Trustee shall become the Master Servicer, any customary insurance
coverage that the Trustee maintains shall be deemed sufficient hereunder;
provided, further, that in the event that the fidelity bond or the errors and
omissions coverage is no longer in effect, the Trustee shall promptly give such
notice to the Certificate Insurer and the Owners. Upon the request of the
Trustee or the Certificate Insurer, the Master Servicer shall cause to be
delivered to such requesting Person a certified true copy of such fidelity bond
or errors and omission policy.
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ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust.
The Trust created hereunder and all obligations created by this Agreement
will terminate upon the payment to the Owners of all Certificates, from amounts
other than those available under the Certificate Insurance Policy, of all
amounts held by the Trustee and required to be paid to such Owners pursuant to
this Agreement upon the latest to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Mortgage Loan
in the Trust Estate, (b) the disposition of all property acquired in respect of
any Mortgage Loan remaining in the Trust Estate, (c) at any time when a
Qualified Liquidation of both Mortgage Loan Groups included within the Trust is
effected as described below and (d) the final payment to the Certificate Insurer
of all amounts then owing to it. To effect a termination of this Agreement
pursuant to clause (c) above, the Owners of a majority in Percentage Interest
represented by the Class A Certificates then Outstanding shall (i) unanimously
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation for each of the Mortgage Loan Groups, as contemplated by Section
860F(a)(4) of the Code and (ii) provide to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
and the Trustee to the effect that each such liquidation constitutes a Qualified
Liquidation, and the Trustee either shall sell the Mortgage Loans and distribute
the proceeds of the liquidation of the Trust Estate, or shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates each in accordance with such plan, so that the liquidation
or distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of this Agreement occur no later than the close
of the 90th day after the date of adoption of the plan of liquidation and such
liquidation qualifies as a Qualified Liquidation. In no event, however, will the
Trust created by this Agreement continue beyond the earlier of (i) the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of Saint James, living on the date hereof and (ii) the Latest Possible
Maturity Date. The Trustee shall give written notice of termination of the
Agreement to each Owner in the manner set forth in Section 11.05.
Section 9.02 Termination Upon Option of Owners of Class R Certificates and
Market Servicer. (a) On any Monthly Remittance Date on or after the Optional
Termination Date, the Class R Optionholder may determine to purchase and may
cause the purchase from the Trust of all (but not fewer than all) Mortgage Loans
and all property theretofore acquired in respect of any Mortgage Loan by
foreclosure, deed in lieu of foreclosure, or otherwise then remaining in the
Trust Estate on terms agreed upon between the Certificate Insurer and the Class
R Optionholder at a price no less than 100% of the aggregate Loan Balances of
the Mortgage Loans as of the day of purchase minus amounts remitted from the
Collection Account to the Distribution Account representing collections of
principal on the Mortgage Loans during the current Due Period, plus one month's
interest on such amount computed at the Adjusted Pass-Through Rate, plus all
accrued and unpaid Servicing Fees plus the aggregate amount of any unreimbursed
Trust Estate expenses, P&I Advances and Servicing Advances and the interest
portion of any P&I Advances which the Master Servicer has theretofore failed to
remit. In connection with such purchase, the Master Servicer shall remit to the
Trustee all amounts then on deposit in the Collection Account for deposit to the
Distribution Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The Master Servicer
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shall indemnify the Certificate Insurer for any claims under the Certificate
Insurance Policy for the exercise of such option.
(b) In addition to the foregoing, following the Optional Termination Date,
on or after the first Monthly Remittance Date on which the aggregate of the Loan
Balances of the Mortgage Loans is less than 5% of the Original Aggregate Loan
Balance, the Master Servicer may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans and all
property theretofore acquired in respect of any Mortgage Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate at
terms agreed upon between the Certificate Insurer and the Master Servicer, at a
price no less than 100% of the aggregate Loan Balances of the Mortgage Loans as
of the day of purchase minus amounts remitted from the Collection Account to the
Distribution Account representing collections of principal on the Mortgage Loans
during the current Due Period, plus one month's interest on such amount computed
at the Adjusted Pass-Through Rate, plus all accrued and unpaid Servicing Fees
plus the aggregate amount of any unreimbursed Trust Estate expenses, P&I
Advances and Servicing Advances and the interest portion of any P&I Advances
which Master Servicer has theretofore failed to remit.
(c) In connection with any such purchase, such Class R Optionholder or the
Master Servicer, as applicable, shall adopt and the Trustee shall adopt, as to
the Trust, a plan of complete liquidation for all of the Mortgage Loan Groups as
contemplated by Section 860F(a)(4) of the Code and shall provide to the Trustee
an opinion of counsel experienced in federal income tax matters acceptable to
the Trustee to the effect that such purchase and liquidations constitutes, as to
the Trust, a Qualified Liquidation. In addition, such Class R Optionholder, the
Master Servicer or the Certificate Insurer, as applicable, shall provide to the
Trustee an opinion of counsel acceptable to the Trustee to the effect that such
purchase and liquidation does not constitute a preference payment pursuant to
the United States Bankruptcy Code.
(d) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Files to the Owners of such Class R Certificates or the
Master Servicer, as the case may be, or otherwise upon their order, in a manner
similar to that described in Section 8.14 hereof.
Section 9.03 Termination Auction.
The Trustee shall, in accordance with the procedures and schedule set forth
in Exhibit K hereto (the "Auction Procedures") and upon written notice from the
Master Servicer, make a commercially reasonable effort to sell at fair market
value in a commercially reasonable manner and upon commercially reasonable
terms, by conducting an auction (the "Termination Auction") of the Mortgage
Loans remaining in the Trust in order to effect a termination of the Trust on a
date selected by the Trustee (the "Auction Date"), but in any case within ninety
days following the Optional Termination Date. The Seller (and the Master
Servicer if Block Financial Corporation is not the Master Servicer) may, but
shall not be required to, bid at the Termination Auction. The Trustee shall be
entitled to retain counsel of its choice to represent it in the Termination
Auction, and the fees and expenses of such counsel shall be paid by the Seller.
The Trustee shall sell and transfer the Mortgage Loans to the highest bidder
therefor at the Termination Auction provided that:
(1) the Termination Auction has been
conducted in accordance with the Auction Procedures;
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(2) the Trustee has received good faith bids for the Mortgage Loans
from at least two prospective purchasers that are considered by the
Trustee, in its sole discretion, to be competitive participants in the
market for mortgage loans similar to the Mortgage Loans; provided, that at
least one of such prospective purchasers shall not be an Affiliate of the
Seller;
(3) a financial advisor selected by the Trustee, the fees of whom shall
be an expense of the Seller, as advisor to the Trustee (in such capacity,
the "Advisor"), shall have advised the Trustee in writing that at least two
of such bidders are participants in the market for mortgage loans and are
willing and able to purchase the Mortgage Loans (the Trustee may in its
discretion select itself or an affiliate thereof as Advisor);
(4) the highest bid in respect of the Mortgage Loans is not less than
the aggregate fair market value of the Mortgage Loans (as determined by the
Trustee in its sole discretion);
(5) any bid submitted by the Seller or any Affiliate thereof shall be
independently verified and represented in writing by a qualified
independent third party evaluator (which may include the Advisor or an
investment banking firm) selected by the Trustee and may only be considered
if such evaluator determines that the bid reasonably represents the fair
market value of the Mortgage Loans;
(6) the highest bid would result in
proceeds from the sale of the Mortgage Loans
which will be at least equal to the Minimum
Termination Amount;
(7) such sale and consequent termination of the Trust must constitute a
"qualified liquidation" of the Trust under Section 860F of the Code,
including the requirement that such qualified liquidation take place over a
period not to exceed 90 days (the Trustee may, in its discretion, require
that the purchaser of such Mortgage Loans provide an Opinion of Counsel to
that effect); and
(8) the terms of the Termination Auction must be made available to all
bidders and must stipulate that the Master Servicer be retained to service
the Mortgage Loans on terms substantially similar to those in this
Agreement.
Provided that all of the conditions set forth in clauses (1) through (8)
have been met, the Trustee shall sell and transfer the Mortgage Loans, without
representation, warranty or recourse of any kind whatsoever, to such highest
bidder in accordance with and upon completion of the Auction Procedures. The
Trustee shall deposit the purchase price for the Mortgage Loans in the
Distribution Account at least one Business Day prior to the fourth Distribution
Date following the Optional Termination Date. In the event that any of such
conditions are not met or such highest bidder fails or refuses to comply with
any of the Auction Procedures, the Trustee shall decline to consummate such sale
and transfer. In such case the Termination Auction shall be concluded and the
Trustee shall be under no further duty to solicit bids for or otherwise to
attempt to sell the Mortgage Loans. The Master Servicer shall indemnify the
Certificate Insurer for any claim under the Certificate Insurance Policies due
to the exercise of this sale right.
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Section 9.04 Termination Upon Loss of REMIC Status.
(a) Following a final determination by the Internal Revenue Service or by a
court of competent jurisdiction, in either case from which no appeal is taken
within the permitted time for such appeal or, if any appeal is taken, following
a final determination of such appeal from which no further appeal can be taken,
to the effect that the Trust does not and will no longer qualify as a REMIC
pursuant to Section 860D of the Code (the "Final Determination"), at any time on
or after the date which is 30 calendar days following such Final Determination
(i) the Certificate Insurer or the Owners of a majority in Percentage Interests
represented by the Class A Certificates then Outstanding with the consent of the
Certificate Insurer and the Master Servicer may direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code the Master Servicer or (ii) the Master Servicer or the
Certificate Insurer may notify the Trustee of the Master Servicer's or the
Certificate Insurer's, as applicable, determination to purchase from the Trust
all (but not fewer than all) Mortgage Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Trust Estate at a price equal to the sum of (w) the greater of
(I) 100% of the aggregate Loan Balances of the Mortgage Loans as of the day of
purchase minus amounts remitted from the Collection Account representing
collections of principal on the Mortgage Loans during the current Due Period,
and (II) the fair market value of such Mortgage Loans (disregarding accrued
interest), (x) one month's interest on such amount computed at the Adjusted
Pass-Through Rate, (y) the aggregate amount of any unreimbursed P&I Advances and
Servicing Advances and the interest portion of any P&I Advances which the Master
Servicer has theretofore failed to remit and (z) any Reimbursement Amounts due
and owing to the Certificate Insurer.
Upon receipt of such direction or notice, the Trustee shall notify the
Owners of the Class R Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
Owners of a majority of the Percentage Interests of the Class R Certificates
then Outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all (but not fewer than all) Mortgage Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Trust Estate at a purchase price equal to the aggregate Loan
Balances of all Mortgage Loans as of the date of such purchase, plus (a) one
month's interest on such amount at the Adjusted Pass-Through Rate, (b) the
aggregate amount of any unreimbursed P&I Advances and Servicing Advances and (c)
the interest portion of any P&I Advances which the Master Servicer has
theretofore failed to remit. If, during the Purchase Option Period, the Owners
of the Class R Certificates have not exercised the option described in the
immediately preceding paragraph, then upon the expiration of the Purchase Option
Period (i) in the event that neither the Master Servicer nor the Certificate
Insurer have elected to purchase the Mortgage Loans, the Trustee shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, each in accordance with the plan of complete liquidation, such that, if
so directed, the liquidation of the Trust Estate, the distribution of the
proceeds of the liquidation and the termination of this Agreement occur no later
than the close of the 60th day, or such later day as the Certificate Insurer or
the Owners of the Class A Certificates with the consent of the Certificate
Insurer shall permit or direct in writing, after the expiration of the Purchase
Option Period and (ii) in the event that the Master Servicer or the Certificate
Insurer, as applicable, has given the Trustee notice of the Master Servicer's or
the Certificate Insurer's determination to purchase the Trust Estate, the Master
Servicer or the Certificate Insurer shall, within 60 days, purchase all (but not
fewer than all) Mortgage Loans and all property theretofore acquired by
foreclosure, deed in lieu of foreclosure or otherwise then remaining in the
Trust Estate for the price calculated as described in clause (a)(ii) above. In
connection with such
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purchase, the Master Servicer shall remit to the Trustee all amounts then on
deposit in the Collection Account for deposit to the Distribution Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
(b) Following a Final Determination, the Owners of a majority of the
Percentage Interests of the Class R Certificates then Outstanding may, at their
option and upon delivery to the Certificate Insurer of an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
selected by the Owners of the Class R Certificates, which opinion shall be
reasonably satisfactory in form and substance to the Certificate Insurer, to the
effect that the effect of the Final Determination is to increase substantially
the probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise then remaining in the Trust Estate at a purchase price
equal to the aggregate Loan Balances of all Mortgage Loans as of the date of
such purchase, plus (a) one month's interest on such amount computed at the
Adjusted Pass-Through Rate, (b) the aggregate amount of unreimbursed P&I
Advances and (c) any P&I Advances which the Master Servicer has theretofore
failed to remit and any Reimbursement Amounts due the Certificate Insurer. In
connection with such purchase, the Master Servicer shall remit to the Trustee
all amounts then on deposit in the Collection Account for deposit to the
Distribution Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The foregoing opinion shall be deemed satisfactory
unless the Certificate Insurer gives the Owners of a majority of the Percentage
Interests of the Class R Certificates notice that such opinion is not
satisfactory within thirty days after receipt of such opinion. In connection
with any such purchase, such Owners shall direct the Trustee to adopt a plan of
complete liquidation as contemplated by Section 860F(a)(4) of the Code and shall
provide to the Trustee an opinion of counsel experienced in federal income tax
matters to the effect that such purchase constitutes a Qualified Liquidation.
Section 9.05 Disposition of Proceeds.
The Trustee shall, upon receipt thereof, deposit the proceeds of any
liquidation of the Trust Estate pursuant to this Article IX to the Distribution
Account; provided, however, that any amounts representing unreimbursed P&I
Advances and Servicing Advances theretofore funded by the Master Servicer from
the Master Servicer's own funds shall be paid by the Trustee to the Master
Servicer from the proceeds of the Trust Estate.
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ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities.
(a) The Trustee (i) (A) undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee and (B) the
banking institution that is the Trustee shall serve as the Trustee at all times
under this Agreement, and (ii) in the absence of bad faith on its part, may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished pursuant to
and conforming to the requirements of this Agreement; but in the case of any
such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Agreement.
(b) Notwithstanding the appointment of the Master Servicer hereunder, the
Trustee is hereby empowered to perform the duties of the Master Servicer it
being expressly understood, however, that the foregoing describes a power and
not an obligation of the Trustee, and that all parties hereto agree that, prior
to any termination of the Master Servicer, the Master Servicer and, thereafter,
the Trustee or any other successor servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall upon
termination or resignation of the Master Servicer, and pending the appointment
of any other Person as successor Master Servicer, have the power and duty during
its performance as successor Master Servicer:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) To enforce due-on-sale clauses and to enter into assumption and
substitution agreements as permitted by Section 8.12 hereof;
(iv) to deliver instruments of satisfaction pursuant
to Section 8.14;
(v) to enforce the Mortgage Loans; and
(vi) to make P&I Advances and Servicing Advances
and to pay Compensating Interest.
(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, except that:
(i) this subsection shall not be construed to limit
the effect of subsection (a) of this
Section;
(ii) the Trustee shall not be personally liable for any error of judgment
made in good faith by an Authorized Officer of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
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(iii) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with any
direction given pursuant to Section 6.11.
(d) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
(e) No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. 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 Master Servicer under this
Agreement, except 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 Master Servicer in accordance with the terms of this Agreement.
(f) The permissive right of the Trustee to take actions enumerated in this
Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit, or to
take any remedial proceeding under this Agreement, or to take any steps in the
execution of the trusts hereby created or in the enforcement of any rights and
powers hereunder until it shall be indemnified to its satisfaction against any
and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
(h) Upon the direction of the Certificate Insurer, the Trustee hereby
agrees to oppose any attempt to treat the Mortgage Loans as the property of the
estate of Companion Mortgage Corporation, the Master
Servicer or the Depositor.
Section 10.02 Removal of Trustee for Cause.
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon the
occurrence of any of the following events (whatever the reason for such event
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled hereto
on any Distribution Date amounts available for distribution in accordance
with the terms hereof; (provided, however, that any such failure which is
due to circumstances beyond the control of the Trustee shall not be a cause
for removal hereunder); or
(2) the Trustee shall breach or fail in the performance of any covenant
or agreement of the Trustee in this Agreement, or if any representation or
warranty of the Trustee made in this Agreement or in any certificate or
other writing delivered pursuant hereto or in connection herewith shall
prove to be incorrect in any material respect as of the time when the
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same shall have been made, and such failure or breach shall continue or not
be cured for a period of 30 days after there shall have been given, by
registered or certified mail, to the Trustee by the Seller, the Certificate
Insurer, or by the Owners of at least 25 % of the aggregate Percentage
Interests in the Trust Estate represented by the Class A Certificates then
Outstanding, or, if there are no Class A Certificates then Outstanding, by
such Percentage Interests represented by each of the Class X Certificates
and the Class R Certificates, a written notice specifying such failure or
breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction 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 Trustee,
and such decree or order shall have remained in force undischarged or
unstayed for a period of 75 days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Trustee or relating to all or
substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing.
The Depositor shall give to the Certificate Insurer, Moody's and Standard &
Poor's notice of the occurrence of any such event of which the Depositor is
aware.
(b) If any event described in paragraph (a) occurs and is continuing, then
and in every such case (i) the Certificate Insurer or (ii) with the prior
written consent (which shall not be unreasonably withheld) of the Certificate
Insurer, the Depositor and the Owners of a majority of the Percentage Interests
represented by the Class A Certificates or if there are no Class A Certificates
then outstanding by such majority of the Percentage Interests represented by
each of the Class X Certificates and the Class R Certificates, may, whether or
not the Trustee resigns pursuant to Section 10.09(b) hereof, concurrently with
the giving of notice to the Trustee, and without delaying the 30 days required
for notice therein, appoint a successor Trustee pursuant to the terms of Section
10.09 hereof.
(c) To the extent of any costs incurred in removing the Trustee which are
not recovered from the former Trustee, such costs will be payable pursuant to
Section 2.05 hereof.
Section 10.03 Certain Rights of the Trustee.
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting based upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
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(b) any request or direction of the Depositor, the Seller, the Certificate
Insurer, or the Owners of any Class of Certificates mentioned herein shall be
sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officer's Certificate;
(d) the Trustee may consult with counsel, and the written advice of such
counsel (selected in good faith by the Trustee) shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement at the request or direction of any of
the Owners pursuant to this Agreement, unless such Owners shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) 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, direction, consent, order, bond, note or other
paper or document, but the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys
or custodians;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates;
(i) 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 such act;
(j) pursuant to the terms of this Agreement, the Master Servicer is
required to furnish to the Trustee from time to time certain information and to
make various calculations which are relevant to the performance of the Trustee's
duties under this Agreement. The Trustee shall be entitled to rely in good faith
on any such information and calculations in the performance of its duties
hereunder, (i) unless and until an Authorized Officer of the Trustee has actual
knowledge, or is advised by any Owner of a Certificate (either in writing or
orally with prompt written or telecopies confirmation), that such information or
calculations is or are incorrect, or (ii) unless there is a manifest error in
any such information: and
(k) the Trustee shall not be required to give any bond or surety in respect
of the execution of the Trust Estate created hereby or the powers granted
hereunder.
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Section 10.04 Not Responsible for Recitals or Issuance
of Certificates.
The recitals and representations contained herein and in the Certificates,
except any such recitals and representations relating to the Trustee, shall be
taken as the statements of the Depositor and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or sufficiency of this Agreement, of the Certificates, or any
Mortgage Loan or document related thereto other than as to validity and
sufficiency of its authentication of the Certificates. The Trustee shall not be
accountable for the use or application by the Depositor 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 Seller or the Master
Servicer in respect of the Mortgage Loans or deposited into or withdrawn from
the Collection Account by the Depositor, the Master Servicer or the Seller, and
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or otherwise to perfect or maintain the
perfection of any security interest or lien or to prepare or file any Securities
and Exchange Commission filings for the Trust or to record this Agreement. The
Trustee shall not be required to take notice or be deemed to have notice or
knowledge of any default unless an Authorized Officer of the Trustee shall have
received written notice thereof or an Authorized Officer has actual knowledge
thereof. In the absence of receipt of such notice, the Trustee may conclusively
assume that no default has occurred.
Section 10.05 May Hold Certificates.
The Trustee, any Paying Agent, Registrar or any other agent of the Trust,
in its individual or any other capacity, may become an Owner or pledgee of
Certificates and may otherwise deal with the Trust with the same rights it would
have if it were not Trustee, any Paying Agent, Registrar or such other agent.
Section 10.06 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other trust funds except to the extent required herein or required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Seller and except to the extent of
income or other gain on investments which are deposits in or certificates of
deposit of the Trustee in its commercial capacity.
Section 10.07 Compensation and Reimbursement; No Lien for Fees.
The Trustee shall receive compensation for fees and reimbursement for
expenses pursuant to Section 2.05, Section 7.03(c)(iii)(C) and Section 7.06
hereof. The Trustee shall have no lien on the Trust Estate for the payment of
such fees and
expenses.
Section 10.08 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any State authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 subject to supervision or examination by the United States of
America, acceptable to the Certificate Insurer and having a deposit rating of at
least A- from Standard & Poor's (or such lower rating as may be acceptable to
Standard & Poor's) and A2 by Moody's (or such lower rating as may be acceptable
to Moody's). If such Trustee publishes reports of condition at least
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annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation or association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall, upon the request of
the Depositor with the consent of the Certificate Insurer (which consent shall
not be unreasonably withheld) or of the Certificate Insurer, resign immediately
in the manner and with the effect hereinafter specified in this Article X.
Section 10.09 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may resign
at any time by giving written notice of resignation to the Depositor and by
mailing notice of resignation by first-class mail, postage prepaid, to the
Certificate Insurer and the Owners at their addresses appearing on the Register;
provided, that the Trustee cannot resign solely for the failure to receive the
Trustee Fee. A copy of such notice shall be sent by the resigning Trustee to the
Rating Agencies. Upon receiving notice of resignation, the Depositor shall
promptly appoint a successor trustee or trustees acceptable to the Certificate
Insurer by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Seller, one copy of which instrument shall be
delivered to the Trustee so resigning, one copy to the successor trustee or
trustees and one copy to the Master Servicer. If no successor trustee shall have
been appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any Owner
may, on behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. A copy of any such petition
shall be promptly delivered to the Master Servicer. Such court may thereupon,
after such notice, if any, as it may deem proper and appropriate, appoint a
successor trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Depositor or by the Certificate Insurer, the Certificate Insurer or the
Depositor with the written consent of the Certificate Insurer may remove the
Trustee and appoint a successor trustee acceptable to the Certificate Insurer by
written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests represented by the
Class A Certificates with the consent of the Certificate Insurer, or, if there
are no Class A Certificates then Outstanding, by such majority of the Percentage
Interests represented by each of the Class X Certificates and the Class R
Certificates, may at any time remove the Trustee and appoint a successor trustee
acceptable to the Certificate Insurer by delivering to the Trustee to be
removed, to the successor trustee so appointed, to the Depositor, to the Master
Servicer and to the Certificate Insurer, copies of the record of the act taken
by the Owners, as provided for in Section 11.03 hereof.
(e) If the Trustee fails to perform its duties in accordance with the terms
of this Agreement, or becomes ineligible pursuant to Section 10.08 to serve as
Trustee, the Certificate Insurer may remove the Trustee and appoint a successor
trustee by written instrument, in triplicate, signed by the
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Certificate Insurer duly authorized, one complete set of which instruments shall
be delivered to the Depositor, one complete set to the Trustee so removed, one
complete set to the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, the
Depositor shall promptly appoint a successor trustee acceptable to the
Certificate Insurer. If within one year after such resignation, removal or
incapability or the occurrence of such vacancy, a successor trustee shall be
appointed by act of the Certificate Insurer or the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then Outstanding
with the consent of the Certificate Insurer, the successor trustee so appointed
shall forthwith upon its acceptance of such appointment become the successor
trustee and supersede the successor trustee appointed by the Depositor. If no
successor trustee shall have been so appointed by the Depositor or the Owners
and shall have accepted appointment in the manner hereinafter provided, any
Owner may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(g) The Depositor shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the
Certificate Insurer, to the Rating Agencies and to the Owners as their names and
addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
Section 10.10 Acceptance of Appointment by Successor Trustee.
Every successor trustee appointed hereunder shall execute, acknowledge and
deliver to the Depositor on behalf of the Trust and to its predecessor Trustee
an instrument accepting such appointment hereunder and stating its eligibility
to serve as Trustee hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts, duties and obligations of its predecessor hereunder; but, on
request of the Depositor or the successor Trustee, such predecessor Trustee
shall, upon payment of its charges then unpaid, execute and deliver an
instrument transferring to such successor trustee all of the rights, powers and
trusts of the Trustee so ceasing to act, and shall duly assign, transfer and
deliver to such successor trustee all property and money held by such Trustee so
ceasing to act hereunder. Upon request of any such successor trustee, the
Depositor on behalf of the Trust shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor trustee all such
rights, powers and trusts.
Upon acceptance of appointment by a successor Trustee as provided in this
Section, the Successor Trustee shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register.
No successor trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11 Merger, Conversion, Consolidation or
Succession to Business of the Trustee.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger,
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conversion or consolidation to which the Trustee shall be a party, or any
corporation or association succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto; provided, however, that such corporation
or association shall be otherwise qualified and eligible under this Article X.
In case any Certificates have been executed, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
Trustee may adopt such execution and deliver the Certificates so executed with
the same effect as if such successor Trustee had itself executed such
Certificates.
Section 10.12 Reporting; Withholding.
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and except
as otherwise specifically set forth in subsection (a) above, the Trustee shall
prepare and timely file all reports required to be filed by the Trust with any
federal, state or local governmental authority having jurisdiction over the
Trust, including other reports that must be filed with the Owners, such as the
Internal Revenue Service's Form 1066 and Schedule Q and the form required under
Section 6050K of the Code, if applicable to REMICs. Furthermore, the Trustee
shall report to Owners, if required, with respect to the allocation of expenses
pursuant to Section 212 of the Code. The Trustee shall collect any forms or
reports from the Owners it determines to be required under applicable federal,
state and local tax laws.
Section 10.13 Liability of the Trustee.
The Trustee shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Trustee herein.
Neither the Trustee nor any of the directors, officers, employees or agents of
the Trustee shall be under any liability on any Certificate or otherwise to the
Certificate Insurer, the Depositor, the Seller, the Master Servicer or any Owner
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 Trustee, its directors, officers,
employees or agents or any such Person against any liability which would
otherwise be imposed by reason of negligent action, negligent failure to act or
willful misconduct in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Subject to the foregoing
sentence, the Trustee shall not be liable for losses on investments of amounts
in the Distribution Account (except for any losses on obligations on which the
bank serving as Trustee is the obligor). In addition, the Depositor, the Seller
and the Master Servicer covenant and agree to indemnify the Trustee, and when
the Trustee is acting as Master Servicer, the Master Servicer, from, and hold it
harmless against, any and all losses, liabilities, damages, claims or expenses
(including legal fees and expenses) of whatsoever kind arising out of or in
connection with the performance of its duties hereunder other than those
resulting from the negligence or bad faith of the Trustee and the Depositor
shall pay all amounts not otherwise paid pursuant to Sections 2.05 and 7.06
hereof. The Trustee and any director, officer, employee or agent of the Trustee
may rely and shall be protected in acting or refraining from acting in good
faith on any certificate, notice or other
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document of any kind prima facie properly executed and submitted by the
Authorized Officer of any Person respecting any matters arising hereunder.
Section 10.14 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Estate or Mortgaged Property may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee and reasonably acceptable to the Certificate Insurer to act as
co-Trustee or co-Trustees, jointly with the Trustee, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners, such title to the Trust Estate, or any part thereof, and,
subject to the other provisions of this Section 10.14, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable. If the Master Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in the case any event indicated in Section 8.20(a) shall have occurred and be
continuing, the Trustee subject to reasonable approval of the Certificate
Insurer alone shall have the power to make such appointment. No co-Trustee or
separate Trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 10.08 and no notice to Owners of the
appointment of any co-Trustee or separate Trustee shall be required under
Section 10.09.
Every separate Trustee and co-Trustee shall, to the extent permitted, be
appointed and act subject to the following provisions and conditions:
(i) 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 Master 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 Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate Trustee or co-Trustee, but
solely at the direction of the Trustee;
(ii) No co-Trustee hereunder shall
be held personally liable by reason of any act or
omission of any other co-Trustee hereunder; and
(iii) The Master Servicer, the Certificate Insurer and the Trustee
acting jointly may at any time 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 Agreement and the conditions
of this Section 10.14. 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
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the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be filed with the Trustee and a copy
thereof given to the Master Servicer.
Any separate Trustee or co-Trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate Trustee or co-Trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
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ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and
Opinions.
Upon any application or request by the Depositor, the Seller, the
Certificate Insurer or the Owners to the Trustee to take any action under any
provision of this Agreement, the Depositor, the Seller, the Certificate Insurer
or the Owners, as the case may be, shall furnish to the Trustee a certificate
stating that all conditions precedent, if any, provided for in this Agreement
relating to the proposed action have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto:
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with in all material respects.
Section 11.02 Form of Documents Delivered to
the Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such Authorized Officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of an Authorized
Officer of the Trustee or any opinion of counsel may be based, insofar as it
relates to factual matters upon a certificate or opinion of, or representations
by, one or more Authorized Officers of the Depositor, the Seller or the Master
Servicer, stating that the information with respect to such factual matters is
in the possession of the Depositor, the Seller or the Master Servicer, unless
such Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Any opinion of counsel may also be based, insofar as
it relates
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to factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Trustee, stating that the information with respect to
such matters is in the possession of the Trustee, unless such counsel knows, or
in the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to such matters are erroneous. Any opinion of
counsel may be based on the written opinion of other counsel, in which event
such opinion of counsel shall be accompanied by a copy of such other counsel's
opinion and shall include a statement to the effect that such counsel believes
that such counsel and the Trustee may reasonably rely upon the opinion of such
other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by the Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by 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, where it is hereby expressly required, to the Depositor. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners signing
such instrument or instruments. 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 and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Whenever such execution is
by an officer of a corporation or a member of a partnership on behalf of such
corporation or partnership, such certificate or affidavit shall also constitute
sufficient proof of his authority.
(c) The ownership of Certificates shall be
proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Owner of any Certificate shall bind the Owner of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Trust in reliance thereon, whether or not notation
of such action is made upon such Certificates.
Section 11.04 Notices, etc. to Trustee.
Any request, demand, authorization, direction, notice, consent, waiver or
act of the Owners or other documents provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with the Trustee by any Owner, the
Certificate Insurer, the Depositor or the Seller shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing to or with and
received by the Trustee at the Corporate Trust Office.
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Section 11.05 Notices and Reports to Owners; Waiver of Notices.
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if the Master
Servicer is removed or resigns or the Trust is terminated, notice of any such
events shall be made by overnight courier, registered mail or telecopy followed
by a telephone call.
Where this Agreement provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Owners shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Owners when such notice is required to be given pursuant
to any provision of this Agreement, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice.
Where this Agreement provides for notice to any Rating Agency that rated
any Certificates, failure to give such notice shall not affect any other rights
or obligations created hereunder.
Section 11.06 Rules by Trustee.
The Trustee may make reasonable rules for any meeting of Owners.
Section 11.07 Successors and Assigns.
All covenants and agreements in this Agreement by any party hereto shall
bind its successors and assigns, whether so expressed or not.
Section 11.08 Severability.
In case any provision in this Agreement or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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Section 11.09 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
Section 11.10 Legal Holidays.
In any case where the date of any Monthly Remittance Date, any Distribution
Date, any other date on which any distribution to any Owner is proposed to be
paid, or any date on which a notice is required to be sent to any Person
pursuant to the terms of this Agreement shall not be a Business Day, then
(notwithstanding any other provision of the Certificates or this Agreement)
payment or mailing need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made or mailed on
the nominal date of any such Monthly Remittance Date, such Distribution Date, or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
Section 11.11 Governing Law; Submission to Jurisdiction.
(a) In view of the fact that Owners are expected to reside in many states
and outside the United States and the desire to establish with certainty that
this Agreement will be governed by and construed and interpreted in accordance
with the law of a state having a well-developed body of commercial and financial
law relevant to transactions of the type contemplated herein, this Agreement and
each Certificate shall be construed in accordance with and governed by the laws
of the State of New York applicable to agreements made and to be performed
therein, without giving effect to the conflicts of law principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of the
United States District Court for the Southern District of New York and any court
in the State of New York located in the City and County of New York, and any
appellate court from any thereof, in any action, suit or proceeding brought
against them or in connection with this Agreement or any of the related
documents or the transactions contemplated hereunder or for recognition or
enforcement of any judgment, and the parties hereto hereby irrevocably and
unconditionally agree that all claims in respect of any such action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. The parties hereto agree that a
final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. To the extent permitted by applicable law, the parties
hereto hereby waive and agree not to assert by way of motion, as a defense or
otherwise in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that the related documents or the subject
matter thereof may not be litigated in or by such courts.
(c) Each of the Depositor, the Seller and the Master Servicer hereby
irrevocably appoints and designates the Trustee as its true and lawful attorney
and duly authorized agent for acceptance of service of legal process with
respect to any action, suit or proceeding set forth in paragraph (b)
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hereof. Each of the Seller and the Master Servicer agrees that service of such
process upon the Trustee shall constitute personal service of such process upon
it.
(d) Nothing contained in this Agreement shall limit or affect the right of
the Depositor, the Seller, the Master Servicer or the Certificate Insurer or any
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Mortgage Loans against any Mortgagor in the courts of any jurisdiction.
Section 11.12 Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 11.13 Usury.
The amount of interest payable or paid on any Certificate under the terms
of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
Section 11.14 Amendment.
(a) The Trustee, the Depositor, the Seller and the Master Servicer may, at
any time and from time to time, and without notice to or the consent of the
Owners but with the consent of the Certificate Insurer, amend this Agreement,
subject to the provisions of Section 11.16 and 11.17 and the Trustee shall
consent to such amendment, for the purpose of (i) curing any ambiguity,
correcting or supplementing any provision hereof which may be inconsistent with
any other provision hereof, or adding provisions hereto which are not
inconsistent with the provisions hereof; (ii) upon receipt of an opinion of
counsel experienced in federal income tax matters to the effect that no
entity-level tax will be imposed on the Trust or upon the transferor of a Class
R Certificate as a result of the ownership of any Class R Certificate by a
Disqualified Organization, removing the restriction on transfer set forth in
Section 5.08(b) hereof or (iii) complying with the requirements of the Code and
the regulations proposed or promulgated thereunder including any amendments
necessary to maintain REMIC status or (iv) for any other purpose, provided that
in the case of this clause (iv) the Person requesting such amendment delivers
(A) an opinion of counsel acceptable to the Trustee and the Certificate Insurer
that such amendment will not adversely affect in any material respect the
interest of the Owners and (B) such amendment will not result in a withdrawal or
reduction of the rating of the Class A Certificates without regard to the
Certificate Insurance Policies. Notwithstanding anything to the
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contrary herein, no such amendment shall (a) change in any manner the amount of,
or change the timing of, payments which are required to be distributed to any
Owner without the consent of the Owner of such Certificate, or (b) which affects
in any the manner the terms or provisions of the Certificate Insurance Policy
without the consent of not less than a majority of the aggregate Class
Certificate Balance of the Classes of Certificates affected by such amendment.
(b) Promptly after the execution of any such amendment, the Trustee shall
furnish written notification of the substance of such amendment to each Owner in
the manner set forth in Section 11.05, and to the Rating Agencies.
(c) The Certificate Insurer, the Owners and the Rating Agencies shall be
provided with copies of any amendments to this Agreement, together with copies
of any opinions or other documents or instruments executed in connection
therewith.
Section 11.15 Paying Agent; Appointment and Acceptance of Duties.
The Trustee is hereby appointed Paying Agent. The Trustee may, subject to
the eligibility requirements for the Trustee set forth in Section 10.08 hereof,
appoint one or more other Paying Agents or successor Paying Agents.
Each Paying Agent, immediately upon such appointment, shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver to
the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
(a) allocate all sums received for distribution to the Owners of
Certificates of each Class for which it is acting as Paying Agent on each
Distribution Date among such Owners in the proportion specified by the Trustee;
and
(b) hold all sums held by it for the distribution of amounts due with
respect to the Certificates in trust for the benefit of the Owners entitled
thereto until such sums shall be paid to such Owners or otherwise disposed of as
herein provided and pay such sums to such Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other than
the Trustee such Paying Agent shall pay over, assign and deliver any moneys held
by it as Paying Agent to its successor, or if there be no successor, to the
Trustee.
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Upon the appointment, removal or notice of resignation of any Paying Agent,
the Trustee shall notify the Certificate Insurer and the Owners by mailing
notice thereof at their addresses appearing on the Register.
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Section 11.16 REMIC Status.
(a) The parties hereto intend that each of the Master REMIC and the
Subsidiary REMIC constitute, and that the affairs of the Trust shall be
conducted so as to qualify each as a REMIC in accordance with the REMIC
Provisions. In furtherance of such intention, the Trustee or such other person
designated pursuant to Section 11.18 hereof shall act as agent for the Trust and
as "tax matters person" (as defined in the REMIC Provisions) for the Trust and
in such capacity it shall: (i) prepare or cause to be prepared and filed, in a
timely manner, annual tax returns and any other tax return required to be filed
by the Trust established hereunder using a calendar year as the taxable year for
the Trust established hereunder; (ii) in the first such tax return, make (or
cause to be made) an election satisfying the requirements of the REMIC
Provisions, on behalf of the Trust, for it to be treated as a REMIC; (iii)
prepare and forward, or cause to be prepared and forwarded, to the Owners all
information, reports or tax returns required with respect to the Trust as, when
and in the form required to be provided to the Owners, and to the Internal
Revenue Service and any other relevant governmental taxing authority in
accordance with the REMIC Provisions and any other applicable federal, state or
local laws, including without limitation information reports relating to
"original issue discount" as defined in the Code based upon the prepayment
assumption and calculated by using the "Issue Price" (within the meaning of
Section 1273 of the Code) of the Certificates of the related Class; (iv) not
take any action or omit to take any action that would cause the termination of
the REMIC status of the Trust, except as provided under this Agreement; (v)
represent the Trust in any administrative or judicial proceedings relating to an
examination or audit by any governmental taxing authority, request an
administrative adjustment as to a taxable year of the Trust, enter into
settlement agreements with any governmental taxing agency, extend any statute of
limitations relating to any tax item of the Trust, and otherwise act on behalf
of the Trust or any REMIC therein in relation to any tax matter involving the
Trust or any REMIC therein; (vi) comply with all statutory or regulatory
requirements with regard to its conduct of activities pursuant to the foregoing
clauses of this Section 11.16, including, without limitation, providing all
notices and other information to the Internal Revenue Service and Owners of
Class R Certificates required of a "tax matters person" pursuant to subtitle F
of the Code and the Treasury Regulations thereunder; (vii) make available
information necessary for the computation of any tax imposed (A) on transferors
of residual interests to certain Disqualified Organizations or (B) on
pass-through entities, any interest in which is held by a Disqualified
Organization; and (viii) acquire and hold the Tax Matters Person Residual
Interest. The obligations of the Trustee or such other designated Tax Matters
Person pursuant to this Section 11.16 shall survive the termination or discharge
of this Agreement.
(b) The Seller, the Depositor, the Trustee and the Master Servicer covenant
and agree for the benefit of the Owners and the Certificate Insurer (i) to take
no action which would result in the termination of "REMIC" status for the Trust,
(ii) not to engage in any prohibited transaction", as such term is defined in
Section 860F(a)(2) of the Code, subject to the exceptions set forth in Section
860F(a)(5) of the Code, and (iii) not to engage in any other action which may
result in the imposition on the Trust of any other taxes under the Code.
(c) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Permitted
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereto).
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(e) Neither the Depositor, the Seller nor the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d)
and (e), the Trustee, Depositor, Master Servicer
or the Seller may engage in any of the transactions
prohibited by such clauses, provided that the Trustee shall have received an
opinion of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer to the effect that such transaction does not result in a tax
imposed on the Trustee or cause a termination of REMIC status for the Trust;
provided, however, that such transaction is otherwise permitted under this
Agreement.
(g) The Master Servicer, Trustee and Tax Matters Person agree to indemnify
the Trust for any tax imposed on the Trust as a result of their negligence.
Section 11.17 Additional Limitation on Action and Imposition of Tax.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an opinion of counsel experienced in
federal income tax matters acceptable to the Certificate Insurer to the effect
that such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the Trust, (i) sell any assets in the Trust
Estate (notwithstanding the repurchase pursuant to a breach of representation
and warranty), (ii) accept any contribution of assets after the Startup Day or
(iii) agree to any modification of this Agreement. To the extent that sufficient
amounts cannot be so retained to pay or provide for the payment of such tax, the
Trustee is hereby authorized to and shall segregate, into a separate
non-interest bearing account, the net income from any such Prohibited
Transactions of the Trust and use such income, to the extent necessary, to pay
such tax; provided that, to the extent that any such income is paid to the
Internal Revenue Service, the Trustee shall retain an equal amount from future
amounts otherwise distributable to the Owners of Class R Certificates and shall
distribute such retained amounts to the Owners of Class A Certificates to the
extent they are fully reimbursed and then to the Owners of the Class R
Certificates. If any tax, including interest, penalties or assessments,
additional amounts or additions to tax, is imposed on the Trust, such tax shall
be charged against amounts otherwise distributable to the Owners of the Class X
Certificates on a pro rata basis unless otherwise paid pursuant to Section
11.16(g) hereof. The Trustee is hereby authorized to and shall retain from
amounts otherwise distributable to the Owners of the Class X Certificates
sufficient funds to pay or provide for the payment of, and to actually pay, such
tax as is legally owed by the Trust unless otherwise paid pursuant to Section
11.16(g) hereof (but such authorization shall not prevent the Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings).
Section 11.18 Appointment of Tax Matters Person.
A Tax Matters Person will be appointed for the Trust for all purposes of
the Code and such Tax Matters Person will perform, or cause to be performed,
such duties and take, or cause to be taken, such actions as are required to be
performed or taken by the Tax Matters Person under the Code. The Tax Matters
Person for the Trust shall be the Trustee as long as it owns a Class R
Certificate. If the Trustee does not own a Class R Certificate, the Tax Matters
Person may be any other entity that owns a Class R Certificate and accepts a
designation hereunder as Tax Matters Person by delivering an affidavit in the
form of Exhibit H. The Trustee shall notify any subsequent
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Trustee and the Master Servicer in writing of the name and address of another
person who accepts a designation as Tax Matters Person hereunder.
Section 11.19 The Certificate Insurer.
Any right conferred to the Certificate Insurer hereunder shall be suspended
and shall run to the benefit of the Owners during any period in which the
Certificate Insurer is in default in its payment obligations under the
Certificate Insurance Policy. At such time as the Class A Certificates are no
longer Outstanding hereunder and all Reimbursement Amounts due the Certificate
Insurer have been paid in full, the Certificate Insurer's rights hereunder shall
terminate.
Section 11.20 Reserved.
Section 11.21 Third Party Rights.
The Trustee, the Seller, the Depositor, the Master Servicer and the Owners
agree that the Certificate Insurer shall be deemed a third party beneficiary as
if it were a party hereto with the right to enforce the provisions hereof.
Section 11.22 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee: Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California 92614
Attention: Block Mortgage Finance
Asset Backed Certificates, Series 1997-1
Tel: 714-253-7575
Fax: 714-253-7577
The Depositor: Block Mortgage Finance, Inc.
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: President
Tel: 816-751-6000
Fax: 816-751-0673
The Seller and
The Master
Servicer: Block Financial Corporation
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Tel: 816-751-6000
Fax: 816-751-0673
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The Rating Agencies: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Tel: 212-553-0376
Fax: 212-208-0030
Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies
26 Broadway
New York, New York 10004
Tel: 212-208-8000
Fax: 212-208-0030
Owners: As set forth in the Register.
The Certificate
Insurer: MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management--
Structured Finance (IPM-SF)
Block Mortgage Finance Asset Backed
Certificates, Series 1997-1
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IN WITNESS WHEREOF, the
Depositor, the Seller, the Master Servicer and the Trustee have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized, all as of the day and year first above written.
BLOCK MORTGAGE
FINANCE, INC.,
as Depositor
By:
Title:
BLOCK FINANCIAL
CORPORATION, as
Seller and Master Servicer
By:
Title:
BANKERS TRUST
COMPANY OF
CALIFORNIA,
N.A., as Trustee
By:
Title:
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 29th day of January, 1997, before me personally came Clifford A.
Davis, Jr., to me known, who, being by me duly sworn, did depose and say that he
is a Vice President of Block Mortgage Finance, Inc., a Delaware corporation; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
IN WITNESS WHEREOF, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 29th day of January, 1997, before me personally came Clifford A.
Davis, Jr., to me known, who, being by me duly sworn, did depose and say that he
is a Vice President of Block Financial Corporation, a Delaware corporation; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
IN WITNESS WHEREOF, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 29th day of January, 1997, before me personally came Nana Palmer, to
me known, who, being by me duly sworn, did depose and say that she is a Vice
President of Bankers Trust Company of California, N.A., a national banking
association, and that she signed her name thereto by order of the Board of
Directors of said national banking association.
IN WITNESS WHEREOF, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate first above written.
NOTARIAL SEAL
<PAGE>
SCHEDULE I
REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE LOANS
All percentages herein reflect the Mortgage Pool disclosed in the
Prospectus. The actual percentages will vary based on the actual Mortgage Loans
transferred to the Trust.
(i) The information with respect to each Mortgage Loan set forth in the
related Schedule of Mortgage Loans is true and correct as of the Cut-Off
Date;
(ii) All the original or certified documentation set forth in Section
3.05 (including all material documents related thereto) with respect to each
Mortgage Loan has been or will be delivered to the Trustee on the Startup
Day or as otherwise provided in Section 3.05 and is true and accurate in all
material respects and does not omit to state a fact necessary to make the
statements contained therein not misleading and the documents, instruments
and agreements submitted by each Mortgagor for loan underwriting were not
falsified and contain no untrue statement of a material fact and do not omit
to state a material fact required to be stated therein or necessary to make
the information and statements therein not misleading;
(iii) Each Mortgage Loan being transferred
to the Trust is a Qualified Mortgage;
(iv) Each Mortgaged Property consists of a fee simple estate in real
property and is improved by a single (one-to-four) family residential
dwelling, which may include condominiums and townhouses, small multifamily
or mixed-use property or manufactured homes (provided that such manufactured
home is attached to the property and the manufactured home is encumbered by
and secured by a Mortgage) but shall not include co-operatives; provided,
however, that as of the Cut-Off Date not more than 0.64% and 0.71% of the
aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group and
Adjustable Rate Group, respectively, are secured by condominiums and all of
the Mortgage Loans secured in part by manufactured homes are "land and home
contracts", (and the certificate of title for each manufactured home, noting
the Trustee as lienholder, will be delivered to the Trustee) not more than
0.02% and 0.00% of the aggregate Loan Balance of
the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, are secured by townhouses, and not more than 0.18% and 1.82%
of the aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group
and the Adjustable Rate Group, respectively, are secured by planned unit
developments;
(v) As of the Cut-Off Date no Mortgage Loan in the Adjustable Rate
Group has a Loan-to-Value Ratio greater than 95%. Each Mortgage Loan which
is not a First Mortgage Loan has a combined Loan-to-Value Ratio not greater
than 125% and not more than 1% of the aggregate Loan Balance of the Mortgage
Loans are Second Mortgage Loans with a loan-to-value ratio (for
tax purposes) in excess of 125%.
(vi) Each Mortgage Loan is being master
serviced by the Master Servicer and serviced by a
Sub-Servicer;
(vii) The Note related to each Mortgage Loan in the Fixed Rate Group
bears a fixed Mortgage Rate of at least 8.000% per annum, and the Note
related to each Mortgage Loan in the Adjustable Rate Group bears a current
Mortgage Rate of at least 6.000% per annum. The weighted average Mortgage
Rate of the Mortgage Loans in the Fixed Rate Group is at least 12.400% and
the current weighted average Mortgage Rate of the Mortgage Loans in the
Adjustable Rate Group is at least 9.72%;
<PAGE>
(viii) Each Note with respect to the Mortgage Loans will provide for a
schedule of substantially level and equal monthly Scheduled Payments which
are sufficient to amortize fully the principal balance of such Note on or
before its maturity date (other than Notes representing not more than 28.14%
and 9.59% of the aggregate Loan Balance as of the Cut-Off Date of the
Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, which may provide for a "balloon" payment due at the end of
the 15th year, which maturity date is not more than 15 years from the date
of origination);
(ix) As of the Startup Day, each Mortgage is a valid, enforceable,
perfected and subsisting first or second lien of record on the Mortgaged
Property subject in the case of any Second Mortgage Loan only to a Senior
Lien on such Mortgaged Property and subject in all cases to the exceptions
to title set forth in the title insurance policy or attorney's opinion of
title with respect to the related Mortgage Loan, which exceptions are
generally acceptable to banking institutions in connection with their
regular mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not individually, or in
the aggregate, materially and adversely affect the benefits of the security
intended to be provided by such Mortgage;
(x) Immediately prior to the transfer and assignment of the Mortgage
Loans by the Seller to the Depositor and by the Depositor to the Trust
herein contemplated, the Seller and the Depositor, as the case may be, held
good, indefeasible and marketable title to, and was the sole owner of record
and holder of, each Mortgage Loan (including the related Note) conveyed by
the Seller subject to no liens, charges, mortgages, encumbrances or rights
of others except liens which will be released simultaneously with such
transfer and assignment; and immediately upon the transfer and assignment
herein contemplated, the Trustee will hold good, indefeasible and marketable
title to, and be the sole owner of, each Mortgage Loan subject to no liens,
charges, mortgages, encumbrances or rights of others or other liens which
will be released simultaneously with such transfer and assignment;
(xi) As of the Startup Day, (a) none of the Mortgage Loans is more than
59 days Delinquent, (b) no Obligor of any Mortgage Loan has been 30 days or
more Delinquent more than once during the 12 months immediately preceding
the Startup Day except as indicated on Schedule III attached hereto and (c)
no Obligor of any Mortgage Loan has been 90 or more days Delinquent during
the 12 months immediately preceding the Startup Day except as indicated on
Schedule III attached hereto.
(xii) There is no delinquent tax or assessment lien on any Mortgaged
Property, and each Mortgaged Property is free of substantial damage and is
in good repair;
(xiii) There is no valid and enforceable offset, defense or
counterclaim to any Note or Mortgage, including the obligation of the
related Mortgagor to pay the unpaid principal of or interest on such Note;
(xiv) There is no mechanics' lien or claim for work, labor or material
affecting any Mortgaged Property which is or may be a lien prior to, or
equal with, the lien of the related Mortgage (and no rights are outstanding
as of the Cut-Off Date which could give rise to such liens) except those
which are insured against by any title insurance policy referred to in
paragraph (xvi) below;
<PAGE>
(xv) Each Mortgage Loan at the time it was made complied in all
material respects with applicable state, federal or local laws and
regulations, including, without limitation, the federal Truth-in-Lending Act
and other consumer protection laws, usury, equal credit opportunity,
disclosure, real estate settlement procedures and recording laws;
(xvi) With respect to each Mortgage Loan either (a) an attorney's
opinion of title has been obtained but no title policy has been obtained
(provided that no title policy has been obtained with respect to not more
than 1.0% of the Original Aggregate Loan Balance of the Mortgage Loans), or
(b) a lender's title insurance policy, issued in standard American Land
Title Association form by a title insurance company authorized to transact
business in the state in which the related Mortgaged Property is situated,
in an amount at least equal to the original balance of such Mortgage Loan
together, in the case of a Second Mortgage Loan, with the then-current
principal balance of the mortgage note relating to the Senior Lien, insuring
the mortgagee's interest (and any successors or assignees of such mortgage)
under the related Mortgage Loan as the holder of a valid first or second
mortgage lien of record on the real property described in the related
Mortgage, as the case may be, subject only to exceptions of the character
referred to in paragraph (ix) above, was effective on the date of the
origination of such Mortgage Loan, and, as of the Startup Day, such policy
is valid and thereafter such policy shall continue in full force and effect;
(xvii) Each Sub-Servicer, if any, is a qualified servicer as defined in
Section 8.03 with respect to the Mortgage Loans serviced by it;
(xviii) The improvements upon each Mortgaged Property are covered by a
valid and existing hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage representing coverage
not less than the least of (A) the outstanding principal balance of the
related Mortgage Loan (together, in the case of a Second Mortgage Loan, with
the outstanding principal balance of the Senior Lien), (B) the minimum
amount required to compensate for damage or loss on a replacement cost basis
or (C) the full insurable value of the Mortgaged Property. All such
insurance policies meet the requirements of the FNMA Seller's Guide and the
FNMA Servicer's Guide and are of standard type and quality for the locale
where the related property is located. All acts required to be performed to
preserve the rights and remedies of the Trustee in any such insurance
policies have been performed, including, without limitation, any necessary
information of insurers and assignments of policies or interests therein;
(xix) If any Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration is in effect with
respect to such Mortgaged Property with a generally acceptable carrier in an
amount representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of the Senior
Lien), (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973;
(xx) Each Mortgage and Note and any other agreement, if any, executed
and delivered by the applicable Mortgagor in connection with each Mortgage
Loan is the legal, valid and binding obligation of the maker thereof and is
enforceable in accordance with its terms, except only as such enforcement
may be limited by bankruptcy, insolvency,
<PAGE>
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law), and, to the best
of the Seller's knowledge, all parties to each Mortgage Loan had full legal
capacity to execute all documents relating to such Mortgage Loan and convey
the estate therein purported to be conveyed;
(xxi) As of the Startup Day, no more than 1.50% and 4.00% of the
aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group and the
Adjustable Rate Group, respectively, will be secured by Properties located
within any single zip code area;
(xxii) Each original Mortgage was recorded or is in the process of
being recorded. There is only one originally executed Note not stamped as a
duplicate for each Mortgage Loan and each Mortgage Loan and assignment of
Mortgage Loan is in recordable form and is acceptable for recording under
the laws of the jurisdiction where the property securing the Mortgage Loan
is located;
(xxiii) The terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the Owners
and the Certificate Insurer and which has been delivered to the Trustee. The
substance of any such alteration or modification has been approved by the
applicable title insurer, to the extent required on the applicable title
insurance policy, and is reflected on the related Schedule of Mortgage
Loans;
(xxiv) The proceeds of each Mortgage Loan have been fully disbursed,
and there is no obligation on the part of the mortgagee to make future
advances thereunder. Any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing or recording such Mortgage Loans were paid and no funds
provided to a Mortgagor from a Second Mortgage Loan were concurrently used
as a down payment for a First Mortgage Loan;
(xxv) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxvi) No Mortgage Loan has a graduated payment feature, a buydown
provision, shared appreciation feature, or other contingent interest
feature;
(xxvii) Each Mortgaged Property is located in the state identified in
the respective Schedule of Mortgage Loans and consists of one or more
parcels of real property with a residential dwelling, as that term is
defined in item (iv) of this Schedule I, erected thereon;
(xxviii) Each Mortgage contains a provision for the acceleration,
subject to federal law, of the payment of the unpaid principal balance of
the related Mortgage Loan in the event the related Mortgaged Property is
sold without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a Mortgage
Loan but prior to the Cut-Off Date have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the respective Schedule of Mortgage
Loans. The consolidated principal amount does not exceed the original
principal amount of the related
<PAGE>
Mortgage Loan. No Note permits or obligates the
Master Servicer to make future advances to the related
Mortgagor at the option of the Mortgagor;
(xxx) There is no proceeding pending or threatened for the total or
partial condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring, and each Mortgaged Property is undamaged by waste,
fire, water, flood, earthquake or earth movement.
(xxxi) All of the improvements which were included for the purposes of
determining the Appraised Value of any Mortgaged Property lie wholly within
the boundaries and building restriction lines of such Mortgaged Property,
and no improvements on adjoining properties encroach upon such Mortgaged
Property, and are stated in the title insurance policy and affirmatively
insured;
(xxxii) No improvement located on or being part of any Mortgaged
Property is in violation of any applicable zoning law or regulation. All
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of each Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made
or obtained from the appropriate authorities and such Mortgaged Property is
lawfully occupied under the applicable law;
(xxxiii) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the Owners or the
Trust to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the related Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the related Mortgagor which
would materially interfere with the right to sell all the related Mortgaged
Property at a trustee's sale or the right to foreclose the related Mortgage;
(xxxv) There is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and, to the best of the
Seller's knowledge, no event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and neither the Master Servicer
nor the Seller has waived any default, breach, violation or event of
acceleration;
(xxxvi) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in
whole or in part, except in connection with an assumption agreement which
has been approved by the primary mortgage guaranty insurer, if any, and
which has been delivered to the Trustee;
(xxxvii) The maturity date of each Mortgage Loan is at least twelve
months prior to the maturity date of the related first mortgage loan if such
first mortgage loan provides for a
<PAGE>
balloon payment and at the time of origination of the Second Mortgage Loan,
the related first mortgage loan was not more than 30 days delinquent;
(xxxviii) Each Mortgage Loan conforms, and all such Mortgage Loans in
the aggregate conform, in all material respects to the description thereof
set forth in the Prospectus Supplement;
(xxxix) Each Mortgage Loan was originated in accordance with the credit
underwriting guidelines applicable to such Mortgage Loan as set forth in the
Prospectus Supplement and the credit underwriting guidelines applicable to
each Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus:
(xl) Each Mortgage Loan (other than the Mortgage Loans originated in
connection with the Seller's "high LTV program") was originated based upon a
full appraisal, which included an interior inspection of the subject
property and all required inspections, licenses and certificates with
respect to the use and occupancy of all occupied portions of all property
securing the Mortgage Loans have been obtained or issued, as applicable. All
improvements which were considered in determining the appraised value of the
property securing each Mortgage Loan lay wholly within the boundaries and
building restriction lines of the related property and no improvements on
adjoining properties encroach upon such property. No improvement located on
or being a part of such property is in violation of any applicable zoning
laws or regulations;
(xli) The Mortgage Loans are representative of the Seller's portfolio
of fixed and variable rate mortgage loans and the Mortgage Loans were not
selected for inclusion in the Trust by the Seller on any basis intended to
adversely affect the Trust or the Certificate Insurer;
(xlii) No more than 3.96% and 3.60% of the aggregate Loan Balances of
the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, are secured by Properties that are non-owner occupied
Properties (investor-owned and vacation);
(xliii) No more than 4.00% and 16.00% of the aggregate Loan Balances of
the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, were originated under the Seller's non-income verification
program;
(xliv) The Seller has no actual knowledge that there exist any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, or other
federal, state or local environmental legislation on any Mortgaged Property;
(xlv) The Seller was properly licensed or otherwise authorized, to the
extent required by applicable law, to originate or purchase each Mortgage
Loan and the consummation of the transactions herein contemplated,
including, without limitation, the receipt of interest by the Owners and the
ownership of the Mortgage Loans by the Trustee as trustee of the Trust will
not involve the violation of such laws and Companion Mortgage Corporation
was in compliance with any and all applicable licensing requirements of the
laws of the state wherein the property securing the Mortgage Loan is
located;
<PAGE>
(xlvi) With respect to each Mortgaged Property subject to a ground
lease (i) the current ground lessor has been identified and all ground rents
which have previously become due and owing have been paid; (ii) the ground
lease term extends, or is automatically renewable, for at least five years
beyond the maturity date of the related Initial Mortgage Loan; (iii) the
ground lease has been duly executed and recorded; (iv) the amount of the
ground rent and any increases therein are clearly identified in the lease
and are for predetermined amounts at predetermined times; (v) the ground
rent payment is included in the borrower's monthly payment as an expense
item; (vi) the Trust has the right to cure defaults on the ground lease; and
(vii) the terms and conditions of the leasehold do not prevent the free and
absolute marketability of the Mortgaged Property. As of the Cut-Off Date,
the Loan Balance of the Initial Mortgage Loans with related Properties
subject to ground leases does not exceed 1% of the Original Aggregate Loan
Balance;
(xlvii) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid or are not yet delinquent, or
an escrow of funds has been established in an amount sufficient to pay for
every such item which remains unpaid and which has been assessed but is not
yet delinquent. No one other than the applicable Mortgagor has advanced
funds, directly or indirectly, for the payment of any amount required under
any Mortgage Loan;
(xlviii) With respect to any Second Mortgage Loan, as of the Startup
Day, the Seller has not received a notice of default of any first mortgage
loan secured by any Mortgaged Property which has not been cured by a party
other than the Seller;
(xlix) All of the Mortgage Loans in
the Adjustable Rate Group are in a first lien
position;
(l) As of the Cut-off Date, each Mortgage Loan has an outstanding
balance of less than $500,000, except for two Mortgage Loans with
outstanding balances in excess of
$500,000;
(li) Each Mortgage Loan is secured by a mortgage on property which, at
the time of origination of each Mortgage Loan, has an appraised value of
less than $1 million;
(lii) No more than 41% of the Fixed
Rate Group Mortgage Loans are in a second priority
position; and
(liii) The weighted average margin of the Adjustable Rate Group
Mortgage Loans is 6.365% and with respect to each Adjustable Rate Group
Mortgage Loan, the applicable interest rate is adjusted in accordance with
the terms of the Note and all required notices of interest rate adjustments
have been sent to the Mortgagor on a timely basis, the computations of such
adjustments were properly calculated and all interest rate adjustments have
been made in accordance with all applicable law.
(liv) The aggregate loan balance of all Mortgage Loans in the Fixed
Rate Mortgage Loan Group as of the Cut-Off Date is $59,278,916.96 and the
aggregate loan balance of all Mortgage Loans in the Adjustable Rate Mortgage
Loan Group as of the Cut-Off Date is $42,576,994.55.
<PAGE>
(lv) Each Mortgage Loan is a "qualified mortgage" within the meaning of
Section 860G(a)(3) of the Code.
(lvi) No more than 65% of the Mortgage Loans are simple interest loans
and 45% of the mortgage loans are actuarial loans.
(lvii) With respect to Second Mortgage Loans, either (i) no consent for
the Second Mortgage Loan is required by the holder of the related first
mortgage loan or (ii) such consent has been obtained and delivered to the
Trustee.
(lviii) With respect to Second Mortgage Loans, the related first
mortgage loan does not provide for negative amortization.
(lix) As of the Cut-Off Date, none of the Mortgage Loans in the
Adjustable Rate Mortgage Loan Group had interest rates that were fully
indexed.
(lx) The margins for the Mortgage Loans in the Adjustable Rate Mortgage
Loan Group (which margins, when added to the applicable current indices,
establishes the interest rate paid applicable to such Mortgage Loans ranges
from 2.000% to 9.375%.
(lxi) No Mortgage Loan has a term in
excess of 360 months.
(lxii) As of the Cut-Off Date, there is no proceeding pending or
threatened for the total or partial condemnation of any property securing a
Mortgage Loan. No property securing a Mortgage Loan is damaged by water,
fire, earthquake or earth movement, windstorm, flood, other types of water
damage, tornado or other casualty so as to affect adversely the value of
such property as security for such Mortgage Loan or the use for which the
premises were intended. Each property securing a Mortgage Loan is in good
repair.
(lxiii) The first date upon which the applicable Mortgagor must make a
payment on each Mortgage Loan is no later than 60 days after origination.
(lxiv) All information regarding a Mortgage Loan of which the Seller
has knowledge that could reasonably be expected to affect adversely the
value or marketability of any property securing such Mortgage Loan has been
disclosed to the Certificate Insurer.
(lxv) As of the Cut-Off Date, none of the Mortgage Loans are retail
installment contracts for goods or services, which loans are either
"consumer credit contracts" or "purchase money loans" as such terms are
defined in 16 C.F.R. ss.433.1.
<PAGE>
SCHEDULE I-A
SCHEDULE OF FIXED RATE GROUP MORTGAGE LOANS
<PAGE>
SCHEDULE I-B
SCHEDULE OF ADJUSTABLE RATE GROUP MORTGAGE LOANS
<PAGE>
SCHEDULE II
[RESERVED]
<PAGE>
SCHEDULE III
MORTGAGE LOANS WITH DELINQUENCY CHARACTERISTICS
<PAGE>
SCHEDULE IV
MORTGAGE LOANS WITH 15-YEAR "BALLOON" PAYMENTS
A copy of this Schedule is maintained by the Trustee at the Corporate Trust
Office and by the Seller at its principal office.
<PAGE>
SCHEDULE V
MORTGAGE LOANS WITH 5-YEAR "BALLOON" PAYMENTS
A copy of this Schedule is maintained by the Trustee at the Corporate Trust
Office and by the Seller at its principal office.
<PAGE>
EXHIBIT A
FORM OF CLASS A CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC")
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES,
SERIES 1997-1
CLASS A-[ ]
(____% Pass-Through Rate)
Representing Certain Interests in a Pool of
[Fixed] [Adjustable] Rate Group
Mortgage Loans Formed by Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
(This certificate does not represent an interest in, or an obligation of,
nor are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc. or Block Financial Corporation. This Certificate represents a
fractional ownership interest in the [Fixed] [Adjustable] Rate Group Mortgage
Loans and certain other property held by the Trust.)
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Depositor or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof. Cede & Co., has an interest herein.
No: A-[ ]-[ ]
CUSIP
- ------------------------------------------------------------------
$
- ------------------------------------------------------------------
Original Date Final
Certificate Scheduled
Principal Distribution
Balance Date
- ------------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
Registered Owner
- --------------------------------------------------------------
A-1
<PAGE>
Trustee Authentication
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By:__________________________________
Name: _______________________________
Title: ______________________________
Date of Authentication ______________
A-2
<PAGE>
The registered Owner named above is the registered beneficial Owner of a
fractional interest in (a) the Mortgage Loans in the [Fixed] [Adjustable] Rate
Group (other than any principal and interest payments received thereon prior to
the Cut-Off Date) listed in Schedule I-[A][B] to the Pooling and Servicing
Agreement which the Seller has caused to be delivered to the Depositor and the
Depositor has caused to be delivered to the Trustee (and all substitutions
therefor as provided by Section 3.03, 3.04 and 3.06 of the Pooling and Servicing
Agreement), together with the related Mortgage Loan documents and the Seller's
and Depositor's interest in any Mortgaged Property which secured a Mortgage Loan
in the [Fixed] [Adjustable] Rate Group but which has been acquired by
foreclosure or deed in lieu of foreclosure, and all payments thereon and
proceeds of the conversion, voluntary or involuntary, of the foregoing; (b) such
amounts as may be held by the Trustee in the Distribution Account, together with
investment earnings on such amounts and such amounts as may be held in the name
of the Trustee in the Collection Account, if any, (exclusive of investment
earnings thereon except as otherwise provided herein), whether in the form of
cash, instruments, securities or other properties (including any Permitted
Investments held by the Master Servicer); (c) the [Fixed] [Adjustable] Rate
Group Certificate Insurance Policy; and (d) proceeds of all the foregoing
(including, but not by way of limitation, all proceeds of any mortgage
insurance, hazard insurance and title insurance policy relating to the Mortgage
Loans in the [Fixed] [Adjustable] Rate Group, cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables which at any time constitute all or part of or are included in the
proceeds of any of the foregoing) to pay the Certificates as specified in the
Pooling and Servicing Agreement.
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance over the period from the date of initial issuance
of the Certificates to the final Distribution Date for the Class A-[ ]
Certificates. Therefore, the actual outstanding principal amount of this
Certificate may, on any date subsequent to February __, 1997 (the first
Distribution Date) be less than the original Certificate Principal Balance set
forth above.
Upon receiving the final distribution hereon, the Owner hereof is required
to send this Certificate to the Trustee. The Pooling and Servicing Agreement (as
defined below) provides that, in any event, upon the making of the final
distribution due on this Certificate, this Certificate shall be deemed cancelled
for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE
NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE
CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS. THEREFORE, THE
ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON ANY DATE
SUBSEQUENT TO FEBRUARY __, 1997 (THE FIRST DISTRIBUTION DATE) BE LESS THAN ITS
ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
THIS CERTIFICATE IS A
PASS-THROUGH CERTIFICATE ONLY
AND, NOTWITHSTANDING
REFERENCES HEREIN TO
PRINCIPAL AND INTEREST, NO
DEBT OF ANY PERSON IS
REPRESENTED HEREBY.
A-3
<PAGE>
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series 1997-1,
Class A-[ ] (the "Class A-[ ] Certificates") and issued under and subject to the
terms, provisions and conditions of that certain Pooling and Servicing Agreement
dated as of January 1, 1997 (the "Pooling and Servicing Agreement") by and among
Block Mortgage Finance, Inc., in its capacity as Depositor (the "Depositor"),
Block Financial Corporation, in its capacity as the Seller (the "Seller") and in
its capacity as the Master Servicer (the "Master Servicer"), and Bankers Trust
Company of California, N.A., in its capacity as the Trustee (the "Trustee"), to
which Pooling and Servicing Agreement the Owner of this Certificate by virtue of
acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling and Servicing Agreement are Certificates designated as Block
Mortgage Finance Asset Backed Certificates, Series 1997-1, Class A-[ ] (the
"Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ] Certificates"), Class
A-[ ] (the "Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ]
Certificates"), Class X-1 (the "Class X-1 Certificates"), Class X-2 (the "Class
X-2 Certificates" and, with the Class X-1 Certificates, the "Class X
Certificates") and Class R (Residual Interest) (the "Class R Certificates"). The
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates
and the Class A-4 Certificates are together referred to as the "Class A
Certificates" and the Class A Certificates, the Class X Certificates and the
Class R Certificates are together referred to herein as the "Certificates."
Terms capitalized herein and not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing February __, 1997, the Owners of the Class A-[ ] Certificates as of
the close of business on the [last day of the calendar month immediately
preceding the calendar month in which a Distribution Date occurs] [day
immediately preceding such Distribution Date] (the "Record Date") will be
entitled to receive the Class A-[ ] Distribution Amount relating to such
Certificate on such Distribution Date. Distributions will be made in immediately
available funds to Owners of Certificates having an aggregate original Class A-[
] Certificate Principal Balance of at least $1,000,000 (by wire transfer or
otherwise) to the account of an Owner at a domestic bank or other entity having
appropriate facilities therefor, if such Owner has so notified the Trustee, or
by check mailed to the address of the person entitled thereto as it appears on
the Register.
Each Owner of record of a Class A-[ ] Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-[ ] Certificates. The Percentage Interest of
each Class A-[ ] Certificate as of any date of determination will be equal to
the percentage obtained by dividing the original Certificate Principal Balance
of such Class A-[ ] Certificate on the Startup Day by the aggregate Class A-[ ]
Certificate Principal Balance on the Startup Day.
The Certificate Insurer is required, subject to the terms of the Certificate
Insurance Policies, to make Insured Payments available to the Trustee on or
prior to the related Distribution Date for distribution to the Owners. "Insured
Payment" means with respect to either Mortgage Loan Group and as to any
Distribution Date (i) the excess, if any, of (a) the sum of the related Current
Interest and the then existing related Subordination Deficit, if any, over (b)
the Total Available Funds with respect to such Group (net of the Insurance
Premium Amount allocable to such Group) after taking into account (x) the
cross-collateralization provisions of Sections 7.03(c)(i)(A) and (B) and
7.03(c)(ii)(A) and (B) of the Pooling and Servicing Agreement and (y) the
portion of any Fixed Rate Group Principal Distribution Amount or Adjustable Rate
Group Principal Distribution Amount, as the case may be, to be actually
distributed on such Distribution Date without regard to any related
A-4
<PAGE>
Insured Payment to be made with respect to such Distribution Date, plus (ii) an
amount equal to the Preference Amount with respect to the related Class of Class
A Certificates.
Upon receipt of amounts under the Certificate Insurance Policies on behalf
of the Owners of the Class A Certificates, the Trustee shall distribute in
accordance with the Pooling and Servicing Agreement such amounts (directly or
through a Paying Agent) to the Owners of the appropriate Class of the Class A
Securities.
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation or any of their
affiliates. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Distribution Account and the Collection Account (except as otherwise
provided in the Pooling and Servicing Agreement) and payments received by the
Trustee pursuant to the [Fixed] [Adjustable] Rate Group Certificate Insurance
Policy, all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing Agreement,
the Owner of any Certificate shall have the right which is absolute and
unconditional to receive distributions to the extent provided in the Pooling and
Servicing Agreement with respect to such Certificate or to institute suit for
the enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner. The Owner of this Certificate, by its
acceptance hereof, agrees, however, that to the extent the Certificate Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee or Paying Agent), to the Owners of such Class A-[ ] Certificates, the
Certificate Insurer will be subrogated to the rights of such Owners of Class A-[
] Certificates with respect to such Insured Payment, shall be deemed to the
extent of the payments so made to be a registered Owner of such Class A-[ ]
Certificates and shall receive all future distributions of the Class A-[ ]
Distribution Amount until all such Insured Payments by the Certificate Insurer
have been fully reimbursed.
A-5
<PAGE>
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the earlier of (i) the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate or (ii) at any time when a Qualified Liquidation of the
Trust Estate is effected as described below. To effect a termination of the
Pooling and Servicing Agreement pursuant to clause (ii) above, the Owners of all
Certificates then Outstanding shall unanimously direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code, and the Trustee shall either sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust, or shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates, each in accordance with such plan, so that the liquidation
or distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of the Pooling and Servicing Agreement occur no
later than the close of the 90th day after the date of adoption of the plan of
liquidation and such liquidation qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates and the Master Servicer may, at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, after the Optional
Termination Date and (ii) under certain circumstances relating to the
qualification of the Trust Estate as a REMIC under the Code the Mortgage Loans
may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided, that in certain circumstances provided for in the Pooling and
Servicing Agreement, such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of Transfer hereof
A-6
<PAGE>
or in exchange hereof or in lieu hereof whether or not notation of such consent
or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this certificate as more fully described in the Pooling and
Servicing Agreement.
The Class A-[ ] Certificates are issuable only as registered Certificates in
minimum denominations of $25,000 original Certificate Principal Balance and
multiples of $1,000 in excess thereof. As provided in the Pooling and Servicing
Agreement and subject to certain limitations therein set forth, Class A-[ ]
Certificates are exchangeable for new Class A-[ ] Certificates of authorized
denominations evidencing the same aggregate principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee or any such agent shall be affected by notice to the contrary,
except as may otherwise be specifically provided in the Pooling and Servicing
Agreement with respect to the Certificate Insurer.
A-7
<PAGE>
EXHIBIT B
FORM OF CLASS X CERTIFICATE
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES 1997-1
INTEREST-ONLY CLASS X-[ ] CERTIFICATE
Representing Certain Interests Relating to a Pool of Mortgage Loans formed by
Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
This certificate does not represent an interest in, or an obligation of, nor
are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc. or Block Financial Corporation. This certificate represents a
fractional ownership interest in the Mortgage Loans and certain other property
held by the Trust.
No.: X-[ ]-[ ]
-------------
Date
- -------------------- -------------------
Percentage Interest Final Scheduled
Distribution Date
-------------------
Registered Holder
Trustee Authentication
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By: __________________________
Name: __________________________
Title: __________________________
Date of Authentication: ___________________
B-1
<PAGE>
The registered Owner named above is the registered Owner of a fractional
interest in (a) the Mortgage Loans in the [Fixed] [Adjustable] Rate Group (other
than any principal and interest payments received thereon on or prior to the
Cut-Off Date) listed in Schedule I-[A][B] to the Pooling and Servicing Agreement
which the Seller has caused to be delivered to the Depositor and the Depositor
has caused to be delivered to the Trustee (and all substitutions therefor as
provided by Section 3.03, 3.04 and 3.06 of the Pooling and Servicing Agreement),
together with the related Mortgage Loan documents and the Seller's and
Depositor's interest in any Property which secured a Mortgage Loan in the
[Fixed] [Adjustable] Rate Group but which has been acquired by foreclosure or
deed in lieu of foreclosure, and all payments thereon and proceeds of the
conversion, voluntary or involuntary, of the foregoing; (b) such amounts as may
be held by the Trustee in the Distribution Account, together with investment
earnings on such amounts and such amounts may be held in the name of the Trustee
in the Collection Account, if any, exclusive of investment earnings thereon
(except as otherwise provided herein), whether in the form of cash, instruments,
securities or other properties (including any Permitted Investments held by the
Master Servicer); (c) the [Fixed] [Adjustable] Rate Group Certificate Insurance
Policy; and (d) proceeds of all the foregoing (including, but not by way of
limitation, all proceeds of any mortgage insurance, hazard insurance and title
insurance policy relating to the Mortgage Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified in the Pooling and Servicing Agreement.
Upon receiving the final distribution hereon, the Owner hereof is required
to send this Certificate to the Trustee. The Pooling and Servicing Agreement
provides that, in any event, upon the making of the final distribution due on
this Certificate, this Certificate shall be deemed cancelled for all purposes
under the Pooling and Servicing Agreement.
THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A-1, CLASS A-2, CLASS A-3 AND
CLASS A-4 CERTIFICATES OF THIS SERIES TO THE EXTENT DESCRIBED IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. ANY
RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH
REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC")
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE IS A
PASS-THROUGH CERTIFICATE ONLY
AND, NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
B-2
<PAGE>
NEITHER THIS CERTIFICATE
NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE
CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THIS CERTIFICATE IS AN
INTEREST ONLY CERTIFICATE.
THE HOLDER OF THIS CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTION OF
PRINCIPAL WITH RESPECT TO THE MORTGAGE LOANS.
This Certificate is one of a Class of
duly-authorized Certificates designated as Block Mortgage
Finance, Inc., Asset Backed Certificates, Series
1997-1, Class X-[ ] (the "Class X-[ ] Certificates") and issued under and
subject to the terms, provisions and conditions of that certain Pooling and
Servicing Agreement dated as of January 1, 1997 (the "Pooling and Servicing
Agreement") by and among Block Mortgage Finance, Inc., in its capacity as
Depositor (the "Depositor"), Block Financial Corporation, in its capacity as the
Seller (the "Seller") and in its capacity as the Master Servicer (the "Master
Servicer"), and Bankers Trust Company of California, N.A., in its capacity as
the Trustee (the "Trustee"), to which Pooling and Servicing Agreement the Owner
of this Certificate by virtue of acceptance hereof assents and by which such
Owner is bound. Also issued under the Pooling and Servicing Agreement are
Certificates designated as Block Mortgage Finance Asset Backed Certificates,
Series 1997-1, Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
(collectively, the "Class A Certificates"), Class X-[ ] (the "Class X-[ ]
Certificates" and, with the Class X-[ ] Certificates, the "Class X
Certificates") and Class R (the "Class R Certificates"). The Class A
Certificates, the Class X Certificates and the Class R Certificates are together
referred to herein as the "Certificates." Terms capitalized herein and not
otherwise defined herein shall have the respective meanings set forth in the
Pooling and Servicing Agreement.
Terms capitalized herein and not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing February __, 1997, the Owners of the Class X-[ ] Certificates as of
the close of business on the [last business day of the calendar month
immediately preceding the calendar month in which such Distribution Date occurs]
[day immediately preceding such Distribution Date] (the "Record Date") will be
entitled to receive the Class X-[ ] Distribution Amount relating to such
Distribution Date. Distributions will be made in immediately available funds to
such Owners, by wire transfer or otherwise, to the account of an Owner at a
domestic bank or other entity having appropriate facilities therefor, if such
Owner has so notified the Trustee at least 5 business days prior to the related
Record Date, or by check mailed to the address of the person entitled thereto as
it appears on the Register.
Each Owner of record of a Class X-[ ] Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class X-[ ] Certificates. The Percentage Interest of
each Class X-[ ] Certificate as of any date of determination will be equal to
the percentage interest set forth on such Class X-[ ] Certificate.
The Trustee or any duly appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code or applicable to any Holder shall be
B-3
<PAGE>
considered as having been paid by the Trustee to such Owner for all purposes of
the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc. or Block Financial Corporation or any of their
affiliates. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Distribution Account and the Collection Account (except as otherwise
provided in the Pooling and Servicing Agreement), all as more specifically set
forth hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms hereof.
Notwithstanding any other provisions in the Pooling and Servicing Agreement,
the Owner of any Certificate shall have the right which is absolute and
unconditional to receive distributions to the extent provided in the Pooling and
Servicing Agreement with respect to such Certificate or to institute suit for
the enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the earlier of (i) the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate or (ii) at any time when a Qualified Liquidation of the
Trust Estate is effected as described below. To effect a termination of the
Pooling and Servicing Agreement pursuant to clause (ii) above, the Owners of all
Certificates then Outstanding shall unanimously direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code, and the Trustee shall either sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust, or shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates, each in accordance with such plan, so that the liquidation
or distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of the Pooling and Servicing Agreement occur no
later than the close of the 90th day after the date of adoption of the plan of
liquidation and such liquidation qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates or the Master Servicer may, at their option,
purchase, and the Trustee may sell at
B-4
<PAGE>
auction, from the Trust all remaining Mortgage Loans and other property then
constituting the Trust Estate, and thereby effect early retirement of the
Certificates, after the Optional Termination Date and (ii) under certain
circumstances relating to the qualification of the Trust Estate as a REMIC under
the Code the Mortgage Loans may be sold, thereby effecting the early retirement
of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then outstanding with the
prior written consent of the Certificate Insurer have the right to exercise any
trust or power set forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and not less than a majority of the
Percentage Interest represented by each affected Class of Certificates then
Outstanding, and in certain other circumstances provided for in the Pooling and
Servicing Agreement may be amended without the consent of the Owners. Any such
consent by the Owner at the time of the giving thereof, of this Certificate
shall be conclusive and binding upon such Owner and upon all future Owners of
the Certificate and of any Certificate issued upon the registration of Transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this Certificate, as more fully described in the Pooling
and Servicing Agreement.
The Class X-[ ] Certificates are issuable only as registered Certificates in
minimum percentage interests of all interests in the Class X-[ ] Certificates.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class X-[ ] Certificates are exchangeable for new
Class X-[ ] Certificates of the same percentage interest as the Class X-[ ]
Certificates exchanged.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this certificate is registered as the owner hereof for all purposes, and neither
the Trustee or any such agent shall be
B-5
<PAGE>
affected by notice to the contrary, except as may otherwise be specifically
provided in the Pooling and Servicing Agreement with respect to the Certificate
Insurer.
B-6
<PAGE>
EXHIBIT C
FORM OF CLASS R CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRE- SENTS AN
INTEREST IN TWO CLASSES OF "RESIDUAL INTERESTS" IN TWO SEPA- RATE "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY,
IN SECTION 860G AND 860D OF THE INTER- NAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLI- ANCE WITH THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFI- CATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY BE MADE ONLY IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.08 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY BE
MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUCH TERM INCLUDES THE
UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN
GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR INSTRUMENTALITY OF ANY
OF THE FOREGO- ING (OTHER THAN CERTAIN TAXABLE INSTRUMENTALITIES), ANY
COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR PROVIDING TELEPHONE
SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION (OTHER THAN A FARMER'S
COOPERATIVE THAT IS EXEMPT FROM FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS
SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO TRANSFER OF THIS CLASS R
CERTIFICATE WILL BE REGISTERED BY THE CERTIFICATE REGISTRAR UNLESS THE PROPOSED
TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THAT THE
PROPOSED TRANS- FEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING
THE CLASS R CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY
OF THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND
AVAILABLE FROM THE TRUSTEE.
A TRANSFER IN VIOLATION OF
THE APPLICABLE RESTRICTIONS
MAY GIVE RISE TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES,
UPON AN AGENT ACTING FOR THE TRANSFEREE. A PASS-THROUGH ENTITY THAT HOLDS THIS
CLASS R CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZA- TION AS A RECORD OWNER
IN ANY TAXABLE YEAR GENERALLY WILL BE
SUBJECT TO A TAX FOR EACH SUCH YEAR
EQUAL TO THE PRODUCT OF (A)
THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF THIS CERTIFICATE
OWNED THROUGH SUCH PASS-THROUGH ENTITY BY SUCH DISQUALIFIED ORGANIZATION, AND
(B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORA- TIONS. FOR PURPOSES OF THE
PRECEDING SENTENCE, THE TERM "PASS-THROUGH" ENTITY INCLUDES REGULATED INVESTMENT
COMPANIES, REAL
C-1
<PAGE>
ESTATE INVESTMENT TRUSTS, COMMON TRUST FUNDS, PARTNERSHIPS, TRUSTS, ESTATES,
COOPERATIVES TO WHICH PART I OF SUBCHAPTER 1T OF THE CODE APPLIES AND, EXCEPT AS
PROVIDED IN REGULATIONS, NOMINEES.
NEITHER THIS CERTIFICATE
NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE
CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY
OTHER GOV-ERNMENTAL AGENCY.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES 1997-1
CLASS R
(Residual Interest)
Representing Certain Interests Relating to a Pool of Mortgage Loans formed by
Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
(This certificate does not represent an interest in, or an obligation of,
nor are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc. or Block Financial Corpora- tion. This Certificate represents a
fractional residual ownership interest in the Trust Estate as defined below.)
No: R-__ _________________
Date
Percentage Interest ________% ______________________
Final Scheduled Distribution Date
-----------------------
Registered Owner
The registered Owner named above is the registered Owner of a fractional
interest in (a) the Mortgage Loans (other than any principal and interest
payments received thereon on or prior to the Cut-Off Date) listed in Schedule
I-A and Schedule I-B to the Pooling and Servicing Agreement which the Seller has
caused to be delivered to the Depositor and the Depositor has caused to be
delivered to the Trustee (and all substitutions therefor as provided by Section
3.03, 3.04 and 3.06 of the Pooling and Servicing Agreement), together with the
related Mortgage Loan documents and the Seller's and Depositor's interest in any
Property which secured a Mortgage Loan but which has been acquired by
foreclosure or deed in lieu of foreclosure, and all payments thereon and
proceeds of the conversion, voluntary or involuntary, of the foregoing; (b) such
amounts as may be held by the Trustee in the Distribution Account, together with
investment earnings on such amounts and such amounts may be held in the name of
the Trustee in the Collection Account, if any, exclusive of investment earnings
thereon (except as otherwise provided herein), whether in the form of cash,
instruments, securities or other properties (including any Permitted Investments
held by the Master Servicer); (c) the Certificate Insurance Policies; and (d)
proceeds of all the foregoing (including, but not by way of limitation, all
C-2
<PAGE>
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Mortgage Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing) to pay the Certificates as specified in the Pooling and
Servicing Agreement.
THIS CERTIFICATE IS A
PASS-THROUGH CERTIFICATE ONLY
AND, NOTWITH- STANDING
REFERENCES HEREIN TO
PRINCIPAL AND INTEREST, NO
DEBT OF ANY PERSON IS
REPRESENTED HEREBY.
Trustee Authentication
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By:_______________________
Name:_____________________
Title:____________________
Date of Authentication___________________
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series 1997-1,
Class R (the "Class R Certificates") and issued under and subject to the terms,
provisions and conditions of that certain Pooling and Servicing Agreement dated
as of January 1, 1997 (the "Pooling and Servicing Agreement") by and among Block
Mortgage Finance, Inc., in its capacity as Depositor (the "Depositor"), Block
Financial Corporation, in its capacity as the Seller (the "Seller") and in its
capacity as the Master Servicer (the "Master Servicer"), and Banker Trust
Company of California, N.A., in its capacity as the Trustee (the "Trustee"), to
which Pooling and Servicing Agreement the Owner of this Certificate by virtue of
acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling and Servicing Agreement are Certificates designated as Block
Mortgage Finance, Inc., Asset Backed Certificates, Series 1997-1, Class A-1,
Class A-2, Class A-3 and Class A-4 Certificates (collectively, the "Class A
Certificates") and Class X-1 and Class X-2 (collectively, the "Class X
Certificates"). The Class A Certificates, the Class X Certificates and the Class
R Certificates are together referred to herein as the "Certificates." Terms
capitalized herein and not otherwise defined herein shall have the respective
meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeed- ing Business Day (each such day being a "Distribution Date")
commencing February __, 1997, each Owner of a Class R Certificate as of the
close of business on the last day of the calendar month immediately preceding
the calendar month in which a Distribution Date occurs (the "Record Date") will
be entitled to receive the Residual Net Monthly Excess Cashflow relating to such
Certificate on such Distribution Date.
Distributions will be made in immediately available funds to Owners of
Class R Certificates having an aggregate Percentage Interest of at least 10% (by
wire transfer or otherwise) to the account of an Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the Register.
C-3
<PAGE>
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement.
Amounts properly withheld under the Code by any Person from a distribution
to any Owner shall be considered as having been paid by the Trustee to such
Owner for all purposes of the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation or any of their
affiliates. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Distribution Account and the Collection Account, all as more specifically
set forth hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the earlier of (i) the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate or (ii) at any time when a Qualified Liquidation of the
Trust Estate is effected as described below. To effect a termination of the
Pooling and Servicing Agreement pursuant to clause (ii) above, the Owners of all
Certificates then Outstanding shall unanimously direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code, and the Trustee shall either sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust, or shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates, each in accordance with such plan, so that the liquidation
or distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of the Pooling and Servicing Agreement occur no
later than the
C-4
<PAGE>
close of the 90th day after the date of adoption of the plan of liquidation and
such liquidation qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates or the Master Servicer may at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly Remittance
Date after the Optional Termination Date and (ii) under certain circumstances
relating to the qualification of Trust Estate as a REMIC under the Code the
Mortgage Loans may be sold, thereby effecting the early retirement of the
Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then outstanding with the
prior written consent of the Certificate Insurer have the right to exercise any
trust or power set forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and not less than a majority of the
Percentage Interest represented by each affected Class of Certificates then
Outstanding, and in certain other circumstances provided for in the Pooling and
Servicing Agreement may be amended without the consent of the Owners. Any such
consent by the Owner at the time of the giving thereof, of this Certificate
shall be conclusive and binding upon such Owner and upon all future Owners of
the Certificate and of any Certificate issued upon the registration of Transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this Certificates as more fully described in the Pooling
and Servicing Agreement.
The Class R Certificates are issuable only as registered Certificates. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class R Certificates are exchangeable for new
Class R Certificates evidencing the same Percentage Interest as the Class R
Certificates exchanged.
C-5
<PAGE>
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee nor any such agent shall be affected by notice to the contrary,
except as may otherwise be specifically provided in the Pooling and Servicing
Agreement with respect to the Certificate Insurer.
C-6
<PAGE>
EXHIBIT D
[RESERVED]
D-1
<PAGE>
EXHIBIT E
FORM OF TRUSTEE'S RECEIPT
TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
Bankers Trust Company of California, N.A., a national banking association,
in its capacity as trustee (the "Trustee") under that certain Pooling and
Servicing Agreement dated as of December 31, 1996 (the "Pooling and Servicing
Agreement") among Block Mortgage Finance, Inc., as Depositor, Block Financial
Corporation, as Seller and Master Servicer, and the Trustee, hereby acknowledges
receipt (subject to review as required by Section 3.06(a) of the Pooling and
Servicing Agreement) of the items delivered to it by the Seller and the
Depositor with respect to the Mortgage Loans pursuant to Section 3.05(b)(i) (A)
and (B) of the Pooling and Servicing Agreement.
The Schedule of Mortgage Loans is attached to this Receipt.
The Trustee hereby additionally acknowledges that it shall review such items
as required by Section 3.06(a) of the Pooling and Servicing Agreement and shall
otherwise comply with Section 3.06(b) of the Pooling and Servicing Agreement as
required thereby.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:_____________________________________
Title:__________________________________
Dated: January ___, 1997
E-1
<PAGE>
EXHIBIT F
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of Bankers Trust Company
of Califor- nia, N.A., a national banking association, acting in its capacity as
trustee (the "Trustee") of a certain pool of mortgage loans (the "Pool")
heretofore conveyed in trust to the Trustee, pursuant to that certain Pooling
and Servicing Agreement dated as of December 31, 1996 (the "Pooling and
Servicing Agreement") among Block Mortgage Finance, Inc., as Depositor (the
"Depositor"), Block Financial Corporation, as Seller and Master Servicer, and
the Trustee; and
WHEREAS, the Trustee is required, pursuant to Section 3.06(a) of the Pooling
and Servicing Agreement, to review the Files relating to the Pool within a
specified period following the Startup Day and to notify the Seller promptly of
any defects with respect to the Pool, and the Seller is required to remedy such
defects or take certain other action, all as set forth in Section 3.06(b) of the
Pooling and Servicing Agreement; and
WHEREAS, Section 3.06(a) of the Pooling and Servicing Agreement requires the
Trustee to deliver this Pool Certification upon the satisfaction of certain
conditions set forth therein.
NOW, THEREFORE, the Trustee hereby certifies that it has determined that all
required documents (or certified copies of documents listed in Section 3.05(b)
of the Pooling and Servicing Agreement) have been executed or received, and that
such documents relate to the Mortgage Loans identified in (i), (ii) and (v) of
the definition of the Schedule of Mortgage Loans pursuant to Section 3.06(a) of
the Pooling and Servicing Agreement or, in the event that such documents have
not been executed and received or do not so relate to such Mortgage Loans, other
than as set forth on Schedule I hereto. The Trustee makes no certification
hereby, however, with respect to any intervening assignments or assumption and
modification agreements.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:________________________________
Title:_____________________________
Dated: _________ ___, 1997
F-1
<PAGE>
EXHIBIT G
FORM OF DELIVERY ORDER
DELIVERY ORDER
Bankers Trust Company of California, N.A., as
Trustee
3 Park Plaza
Irvine, California 92714
Attention: Corporate Trustee Department
Dear Sirs:
Pursuant to Section 4.01 of the Pooling and Servicing Agreement, dated as of
December 31, 1996 (the "Pooling and Servicing Agreement") among Block Mortgage
Finance, Inc., as Depositor (the "Depositor"), Block Financial Corporation, as
Seller and Master Servicer, and Bankers Trust Company of California, N.A., a
national banking corporation, as Trustee (the "Trustee"), the Depositor HEREBY
CERTIFIES that all conditions precedent to the issuance of the Block Mortgage
Finance Asset Backed Certificates, Series 1997-1, Class A, Class X and Class R
(the "Certificates"), HAVE BEEN SATISFIED, and HEREBY REQUESTS YOU TO
AUTHENTICATE AND DELIV- ER said Certificates, and to RELEASE said Certificates
to the persons set forth on the attached Schedule, or otherwise upon their
order.
Very truly yours,
BLOCK MORTGAGE FINANCE, INC.
By:___________________________
Title:________________________
Dated: January ___, 1997
G-1
<PAGE>
EXHIBIT H
FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
AFFIDAVIT PURSUANT TO SECTION
860E(e) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly
sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of __________] [the United States], on behalf of
which he makes this affidavit.
2. That (i) the Investor is not a "disqualified organization" and will
not be a "disqualified organization" as of [date of transfer] (For this purpose,
a "disqualified organization" means the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing (other than certain taxable
instrumentalities), any cooperative organization furnishing electric energy or
providing telephone service to persons in rural areas, or any organization
(other than a farmers' cooperative) that is exempt from federal income tax
unless such organization is subject to the tax on unrelated business income);
(ii) it is not acquiring the Class R Certificate for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement that shall be deemed necessary by the Trustee (upon advice
of counsel) to constitute a reasonable arrangement to ensure that the Class R
Certificates will not be owned directly or indirectly by a disqualified
organization; and (iv) it will not transfer such Class R Certificate unless (a)
it has received from the transferee an affidavit in substantially the same form
as this affidavit containing these same four representations and (b) as of the
time of the transfer, it does not have actual knowledge that such affidavit is
false.
H-1
<PAGE>
IN WITNESS WHEREOF, the
Investor has caused this instrument to be executed on its behalf, pursuant to
authority of its Board of Directors, by its [Title of Officer] and its corporate
seal to be hereunto attached, attested by its [Assistant] Secretary, this _ day
of _______, _______.
[NAME OF INVESTOR]
By:___________________________
[Name of Officer]
[Title of Officer]
H-2
<PAGE>
EXHIBIT I
FORM OF NOTICE
As provided in Exhibit A to the Certificate Insurance Policies
I-1
<PAGE>
EXHIBIT J
RESERVED
J-1
<PAGE>
EXHIBIT K
TERMINATION AUCTION PROCEDURES
The following sets forth the auction procedures to be followed in connection
with a sale effected pursuant to Section 9.03 of the Pooling and Servicing
Agreement (the "Agreement"), dated as of December 31, 1996, among Block Mortgage
Finance, Inc., as Depositor, Block Financial Corpora- tion, as Seller and Master
Servicer, and Bankers Trust Company of California, N.A., as Trustee. Capitalized
terms used herein that are not otherwise defined shall have the meanings
described thereto in the Agreement.
1. Pre-Auction Process
(a) Upon receiving notice of the Auction Date, the
Advisor will initiate its general Terminal
Auction procedures consisting of the
following: (i) with the assistance of the
Master Servicer, prepare a general solicitation
package along with a confidentiality agreement;
(ii) develop a list of qualified bidders, in
a commercially reasonable manner; (iii) initiate
contact with all qualified bidders; (iv) send a
confidentiality agreement to all qualified
bidders; (v) upon receipt of a signed
confidentiality agree- ment, send solicitation
packages to all interested bidders on behalf of
the Trustee; and (vi) notify the Master
Servicer and Trustee of all potential bidders and
anticipated timetable.
(b) The general solicitation package will include:
(i) the prospectus supplement and prospectus
from the initial public offering of any of the
Class A Certificates; (ii) a copy of all
monthly servicing reports or a copy of all
annual servicing reports and the prior year's
monthly servicing reports; (iii) a form of a
Sale and Servicing Agreement prepared by the
Trustee and the Master Servicer (or prepared
by the Advisor and approved by the Trustee and
the Master Servicer) which Agreement shall
provide that the Mortgage Loans are being sold
without recourse to the Trustee and the
Owners; (iv) a description of the minimum
purchase price required to cause the Trustee
to sell the Mortgage Loans as set forth in
Section 9.03 of the Agreement; (v) a
formal bidsheet; (vi) a detailed timetable; and
(vii) a preliminary data tape of the aggregate
Loan Balance of the Mortgage Loans as of a
recent Distribution Date reflecting the same data
attributes used to create the Cut-Off Date tables
for the prospectus supple- ment dated January
24, 1997 relating to the public offering
of the Class A Certifi- cates. None of
the Trustee, the Master Servicer, the
Depositor or the Seller shall be required
to produce an updated prospectus or prospectus
supplement, and the auction procedures shall be
carried out in a manner that does not constitute
a public offering of securities.
(c) The Trustee, with the assistance of the Master Servicer and the
Advisor, will maintain an auction package beginning at the time of
closing of the transaction, which will contain the documents listed
under clauses (i)-(ii) of the preceding paragraph.
(d) The Advisor will send solicitation packages to
all bidders at least 15 Business Days before
the Auction Date. Bidders will be required
to submit any due diligence
K-1
<PAGE>
questions in writing to the Advisor for determination of their
relevancy, no later than 10 Business Days before the Auction Date. The
Master Servicer and the Advisor will be required to satisfy all
relevant questions at least five Business Days prior to the Auction
Date and distribute the questions and answers to all bidders.
2. Auction Process
(a) The Advisor, any underwriter, the Certificate Insurer or any Owner will
be allowed to bid in the Auction, but will not be required to do so.
(b) The Seller (and the Master Servicer, if Block Financial Corporation is
not the Master Servicer) will also be allowed to bid in the Termination
Auction if it deems appropri- ate, but will not be required to do so.
(c) On the Auction Date, all bids will be due by
facsimile to the offices of the Trustee by
1:00 p.m. New York City time, with
the winning bidder to be notified by 2:00
p.m. New York City time. All acceptable
bids (as described in Section 9.03 of the
Agree- ment) will be due on a conforming
basis on the bid sheet contained in the
solicitation package.
(d) If the Trustee receives fewer than two market value bids from
participants in the market for mortgage loans willing and able to
purchase the Mortgage Loans, the Trustee shall decline to consummate
the sale.
(e) Upon notification to the winning bidder, a good
faith deposit equal to one percent (1%) of
the aggregate Loan Balance of the Mortgage
Loans will be required to be wired to the
Trustee upon acceptance of the bid. This
deposit, along with any interest income
attributable to it, will be credited to the
purchase price but will not be refund- able.
The Trustee will establish a separate account
for the acceptance of the good faith deposit,
until such time as the account is fully funded
and all monies are trans- ferred into the
Collection Account, such time not to be later
than one Business Day before the related
Distribution Date (as described above).
(f) The winning bidder will receive on the Auction Date a copy of the draft
Sale and Servicing Agreement.
(g) The Advisor will provide to the Trustee a
letter concluding whether or not the winning bid
is a fair market value bid. The Advisor
will also provide such letter if it is the
winning bidder. In the case where the
Advisor or the Master Servicer is the
winning bidder it will provide for market
comparables and valuations in its letter.
(h) The Auction will stipulate that the Master Servicer be retained to
service the Mortgage Loans sold pursuant to the terms of the Sale and
Servicing Agreement.
(i) The Auction will stipulate that such sale and
consequent termination of the Trust must
constitute a "qualified liquidation" of the
Trust under Section 860F of the Code,
including the requirement that such liquidation
take place over a period not to exceed 90
days. The Trustee may, in its discretion,
require that the purchaser of the
K-2
<PAGE>
Mortgage Loans provide the Trustee and the Certificate Insurer with an
Opinion of Counsel to that effect.
K-3
<PAGE>
EXHIBIT L
FORM OF LIQUIDATION REPORT
Customer Name:
Account Number:
Original Principal Balance:
1. Type of Liquidation (REO
disposition/charge-off/short pay-off)
- Date last paid
- Date of foreclosure
- Date of REO
- Date of REO Disposition
- Property Sale Price/Estimated Market Value at
disposition
2. Liquidation Proceeds
Principal Prepayment $____________
Property Sale Proceeds ____________
Insurance Proceeds ____________
Other (itemize) ____________
Total Proceeds $____________
3. Liquidation Expenses
Servicing Advances $____________
Monthly Advances ____________
Contingency Fees ____________
Excess Servicing Fees ____________
Servicing Fees ____________
Annual Expense Escrow Amount ____________
Supplemental Fee (if any) ____________
Additional Interest (if any) ____________
Total Advances $____________
4. Net Liquidation Proceeds $____________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $____________
6. Loss, if any (Item 5 minus Item 4) $____________
L-1
<PAGE>
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $59,143,000 POLICY NUMBER: 23004
Block Mortgage Finance, Inc.
Asset Backed Certificates, Series 1997-1
Class A-1, Class A-2, and Class A-3 Certificates
MBIA Insurance Corporation (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Certificate Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received by Bankers Trust Company of California, N.A., or its
successors, as trustee for the Owners (the "Trustee"), on behalf of the Owners
from the Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
with respect to a particular Insured Payment shall be discharged to the extent
funds equal to the applicable Insured Payment are received by the Trustee from
the Insurer, whether or not such funds are properly applied by the Trustee.
Insured Payments shall be made only at the time set forth in this Policy, and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
such Preference Amount, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
Obligations against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that, if such documents are received after
12:00 noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
<PAGE>
The Insurer will pay any other amount payable hereunder no later than
12:00 noon, New York City time, on the later of the Distribution Date on which
the related Insured Payment is due or the second Business Day following receipt
in New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer, or any successor fiscal agent appointed
by the Insurer (the "Fiscal Agent") of a Notice (as described below), provided
that, if such Notice is received after 12:00 noon, New York City time, on such
Business Day, it will be deemed to be received on the following Business Day. If
any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim hereunder, it shall be
deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the Insurer or the Fiscal Agent, as the case may be, shall
promptly so advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due hereunder, unless otherwise stated herein, will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Insurer only, and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
December 31, 1996 by and among Block Mortgage Finance Inc., as Depositor, Block
Financial Corporation, as Seller and Master Servicer, and the Trustee, as
trustee, without regard to any amendment or supplement thereto unless such
amendment or supplement has been approved in writing by the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Insured Payment": With respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution
2
<PAGE>
Date, (c) the portion of the Carry Forward Amount related to interest with
respect to each Class of the related Class A Certificates (net of any Prepayment
Interest Shortfall and the interest portion of reductions due to the Relief Act)
and (d) the then existing Subordination Deficit for the Related Loan Group, if
any, over (ii) Total Available Funds (net of the Insurance Premium Amount for
the Related Loan Group) after taking into account any Principal Distribution
Amount to be actually distributed on such Distribution Date and the
cross-collateralization provisions of the Trust Fund plus (B) an amount equal to
the Preference Amount with respect to the Related Loan Group.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached hereto,
the original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Distribution Date.
"Owner" means each Owner (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Obligations that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Related Loan Group" means the Fixed Rate Group.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment to
or modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
This Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
3
<PAGE>
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this
Policy is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the Obligations.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed
and attested this 29th day of January, 1997.
MBIA INSURANCE CORPORATION
By
Attest
By
Secretary
4
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER 23004
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER 23004
State Street Bank and Trust Company, N.A.,
as Fiscal Agent for MBIA Insurance Corporation
15th Floor
61 Broadway
New York, NY 10006
Attention: Municipal Registrar and Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of
___________________________, as trustee (the "Trustee"), hereby certifies to
State Street Bank and Trust Company, N.A. (the "Fiscal Agent") and MBIA
Insurance Corporation (the "Insurer"), with reference to Certificate Guaranty
Insurance Policy Number: 23004 (the "Policy") issued by the Insurer in respect
of the Block Mortgage Finance Inc., Asset Backed Certificates, Series 1997-1,
Class A-1, Class A-2, and Class A-3 Certificates (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of December 31, 1996 by and among Block Mortgage
Finance Inc., as Depositor, Block Financial Corporation, as Seller and
Master Servicer, and the Trustee, as trustee for the Owners;
(ii) the Class A-1 interest accrued at the Pass Through Rate
during the preceding Accrual Period (net of any Prepayment Interest
Shortfall and the interest portion of reductions due to the Relief Act)
for the Distribution Date occurring on ____________________ (the
"Applicable Distribution Date") is $____________________ (the "Class
A-1 Interest");
(iii) the Class A-2 interest accrued at the Pass Through Rate
during the preceding Accrual Period (net of any Prepayment Interest
Shortfall and the interest portion of reductions due to the Relief Act)
for the Distribution Date occurring on ___________________(the
"Applicable Distribution Date") is $__________________(the "Class A-2
Interest");
(iv) the Class A-3 interest accrued at the Pass Through Rate
during the preceding Accrual Period (net of any Prepayment Interest
Shortfall and the interest
<PAGE>
portion of reductions due to the Relief Act) for the Distribution Date
occurring on ________________________(the "Applicable Distribution
Date") is $___________________(the "Class A-3 Interest");
(v) the sum of the Class A-1 Interest, Class A-2 Interest, and
the Class A-3 Interest in (ii), (iii), and (iv) above for the
Applicable Distribution Date is $________________ (the related "Class A
Interest");
(vi) the interest portion of the Preference Amount related
to Class A-1 for the Applicable Distribution Date is $_________________
(the "Class A-1 Preference Interest");
(vii) the interest portion of the Preference Amount related to
Class A-2 for the Applicable Distribution Date is $_______________(the
"Class A-2 Preference Interest");
(viii) the interest portion of the Preference Amount related
to Class A-3 for the Applicable Distribution Date is
$_______________(the "Class A-3 Preference Interest");
(ix) the sum of the Class A-1 Preference Interest, the Class
A-2 Preference Interest, and the Class A-3 Preference Interest in (vi),
(vii), and (viii) above for the Applicable Distribution Date is
$__________________(the "Preference Interest");
(x) the portion of the Carry Forward Amount related to
interest with respect to Class A-1 (net of any Prepayment Interest
Shortfall and the interest portion of reductions due to the Relief Act)
(the "Class A-1 Carry Forward Amount') for the Applicable Distribution
Date is $______________;
(xi) the portion of the Carry Forward Amount related to
interest with respect to Class A-2 (net of Prepayment Interest
Shortfall and the interest portion of reductions due to the Relief Act)
(the "Class A-2 Carry Forward Amount") for the Applicable Distribution
Date is $________________;
(xii) the portion of the Carry Forward Amount related to
interest with respect to Class A-3 (net of Prepayment Interest
Shortfall and the interest portion of reductions due to the Relief Act)
(the "Class A-3 Carry Forward Amount") for the Applicable Distribution
Date is $_______________;
(xiii) the sum of the Class A-1 Carry Forward Amount, the
Class A-2 Carry Forward Amount, and the Class A-3 Carry Forward Amount
set forth in (x), (xi) and (xii) above is $_____________(the related
"Carry Forward Amount");
2
<PAGE>
(xiv) the Subordination Deficit, if any, for the Applicable
Distribution Date is $____________________ (the "Subordination
Deficit");
(xv) the sum of the Class A Interest in (v), the Preference
Interest in (ix), the Carry Forward Amount in (xiii), and the
Subordination Deficit in (xiv) is $____________________ (the "Required
Distribution");
(xvi) the amount of Total Available Funds for the
Applicable Distribution Date is $______________________(the "Total
Available Funds")
(xvii) the Required Distribution in (xv) minus Total
Available Funds in (xvi) is $________________;
(xviii) the principal portion any Preference Amount which is
payable under the Policy and not heretofore paid is
$____________________ (the "Applicable Principal Preference Amount");
(xix) the sum of the amount set forth in (xvii) plus the
Applicable Principal Preference Amount in (xviii) is
$____________________ (the "Insured Payment");
(xx) the Trustee is making a claim under and pursuant to the
terms of the Policy for the dollar amount of the Insured Payment set
forth in (xix) above to be applied to the payment of the Required
Distribution for the Applicable Distribution Date in accordance with
the Agreement and for the dollar amount of the Insured Payment set
forth in (xix) above to be applied to the payment of any Preference
Amount; and
(xxi) the Trustee directs that payment of the Insured
Payment be made to the following account by bank wire transfer of
federal or other immediately available funds in accordance with
the terms of the Policy: [TRUSTEE'S ACCOUNT].
Any Person Who Knowingly And With Intent to Defraud Any Insurance
Company Or Other Person Files An Application For Insurance Or Statement
Of Claim Containing Any Materially False Information, Or Conceals For
The Purpose Of Misleading, Information Concerning Any Fact material
Thereto, Commits A Fraudulent Insurance Act, Which Is A Crime, And
Shall Also Be Subject To A Civil Penalty Not To Exceed Five Thousand
Dollars And The Stated Value Of The Claim for Each Such Violation.
Any capitalized term used in this Notice and not otherwise defined
herein shall have the meaning assigned thereto in the Policy.
3
<PAGE>
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the ____ day of ____________, ____.
, as Trustee
By
Title
4
<PAGE>
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS:$42,576,000 POLICY NUMBER: 23005
Block Mortgage Finance
Asset Backed Certificates, Series 1997-1
Class A-4 Certificates
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment
of the premium and subject to the terms of this Certificate Guaranty Insurance
Policy (this "Policy"), hereby unconditionally and irrevocably guarantees to any
Owner that an amount equal to each full and complete Insured Payment will be
received by Bankers Trust Company of California, N.A., or its successors, as
trustee for the Owners (the "Trustee"), on behalf of the Owners from the
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
with respect to a particular Insured Payment shall be discharged to the extent
funds equal to the applicable Insured Payment are received by the Trustee from
the Insurer, whether or not such funds are properly applied by the Trustee.
Insured Payments shall be made only at the time set forth in this Policy, and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability).
The Insurer will pay any Insured Payment that is a Preference Amount on the
Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
such Preference Amount, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
Obligations against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that, if such documents are received after
12:00 noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than 12:00
noon, New York City time, on the later of the Distribution Date on which the
related Insured Payment is due or the second Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the
<PAGE>
Insurer, or any successor fiscal agent appointed by the Insurer (the "Fiscal
Agent") of a Notice (as described below), provided that, if such Notice is
received after 12:00 noon, New York City time, on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice received
by the Fiscal Agent is not in proper form or is otherwise insufficient for the
purpose of making claim hereunder, it shall be deemed not to have been received
by the Fiscal Agent for purposes of this paragraph, and the Insurer or the
Fiscal Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice.
Insured Payments due hereunder, unless otherwise stated herein, will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Insurer only, and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of December
31, 1996 by and among Block Mortgage Finance Inc., as Depositor, Block Financial
Corporation, as Seller and Master Servicer, and the Trustee, as trustee, without
regard to any amendment or supplement thereto unless such amendment or
supplement has been approved in writing by the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Insured Payment": With respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust Fund plus (B) an amount equal to the Preference Amount with respect
to the Related Loan Group.
<PAGE>
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached hereto, the
original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Distribution Date.
"Owner" means each Owner (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Obligations that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Related Loan Group" means the Adjustable Rate Group.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Agreement as of the date of execution
of this Policy, without giving effect to any subsequent amendment to or
modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
This Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Obligations.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this 29th day of January, 1997.
MBIA INSURANCE CORPORATION
By
Attest
By
Secretary
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER 23005
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER 23005
State Street Bank and Trust Company, N.A.,
as Fiscal Agent for MBIA Insurance Corporation
15th Floor
61 Broadway
New York, NY 10006
Attention: Municipal Registrar and Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of ___________________________,
as trustee (the "Trustee"), hereby certifies to State Street Bank and Trust
Company, N.A. (the "Fiscal Agent") and MBIA Insurance Corporation (the
"Insurer"), with reference to Certificate Guaranty Insurance Policy Number:
23005 (the "Policy") issued by the Insurer in respect of the Block Mortgage
Finance Asset Backed Certificates, Series 1997-1, Class A-4 Certificates (the
"Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of December 31, 1996 by and among Block Mortgage
Finance, Inc., as Depositor, Block Financial Corporation, as Seller and
Master Servicer, and the Trustee, as trustee for the Owners;
(ii) the Class A-4 interest accrued at the Pass Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Distribution
Date occurring on ____________________ (the "Applicable Distribution Date")
is $____________________ (the "Class A-4 Interest");
(iii) the interest portion of the Preference Amount related to Class
A-4 for the Applicable Distribution Date is $_________________(the "Class
A-4 Preference Interest");
(vii) the portion of the Carry Forward Amount related to interest with
respect to Class A-4 (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) (the "Class A-4 Carry
Forward Amount') for the Applicable Distribution Date is $______________;
<PAGE>
(viii) the Subordination Deficit, if any, for the Applicable
Distribution Date is $____________________ (the "Subordination Deficit");
(ix) the sum of the Class A-4 Interest in (ii), the Class A-4
Preference Interest in (iii), the Class A-4 Carry Forward Amount in (vii),
and the Subordination Deficit in (viii) is $____________________ (the
"Required Distribution");
(x) the amount of Total Available Funds for the Applicable
Distribution Date is $______________________(the "Total Available Funds")
(xi) the Required Distribution in (ix) minus Total Available Funds
in (x) is $________________;
(xii) the principal portion any Preference Amount which is payable
under the Policy and not heretofore paid is $____________________ (the
"Applicable Principal Preference Amount");
(xiii) the sum of the amount set forth in (xi) plus the Applicable
Principal Preference Amount in (xii) is $____________________ (the
"Insured Payment");
(xiv) the Trustee is making a claim under and pursuant to the terms of
the Policy for the dollar amount of the Insured Payment set forth in (xiii)
above to be applied to the payment of the Required Distribution for the
Applicable Distribution Date in accordance with the Agreement and for the
dollar amount of the Insured Payment set forth in (xiii) above to be
applied to the payment of any Preference Amount; and
(xv) the Trustee directs that payment of the Insured Payment be made to
the following account by bank wire transfer of federal or other immediately
available funds in accordance with the terms of the Policy: [TRUSTEE'S
ACCOUNT].
Any Person Who Knowingly And With Intent to Defraud Any Insurance Company
Or Other Person Files An Application For Insurance Or Statement Of Claim
Containing Any Materially False Information, Or Conceals For The Purpose Of
Misleading, Information Concerning Any Fact material Thereto, Commits A
Fraudulent Insurance Act, Which Is A Crime, And Shall Also Be Subject To A
Civil Penalty Not To Exceed Five Thousand Dollars And The Stated Value Of
The Claim for Each Such Violation.
Any capitalized term used in this Notice and not otherwise defined herein
shall have the meaning assigned thereto in the Policy.
01/810302
<PAGE>
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the ____ day of ____________, ____.
, as Trustee
By
Title
01/810302
<PAGE>
