<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________ to _________
Commission file number 0-28706
FIRST ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0721183
-------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17305 Von Karman Avenue, Irvine, California 92614
-------------------------------------------------
(Address of principal executive offices including ZIP Code)
(714) 224-8500
---------------
(Registrant's telephone number
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
As of April 30, 1997 registrant had outstanding 4,043,067 shares of Class
A Common Stock and 10,750,000 shares of Class B Common Stock, respectively.
<PAGE>
FIRST ALLIANCE CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
(Unaudited) as of March 31, 1997 and December 31, 1996.......1
Consolidated Statements of Income (Unaudited)
for the quarters ended March 31, 1997 and 1996...............2
Consolidated Statements of Cash Flows (Unaudited)
for the quarters ended March 31, 1997 and 1996...............3
Notes to Consolidated Financial Statements...................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A").................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................13
Item 2. Changes in Securities.......................................13
Item 3. Defaults Upon Senior Securities.............................13
Item 4. Submission of Matters to a Vote of Security Holders.........13
Item 5. Other Information...........................................13
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.........................................14
b. Reports on Form 8-K..............................14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents..........................$ 21,609 $ 27,414
Receivable from trusts............................. 4,463 2,671
Loans held for sale................................ 11,733 11,023
Loans receivable held for investment............... 2,287 2,432
Residual interests in securities-at fair value..... 32,844 29,253
Mortgage servicing rights.......................... 6,654 6,025
Warehouse financing receivable..................... 9,678
Real estate owned, net............................. 367 312
Property, net...................................... 3,739 3,098
Deferred taxes..................................... 558 3,101
Prepaid expenses and other assets.................. 1,615 2,128
----------- -----------
Total assets.....................................$ 95,547 $ 87,457
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse financing facilities.....................$ 117 $
Accounts payable and accrued liabilities........... 4,362 3,952
Income taxes payable............................... 4,807 5,396
Notes payable...................................... 129 131
----------- -----------
Total liabilities................................ 9,415 9,479
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value per share;
1,000,000 shares authorized; no shares
outstanding.....................................
Class A Common Stock, $.01 par value per share;
25,000,000 shares authorized; shares issued
and outstanding: 4,043,067 at March 31, 1997;
4,025,000 shares at December 31, 1996........... 40 40
Class B Common Stock, $.01 par value per share;
15,000,000 shares authorized; shares issued
and outstanding: 10,750,000 at March 31,1997
and December 31, 1996.......................... 108 108
Additional paid in capital......................... 65,024 64,643
Retained earnings.................................. 22,022 14,338
Deferred stock compensation........................ (1,062) (1,113)
Foreign currency translation....................... (38)
----------- -----------
Total stockholders' equity....................... 86,132 77,978
----------- -----------
Total liabilities and stockholders' equity.....$ 95,547 $ 87,457
=========== ===========
See notes to consolidated financial statements.
<PAGE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Unaudited)
REVENUE:
Loan origination and sale....................$ 15,404 $ 9,371
Loan servicing and other fees................ 1,944 2,243
Interest..................................... 4,086 3,158
Other........................................ 3 38
----------- -----------
Total revenue............................. 21,437 14,810
----------- -----------
EXPENSE:
Compensation and benefits.................... 4,276 3,196
Advertising.................................. 1,158 941
Professional services and other fees......... 610 461
Rent......................................... 400 370
Supplies..................................... 430 335
Depreciation and amortization................ 169 139
Interest..................................... 312 763
Legal........................................ 228 146
Travel and training.......................... 350 165
Other........................................ 644 434
----------- -----------
Total expense............................. 8,577 6,950
----------- -----------
INCOME BEFORE INCOME TAX PROVISION................. 12,860 7,860
INCOME TAX PROVISION............................... 5,176 118
----------- -----------
NET INCOME.........................................$ 7,684 $ 7,742
=========== ===========
NET INCOME PER SHARE...............................$ 0.52 $ 0.73
=========== ===========
Weighted average number of common shares
outstanding.....................................14,849,448 10,650,407
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................$ 7,684 $ 7,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Loan origination and sale revenue, net of other fees......... (15,487) (9,154)
Deferred income taxes........................................ 2,543
Net accretion of residual interests in securities............ 149 74
Deferred stock compensation.................................. 51
Accretion of discounts on loan receivable.................... (38) (56)
Amortization of mortgage servicing rights.................... 606 340
Depreciation and amortization................................ 169 139
Foreign currency transaction loss............................ 169
Loss (gain) on sales of real estate owned and property....... 33 (20)
Loans originated or purchased for sale, net of loan fees..... (94,725) (68,412)
Sale of regular interests in securities...................... 73,000 52,419
Proceeds from sale of loans.................................. 31,176 21,318
Changes in assets and liabilities:
Receivable from trusts.................................... (1,792) (2,803)
Prepaid expenses and other assets......................... 508 31
Accounts payable and accrued liabilities.................. 410 121
Income taxes payable...................................... (515)
----------- -----------
Net cash provided by operating activities.............. 3,941 1,739
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (814) (443)
Collections on loans receivable................................. 407 242
Additions to real estate owned.................................. (88)
Net advances on warehouse financing receivable.................. (9,678)
Proceeds from sales of real estate owned and property........... 68
----------- -----------
Net cash used in investing activities........................ (10,173) (133)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on warehouse financing facilities................ 117 1,782
Payments on notes payable....................................... (2) (100)
Cash dividends.................................................. (6,101)
Proceeds from issuance of notes payable to stockholder.......... 1,000
Proceeds from exercise of stock options......................... 307
----------- -----------
Net cash provided by (used in) financing activities.......... 422 (3,419)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................... 5
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................... (5,805) (1,813)
CASH AND CASH EQUIVALENTS, beginning of period.................. 27,414 4,019
----------- -----------
CASH AND CASH EQUIVALENTS, end of period........................$ 21,609 $ 2,206
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
(Dollars in thousands)
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Unaudited)
SUPPLEMENTAL INFORMATION:
Interest paid...................................$ 317 $ 801
=========== ===========
Income taxes paid...............................$ 3,167
===========
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of loans for regular and residual
interests in securities......................$ 73,001 $ 52,420
=========== ===========
Dividends declared and unpaid................... $ 9,000
===========
See notes to consolidated financial statements.
<PAGE>
FIRST ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
NOTE 1. GENERAL
The accompanying unaudited consolidated financial statements, which
include the accounts of First Alliance Corporation ("FACO") and its
subsidiaries (collectively the "Company"), have been prepared in accordance
with the instructions to Form 10-Q and include all information and footnotes
required for interim financial statement presentation. All adjustments
(consisting only of various normal accruals) necessary to present fairly the
Company's consolidated financial position, results of operations and cash
flows have been made. All significant intercompany transactions and
balances have been eliminated and certain reclassifications have been made
to prior periods' consolidated financial statements to conform to the
current period presentation. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results of
operations to be expected for the year ending December 31, 1997.
The financial information provided herein, including the information
under the heading Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A"), is written with the
presumption that the users of these interim consolidated financial
statements have read, or have access to, the Company's recent filing on Form
10-K which contains the latest available audited consolidated financial
statements and notes thereto, as of and for the period ended December 31,
1996, together with the MD&A for such period.
HEDGING ACTIVITIES
The Company regularly securitizes and sells fixed and variable rate
mortgage loans. As part of its interest rate risk management strategy, the
Company hedges its interest rate risk related to its loans held for sale and
origination commitments by selling short or selling forward United States
Treasury securities. For accounting purposes, short sales of United States
Treasury securities are not considered to be a hedge. Therefore, when
selling short United States Treasury securities, the Company has recognized
realized and unrealized gains and losses on hedging activities in the period
in which they occur. The Company classifies forward sales of United States
Treasury securities as hedges of specific loans held for sale and
commitments to fund loans to be held for sale. The gains and losses derived
from these transactions are deferred and included in the carrying amounts of
loans held for sale and are recognized in earnings upon sale of loans
hedged. At March 31, 1997, the net deferred gain on hedging activities was
$34,000. There were no deferred gains or losses on hedging activities at
December 31, 1996. The notional amount of forward sales of United States
Treasury Securities at March 31, 1997 was $4.5 million. Gains recognized on
hedging activities were $74,000 for the quarter ended March 31, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS") No. 128 "Earnings Per Share"
which is effective for annual and interim periods ending after December 15,
1997. It supersedes the presentation of primary earnings per share with a
presentation of basic earnings per share which does not consider the effect
of common stock equivalents. The computation of diluted earnings per share,
which gives effect to all dilutive potential common shares that were
outstanding during the period, is consistent with the computation of fully
diluted earnings per share per Accounting Principles Board Opinion No. 15.
The adoption of this standard is not expected to have a material effect on
the Company's consolidated financial position or results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
OVERVIEW
The Company is a financial services organization principally engaged in
mortgage loan origination, purchases, sales and servicing. Loans originated
by the Company primarily consist of fixed and adjustable rate loans secured
by first mortgages on single family residences. The Company originates
loans through its retail branch network which is currently comprised of two
offices in the United Kingdom and 24 offices in the United States, six of
which are located in California, two of which are located in each of
Florida, Illinois, New York and New Jersey and one of which is located in
each of Oregon, Washington, Colorado, Utah, Arizona, Ohio, Massachusetts,
Georgia, Virginia and Pennsylvania. In addition, the Company purchases
loans from qualified mortgage originators. The Company sells loans to
wholesale purchasers or securitizes them in the form of Real Estate
Management Investment Conduit ("REMIC") trusts. A significant portion of
the Company's loan production is securitized with the Company retaining the
right to service the loans.
The Company's strategy of originating, as compared to purchasing, the
majority of its loan volume results in the generation of a significant
amount of loan origination fees. This income has allowed the Company to
generate positive operating cash flow. There can be no assurance, however,
that the Company's operating cash flow will continue to be positive in the
future.
Gains on servicing retained sales of loans through securitization
represent the difference between the net proceeds to the Company in the
securitization and the allocated cost of loans securitized. In accordance
with SFAS 125, the allocated cost of the loans securitized is determined by
allocating their acquisition cost (for purchased loans) or net carrying
value (for originated loans) between the loans securitized, the residual
interests retained by the Company and the mortgage servicing rights retained
by the Company based upon their relative fair values. At origination, the
Company classifies the residual interests as trading securities and, as
such, records the residual interests at fair value. The difference between
the fair value and the allocated cost is recorded as a gain on securities
and is included in loan origination and sale revenue.
The net proceeds of a securitization consist of the regular and residual
interests in the REMIC trust received by the Company net of transaction
costs. The regular interests are immediately sold for cash by the Company.
As the holder of the residual interests, the Company is entitled to receive
certain excess cash flows. These excess cash flows are the difference
between (a) principal and interest paid by borrowers and (b) the sum of (i)
pass-through principal and interest to be paid to holders of the regular
interests, (ii) trustee fees, (iii) third-party credit enhancement fees,
(iv) servicing fees and (v) loan losses. The Company's right to receive
these excess cash flows begins after certain overcollaterization
requirements, which are specific to each securitization and are used as a
means of credit enhancement, have been met.
The Company's retained right to service loans entitles the Company to
receive servicing fees, prepayment penalties and other miscellaneous fees
associated with the collection of such loans.
<PAGE>
LOAN ORIGINATIONS AND PURCHASES
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Dollars in thousands)
Loan originations and purchases:
Retail originations.............................$ 89,535 $ 62,279
Wholesale purchases............................. 15,782 13,455
----------- -----------
Total...................................$ 105,317 $ 75,734
=========== ===========
Number of retail branches as of the end of the period:
United States:
California................................. 6 7
Other states............................... 17 11
United Kingdom.................................. 1
----------- -----------
Total...................................... 24 18
=========== ===========
Weighted average initial interest rate............. 9.4% 9.2%
Weighted average initial combined loan-to-value ratio:
Retail originations............................. 62.9% 60.4%
Wholesale purchases............................. 68.9% 70.4%
Average retail origination loan size...............$ 87.1 $ 81.0
Weighted average loan origination and processing
fees as a percent of retail originations........ 14.5% 13.9%
For the quarter ended March 31, 1997, originations and purchases
increased 39% as compared to the corresponding period in 1996. Retail
originations increased 44% for the first quarter of 1997 as compared the
first quarter of 1996. Increased loan origination volume is primarily from
new retail branch offices opened in 1997 and 1996.
LOAN SALES
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Dollars in thousands)
Securitizations....................................$ 73,001 $ 52,420
Whole loan sales................................... 31,102 21,974
----------- -----------
Total...........................................$ 104,103 $ 74,394
=========== ===========
Loan sales, including securitizations of loans, for the first quarter of
1997 increased 40% over the first quarter of 1996. Securitization volume for
the first quarter of 1997 was $73 million as compared to $52 million for
corresponding period in 1996. The increases in loan sales for the first
quarter of 1997 as compared to the same period in 1996, is the result of the
sale of the increased volume of originations and purchases.
<PAGE>
COMPOSITION OF REVENUE AND EXPENSE
The following table summarizes certain components of the Company's
consolidated statements of income set forth as a percentage of total revenue
for the periods indicated:
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
REVENUE:
Loan origination and sale:
Gain on sale of loans........................... 23.3% 9.5%
Net loan origination and other fees............. 48.6 53.8
Loan servicing and other fees................... 9.1 15.1
Interest........................................ 19.0 21.3
Other........................................... 0.0 0.3
----------- -----------
Total revenue................................ 100.0 100.0
----------- -----------
EXPENSE:
Compensation and benefits....................... 19.9 21.6
Advertising..................................... 5.4 6.4
Professional services and other fees............ 2.8 3.1
Rent............................................ 1.9 2.5
Supplies........................................ 2.0 2.3
Depreciation and amortization................... 0.8 0.9
Interest........................................ 1.5 5.2
Legal........................................... 1.1 1.0
Travel and training............................. 1.6 1.1
Other........................................... 3.0 2.8
----------- -----------
Total expense................................... 40.0 46.9
----------- -----------
Income before income tax provision................. 60.0 53.1
Income tax provision (1)........................... 24.2 0.8
----------- -----------
Net income......................................... 35.8% 52.3%
=========== ===========
(1) As a result of the Company's initial public offering, completed in
July 1996, the Company's tax status changed from that of an S corporation to
that of a C corporation. As a C corporation, the Company is subject to
Federal and state income taxes. As an S corporation, the Company's taxable
income was included in the individual returns of the stockholders, and the
Company was subject to certain state taxes, primarily in California.
<PAGE>
RESULTS OF OPERATIONS
REVENUE
The following table sets forth the components of the Company's revenue
for the periods indicated:
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Dollars in thousands)
Loan origination and sale:
Gain on sale of loans (1).......................$ 4,994 $ 1,404
Net loan origination and other fees............. 10,410 7,967
Loan servicing and other fees................... 1,944 2,243
Interest........................................ 4,086 3,158
Other........................................... 3 38
----------- -----------
Total revenue..............................$ 21,437 $ 14,810
=========== ===========
(1) Excluding net loan origination and other fees.
Total revenue increased 45% or $6.6 million for the first quarter of 1997
as compared to the corresponding period in 1996 primarily due to higher loan
origination and sale revenue.
Loan origination and sale revenue increased to $15.4 million for the
first quarter of 1997 from $9.4 million for the first quarter of 1996
primarily due to an increase in loan sales and an increase in premiums
received on loan sales.
Gain on sale of loans increased to $5.0 million for the first quarter of
1997 from $1.4 million for the first quarter of 1996 as a result of an
increase in premiums received on loan sales and an increase in loan sales.
For the first quarter of 1997 the weighted average gain on sale of loans as
a percentage of loan principal balances sold increased to 4.8% from 1.9% for
the corresponding period in 1996. Gain on sale of loans securitized
increased to 5.1% for the first quarter of 1997 from 2.2% for the first
quarter of 1996 primarily as a result of an increase in the weighted average
initial interest rate spreads (the difference between the initial weighted
average loan interest rates for the loans included in the securitization and
the initial weighted average pass-through rates paid to holders of the
regular interests in the securitization) in residual interests originated to
3.1% for the first quarter of 1997 from 2.5% for the corresponding period in
1996. In addition, the gain on whole loan sales increased to 4.1% in the
first quarter of 1997 from 1.2% for the first quarter of 1996 as a result of
an increase in premiums received from the sale of whole loans.
For the quarter ended March 31, 1997 net loan origination and other fees
increased to $10.4 from $8.0 million for the quarter ended March 31, 1996
primarily as a result of the increase in sales of retail originations.
Loan servicing and other fees as an annualized percentage of the average
servicing portfolio decreased to 1.2% for the first quarter of 1997 from
1.5% for the first quarter of 1996 primarily as a result of a $0.3 million
increase in the amortization of mortgage servicing rights. The increase in
the amortization of mortgage servicing rights was the result of a 46%
increase in the average balance of mortgage servicing rights for the first
quarter of 1997 as compared to the first quarter of 1996. This increase is
primarily due to the adoption in January of 1995 of SFAS No. 122,
"Accounting For Mortgage Servicing Rights," which requires the Company to
capitalize the fair value of originated mortgage servicing rights and
amortize the capitalized amount over the life of such assets.
Interest income increased 29% to $4.1 million for the first quarter of
1997 from $3.2 million for the first quarter of 1996 as a result of a $0.4
million increase in interest from loans held for sale and a $0.5 million
increase in interest from investments. Interest from loans held for sale
increased primarily as a result of an increase in the average balance of
loans held for sale, and the increase in interest from investments was the
result of the increase in cash available for investment. Cash and cash
equivalents increased from $4.0 million at December 31, 1995 to $27.4
million at December 31, 1996 as a result of the net proceeds from the
Company's July 1996 Initial Public Offering and cash generated from
operations.
<PAGE>
EXPENSE
The following table sets forth the components of the Company's expense
for the periods indicated:
For the Quarter
Ended March 31,
------------------------
1997 1996
----------- -----------
(Dollars in thousands)
Compensation and benefits.......................$ 4,276 $ 3,196
Advertising..................................... 1,158 941
Professional services and other fees............ 610 461
Rent............................................ 400 370
Supplies........................................ 430 335
Depreciation and amortization................... 169 139
Interest........................................ 312 763
Legal........................................... 228 146
Travel and training............................. 350 165
Other........................................... 644 434
----------- -----------
Total expense................................$ 8,577 $ 6,950
=========== ===========
Total expense increased 23% to $8.6 million for first quarter of 1997
from $7.0 million for the first quarter of 1996 due to increases in
expenses, primarily compensation and benefits, related to the Company's
increased retail loan origination operations which were offset by a decrease
in interest expense.
Compensation and benefits increased 34% to $4.3 million for the first
quarter of 1997 from $3.2 million for the first quarter of 1996 primarily as
a result of an increase in personnel to support the Company's retail branch
office expansion.
Advertising expense increased 23% to $1.2 million for the first quarter
of 1997 from $0.9 million for the first quarter of 1996 primarily as a
result of an increase in marketing activities resulting from the Company's
retail branch office expansion.
Professional services and other fees increased 32% for the first quarter
of 1997 as compared to the corresponding period in 1996 primarily due to a
$0.1 million increase in recruiting costs associated with the Company's
ongoing retail branch office expansion.
Interest expense decreased $0.5 million to $0.3 million for the first
quarter of 1997 from $0.8 million for the first quarter of 1996 primarily as
a result of a $0.4 million decrease in interest on the warehouse financing
facilities. The additional cash and cash equivalents available at the
beginning of the first quarter of 1997 was used to fund loan originations
and purchases resulting in a 69% decrease in the average balance outstanding
on the warehouse financing facility in the first quarter of 1997 as compared
to the corresponding period in 1996.
Travel and training increased $0.2 million to $0.4 million for the first
quarter of 1997 from $0.2 million for the first quarter of 1996 as a result
of the increase in the number of retail branch offices.
Other expenses increased to $0.6 million for the first quarter of 1997
from $0.4 million for the first quarter of 1996 as a result of a $0.2
million foreign currency translation loss in the first quarter of 1997.
<PAGE>
SERVICING
At March 31, 1997, total delinquent loans were 4.4% of the Company's
servicing portfolio, as compared to 5.5% at December 31, 1996 and 6.3% at
March 31, 1996. Loan losses as a percentage of the average servicing
portfolio were 0.07% for the quarter ended March 31,1997, as compared to
0.08% for the corresponding period in 1996.
The following tables provide data on loan delinquency, real estate owned
(REO) and net losses for the Company's servicing portfolio:
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------------
March 31, 1997 December 31, 1996 March 31, 1996
----------------------------------------------------------------------
% of % of % of
(Dollars in Servicing (Dollars in Servicing (Dollars in Servicing
thousands) Portfolio thousands) Portfolio thousands) Portfolio
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Servicing Portfolio.........$ 666,157 $ 641,191 $ 611,718
========== ========== ==========
30-59 days delinquent.......$ 5,729 0.9% $ 9,359 1.5% $ 11,800 1.9%
60-89 days delinquent....... 5,643 0.8 6,704 1.0 5,166 0.8
90 days or more delinquent.. 18,206 2.7 19,081 3.0 21,800 3.6
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies....$ 29,578 4.4% $ 35,144 5.5% $ 38,766 6.3%
========== ========== ========== ========== ========== ==========
REO (1)................$ 4,962 0.7% $ 3,951 0.6% $ 8,677 1.4%
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
------------------------
1997 1996
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Average servicing portfolio balance outstanding (2)....$ 653,674 $ 612,755
Net losses (3)......................................... 447 465
Percentage of average servicing portfolio.............. .07% .08%
- ------------------------
(1) Includes REO of the Company as well as REO of the REMIC Trusts
serviced by the Company; however, excludes private investor REO not serviced by the Company.
(2) Average servicing portfolio balance equals the quarterly average of
the servicing portfolio computed as the average of the balance at the beginning and
end of each quarter.
(3) Net losses means actual net losses realized with respect to the disposition of REO.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated positive cash flow. The
Company's sources of cash include loan sales, sales of regular interests,
borrowings under its warehouse financing facilities, distributions received
from residual interests, interest income and loan servicing income. The
Company's uses of cash include the funding of loan originations and
purchases, payments of interest, repayment of its warehouse financing
facilities, capital expenditures, operating and administrative expenses and
payment of income taxes. At origination of a loan, the Company includes the
loan origination fees in the principal balance, and, if not utilizing
available cash, borrows the approximate principal balance of the loan under
its warehousing financing facilities. As the amount funded to the borrower
is net of the loan origination fees, the Company generates cash
approximating the loan origination fees at the time of funding of the loan
under the warehouse financing facilities. Total cash generated from the
sale of loans and regular interests in securities is then used to pay down
the warehouse financing facilities. Cash provided by operating activities
plus net borrowings (repayments) on the warehouse financing facilities was
$4.1 million and $3.5 million for the quarters ended March 31, 1997 and
March 31,1996, respectively.
The Company's ability to continue to originate and purchase loans is
dependent upon adequate credit facilities and upon its ability to sell the
loans in the secondary market in order to generate cash proceeds for new
originations and purchases. The value of and market for the Company's loans
are dependent upon a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
such factors may affect the Company's ability to sell loans for acceptable
prices within a reasonable period of time. A prolonged, substantial
reduction in the size of the secondary market for loans of the type
originated or purchased by the Company may adversely affect the Company's
ability to sell loans in the secondary market with a consequent adverse
impact on the Company's results of operations, financial condition and
ability to fund future originations and purchases.
<PAGE>
The Company's $125 million warehouse financing facility, which is secured
by loans originated or purchased by the Company and currently bears interest
at a rate of 0.80% over 30 day London Interbank Offered Rate ("LIBOR"),
expires on June 30, 1997. The Company's $25 million warehouse financing
facility, which is secured by loans originated or purchased by the Company
and currently bears interest at a rate of 0.80% over 30 or 90 day LIBOR,
expires on March 5, 1998. Management expects, although there can be no
assurance, that the Company will be able to maintain these warehouse
financing facilities (or obtain replacement or additional financing) in the
future.
In February 1997 the Company entered into agreements to provide warehouse
financing facilities to two mortgage banking companies ("Borrowers") that
were controlled by related parties. These lines of credit are secured by
loans originated by the Borrowers and by personal guarantees provided by
stockholders of the Borrowers, bear interest at 10%, have a combined
borrowing limit of $15 million and expire on July 31, 1998. As of March 31,
1997, $9.7 million was outstanding on these lines.
As of March 31, 1997 the Company had commitments to fund loans of $6.7
million. Historically, approximately 55% of such commitments have
ultimately been funded. Capital expenditures totaled $0.8 million and $0.4
million for the quarters ended March 31, 1997 and March 31, 1996
respectively.
As an S corporation, the Company paid dividends, including amounts to be
used by the stockholders for the payment of personal income taxes on the
earnings of the S corporation, of $6.1 million for the quarter ended March
31, 1996. Since the completion of the Company's Initial Public Offering in
July 1996 the Company has been taxed as a C corporation and no dividends
have been declared.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
--- ----------------------
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, Commission File No. 333-3633)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
4.1 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-1, Commission File
No. 333-3633)
4.1.1 Form of Incentive Stock Option Agreement for use with 1996 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.1.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-28706)
4.1.2 Form of Non-qualified Stock Option Agreement for use with 1996 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.1.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-28706)
10.1 Warehouse Financing Facility dated October 29, 1993 (Incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-1, Commission File No. 333-3633)
10.2 Form of Pooling and Servicing Agreement (Incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-1,
Commission File No. 333-3633)
10.3 Corporate Headquarters Lease (Incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1, Commission
File No. 333-3633)
10.4 S Distribution Notes (Incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
10.5 Mason Employment Agreement (Incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1, Commission
File No. 333-3633)
10.5.1 Mason Loan (Incorporated by reference to Exhibit 10.5.1 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-28706)
10.6 Form of Directors' and Officers' Indemnity Agreement (Incorporated
by reference to Exhibit 10.7 to the Company's Registration Statement
on Form S-1, Commission File No. 333-3633)
10.7 Mortgage Loan Purchase and Sale Agreement dated as of July 1, 1996
between Nationscapital Mortgage Corporation and the Company*
10.8 Mortgage Loan Purchase and Sale Agreement dated as of July 1, 1996
between Coast Security Mortgage Inc. and the Company*
10.9 Chisick Employment Agreement (Incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1, Commission
File No. 333-3633)
10.10 Reimbursement Agreement (Incorporated by reference to Exhibit 10.11
to the Company's Registration Statement on Form S-1, Commission File
No. 333-3633)
10.11 Warehouse Financing Facility dated September 5, 1996 (Incorporated by
reference to Exhibit 10.12 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1996, Commission File No.
0-28706)
10.12 Interim Warehouse and Security Agreement dated as of February 15,
1997 between Nationscapital Mortgage Corporation and the Company*
10.13 Interim Warehouse and Security Agreement dated as of February 15,
1997 between Coast Security Mortgage and the Company *
10.14 Smith Loan *
11.1 Statement re: computation of net income per share for the quarters
ended March 31, 1997 and 1996*
27 Financial Data Schedule*
- ---------------------
* Filed herewith.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST ALLIANCE CORPORATION
Registrant
Date: May 12, 1997 /s/ BRIAN CHISICK
-------------- ----------------------------
Brian Chisick
President and Chief Executive Officer
Date: May 12, 1997 /s/ MARK MASON
-------------- ------------------------------
Mark K. Mason
Executive Vice President
Principal Financial Officer
<PAGE>
</TABLE>
<TABLE>
EXHIBIT 11.1 COMPUTATION OF NET INCOME PER SHARE
FIRST ALLIANCE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS ENDED MARCH 31 1997 AND 1996
(Dollars in thousands except per share amounts)
<CAPTION>
For the Quarter Ended
March 31
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
DATA AS TO EARNINGS - Net Income.......................................$ 7,684 $ 7,742
=========== ===========
DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES - PRIMARY NET INCOME PER SHARE
Weighted average number of shares outstanding
Class A and Class B Common Stock..................................14,785,634 10,750,000
Reduction of outstanding shares assuming average balance of
deferred stock compensation plus tax benefits credited to
capital on assumed exercise used as proceeds invested in
treasury stock (at average market prices during each period)...... (52,930) (99,593)
Common equivalent shares assuming issuance of shares represented
by outstanding stock options:
Additional shares assumed to be issued............................ 522,970
Reduction of such additional shares assuming proceeds plus
tax benefits credited to capital on assumed exercise invested
in treasury stock (at average market prices during each period)... (406,226)
----------- -----------
Weighted average number of common and common equivalent shares
outstanding.......................................................14,849,448 10,650,407
=========== ===========
PRIMARY NET INCOME PER SHARE........................................$ 0.52 $ 0.73
=========== ===========
DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES - FULLY DILUTED NET INCOME PER SHARE:
Weighted average number of shares outstanding
Class A and Class B Common Stock..............................14,785,634 10,750,000
Reduction of outstanding shares assuming ending balance of
deferred stock compensation plus tax benefits credited to
capital on assumed exercise used as proceeds invested in
treasury stock (at average market prices during each period)... (52,930) (99,593)
Common equivalent shares assuming issuance of shares represented
by outstanding stock options:
Additional shares assumed to be issued......................... 522,970
Reduction of such additional shares assuming proceeds plus
tax benefits credited to capital on assumed exercise
invested in treasury (at average market prices during each
period)..................................................... (406,226)
----------- -----------
Weighted average number of common and common equivalent shares
outstanding....................................................14,849,448 10,650,407
=========== ===========
FULLY DILUTED NET INCOME PER SHARE...............................$ 0.52 $ 0.73
=========== ===========
Reference is made to ITEM 1. FINANCIAL STATEMENTS: Notes to Consolidated
Financial Statements - Note 1
</TABLE>
<PAGE>
- ----------------------------------------------------------------------------
MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
Dated as of July 1, 1996
by and between
NATIONSCAPITAL MORTGAGE CORPORATION,
as the Seller
and
FIRST ALLIANCE MORTGAGE COMPANY,
as the Purchaser
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
Section 1. Definitions.................................................1
Section 2. Purchase and Sale of Mortgage Loans.........................4
Section 3. Interest Calculations.......................................5
Section 4. Reserved....................................................5
Section 5. Representations, Warranties and Covenants Regarding
the Seller and the Purchaser................................5
Section 6. Representations and Warranties of the Seller Regarding
the Mortgage Loans..........................................8
Section 7. Remedies...................................................14
Section 8. Term of Agreement..........................................14
Section 9. Authorized Representatives.................................15
Section 10. Notices....................................................15
Section 11. Governing Law..............................................15
Section 12. Assignment.................................................15
Section 13. Counterparts...............................................15
Section 14. Amendment..................................................16
Section 15. Severability of Provisions.................................16
Section 16. No Agency: No Partnership or Joint Venture.................16
Section 17. Further Assurances.........................................16
Section 18. Maintenance of Records.....................................16
i
<PAGE>
THIS MORTGAGE LOAN PURCHASE AND SALE AGREEMENT, dated as of July 1,
1996, is made between FIRST ALLIANCE MORTGAGE COMPANY, a California
corporation (the "Purchaser") and NATIONSCAPITAL MORTGAGE CORPORATION, a
California corporation (the "Seller").
A. The Seller is an originator of mortgage loans which it desires,
from time to time, to sell to the Purchaser;
B. The Purchaser may, from time to time, purchase such mortgage loans
from the Seller;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties agree as follows:
Section 1. DEFINITIONS. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.
AGREEMENT: This Mortgage Loan Purchase and Sale Agreement as it
may be amended from time to time, including the exhibits and supplements
hereto.
CODE: The Internal Revenue Code of 1986, as amended, and any
successor statute.
COUPON RATE: The rate of interest borne by each Note.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FIRST MORTGAGE LOAN: A Mortgage Loan which constitutes a first
priority mortgage lien with respect to any Mortgaged Property.
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.
LOAN BALANCE: With respect to each Mortgage Loan, the outstanding
principal balance thereof on the related Transfer Date.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first, second or third lien on an estate in fee simple in real
property, in accordance with applicable law, securing a Note.
MORTGAGE FILE: The file containing those Mortgage Loan Documents
pertaining to a particular Mortgage Loan.
-1-
<PAGE>
MORTGAGE LOAN DOCUMENTS: With respect to each Mortgage Loan, the
following documents:
(a) The original Mortgage Note, endorsed "Pay to the order of
First Alliance Mortgage Company without recourse" and signed, by
manual signature of a person authorized to do so, in the name and
on behalf of the Seller.
(b) The original of any guaranty executed in connection with the
Mortgage Note, if any;
(c) Either: (i) the original Mortgage, with evidence of recording
thereon or, if the original has been transmitted for recording,
(ii) a copy of the Mortgage certified as a true copy by the Seller
or by the closing attorney, or by an officer of the title insurer
or agent of the title insurer which issued the related title
insurance policy or commitment therefor, until such time as the
original is returned by the public recording officer, at which
time the original Mortgage with evidence of recording thereon
shall be forwarded to Purchaser or, in those instances where the
original recorded Mortgage has been lost, (iii) a copy of the
Mortgage certified by the public recording officer;
(d) The original Assignment of Mortgage from the Seller to the
Purchaser without recourse provided that, if the related Mortgage
has not at the date of such Assignment of Mortgage been returned
from the applicable public recording office, such Assignment of
Mortgage may exclude the information to be provided by the
recording office;
(e) The original policy of title insurance or a certified copy thereof
certified by the Seller or, if such policy has not yet been
delivered by the insurer, the commitment or binder to issue same;
(f) Either: (i) originals of all intervening assignments, if any,
showing a complete chain of assignment from the originator of such
Mortgage Loan to the Seller including any recorded warehousing
assignments, with evidence of recording thereon or, if the
original intervening assignments have not yet been returned from
the recording office, (ii) a copy of the originals of such
intervening assignments together with a certificate of the Seller
or the closing attorney or an officer of the title insurer which
issued the related title insurance policy, or commitment therefor,
or its duly authorized agent certifying that the copy is a true
copy of the original of such intervening assignment which shall be
held until such time as the original is returned from the public
recording office and thereupon promptly forwarded to Purchaser or,
in those instances where the original recorded intervening
assignment has been lost, (iii) a copy of the intervening
assignment certified by the public recording office;
(g) Originals of all assumption, modification and substitution
agreements, if any; and
-2-
<PAGE>
(h) The original power of attorney, if any, or a copy thereof
certified by an authorized officer of the Seller, for any document
described above.
MORTGAGE LOANS: The Mortgage Loans identified in the Schedule of
Loans Delivered as from time to time are subject to this Agreement.
MORTGAGED PROPERTY: The residential real property subject to a
Mortgage which secures the Mortgage Loan.
MORTGAGOR OR BORROWER: The obligor under a Mortgage Loan.
NOTE: The original note or bond or other evidence of indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof
PURCHASE PRICE: With respect to any Mortgage Loan, a price equal
to the product of (x) the outstanding principal balance of the Mortgage Loan
as of the related Transfer Date and (y) the Purchase Price Percentage for
such Mortgage Loans.
PURCHASE PRICE PERCENTAGE: With respect to any Mortgage Loan, the
percentage set out on the related Schedule of Mortgage Loans Delivered.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price
equal to the product of (x) the then outstanding principal balance of the
Mortgage Loan and (y) the Purchase Price Percentage for such Mortgage Loans
actually paid by the Purchaser to the Seller upon the purchase thereof.
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).
SCHEDULE OF LOANS DELIVERED: The Mortgage Loans set forth on a
schedule in the form of Exhibit A hereto that the Purchaser has offered to
purchase from the Seller and including the Purchase Price Percentage
therefor.
SECOND MORTGAGE LOAN: A Mortgage Loan which constitutes a second
priority mortgage lien with respect to the related Mortgaged Property.
SENIOR LIEN: With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Mortgaged Property having a
first priority lien.
SERVICER: First Alliance Mortgage Company, a California
corporation, and its permitted successors and assigns.
-3-
<PAGE>
SERVICING RIGHTS: With respect to each Mortgage Loan, any and all
of the following: (a) all rights to service the Mortgage Loans; (b) any
payments or monies payable or received for servicing the Mortgage Loans; (c)
any late fees, assumption fees, penalties or similar payments with respect
to the Mortgage Loans; (d) all agreements or documents creating, defining or
evidencing any such Servicing Rights and all rights of the Seller
thereunder, including, but not limited to any clean-up calls and termination
options; (e) escrow payments or other similar payments with respect to the
Mortgage Loans and any amounts actually collected with respect thereto; (f)
all accounts and other rights to payment related to any of the property
described in this paragraph; (g) possession and use of any and all servicing
files pertaining to the Mortgage Loans or pertaining to the past, present or
prospective servicing of the Mortgage Loans; and (h) all rights, powers and
privileges incident to any of the foregoing.
TRANSFER DATE: The date of the funding or payment of Purchase
Price by the Purchaser for Mortgage Loans purchased pursuant to this
Agreement. Each settlement shall be held at the offices of the Purchaser,
17305 Von Karman Avenue, Irvine, California 92714.
UNDERWRITING GUIDELINES/PURCHASING GUIDELINES: Exhibit "B"
attached hereto and made a part hereof as may from time to time be amended
by the Purchaser.
Section 2. PURCHASE AND SALE OF MORTGAGE LOANS.
(a) On or before the business day immediately preceding each Transfer
Date, the Seller shall deliver to the Purchaser or to a custodian designated
by the Purchaser the following for each Mortgage Loan purchased as the
Purchaser may direct:
(i) Those Mortgage Loans, including the Servicing Rights thereto,
described by the Purchaser on each Schedule of Loans Delivered which
are purchased by the Purchaser pursuant to this Agreement;
(ii) The agreed upon priority liens and/or mortgages on Mortgaged
Property;
(iii) The Note(s) and the Mortgage(s) endorsed by an authorized
officer of the Seller to the Purchaser together with an individual
assignment to the Purchaser (certified copy of the assignment submitted
for recording) and originals of all intervening assignments, if any, of
the Seller's beneficial interest in the Mortgage, showing a complete
chain of title from origination to the Seller, including warehousing
assignment, if any, with evidence of recording thereon.
(iv) Any and all documents, instruments, collateral agreements,
and assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Notes and/or Mortgages or
related thereto, including, without limitation, insurance policies
(private mortgage insurance, if applicable; flood insurance, if
applicable; hazard insurance; title insurance; and other applicable
insurance policies) covering the Mortgaged Property or relating to the
Notes and all files, books, papers, ledger cards, reports and records
including, without limitation, loan applications, borrower financial
statements, separate assignments of rents, if any, credit reports and
appraisals, relating to the Mortgage Loans (the "Related Assets"). In
all cases, the Related Assets shall be the original documents.
-4-
<PAGE>
(v) The list of Mortgage Loan Documents, including all writings
evidencing the Mortgage Loan(s) purchased by the Purchaser. In all
cases, these documents shall be the original documents.
(vi) In the event that the Seller cannot deliver to the Purchaser
a duly recorded assignment of Mortgage or any other document required
to be recorded under this Agreement on the Transfer Date solely because
of a delay caused by the public recording office, when such document(s)
has/have been delivered for recordation the Seller shall deliver to the
Purchaser a certified copy of each such document(s) with a statement
thereon signed by an officer of the Seller or an officer of a title
insurer acceptable to the Purchaser certifying each to be a true and
correct copy of document(s) delivered to the appropriate public
recording official for recordation. The Seller shall deliver to the
Purchaser such recorded document(s) with evidence of recording
indicated thereon no later than 15 days after the Seller receives such
document, but in any event, no later than 90 days from the Transfer
Date.
(vii) A full copy file of the original Mortgage Loan Documents.
(b) On each Transfer Date hereunder, the Seller shall sell, assign,
transfer, convey and deliver to the Purchaser, or to a custodian designated
by the Purchaser all of its rights, title and interest in and to the
Mortgage Loans, assets and documents as more fully enumerated and set forth
in Section 2(a)(i) through (vii) inclusive, which is incorporated herein by
reference.
(c) The Purchase Price for the Mortgage Loans paid on the Transfer
Date by wire transfer to the Seller's bank, or such title insurer's offices
and/or public escrow offices as to which the Purchaser and the Seller shall
agree.
Section 3. INTEREST CALCULATIONS. All calculations of interest
hereunder, including, without limitation, calculations of interest at the
Coupon Rate, which are made in respect of the Loan Balance of a Mortgage
Loan shall be made on the basis of a 360-day year comprised of twelve 30-day
months.
Section 4. RESERVED.
Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING THE
SELLER AND THE PURCHASER.
(a) The Seller hereby represents and warrants to the Purchaser and its
successors and assigns that, as of each Transfer Date and as of the date of
this Agreement and at all times while this Agreement is in full force and
effect:
(i) The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and is
in good standing as a foreign corporation in each jurisdiction in which
the nature of its business or the properties owned
-5-
<PAGE>
or leased by it make such qualification necessary. The Seller has all
requisite organizational 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.
(ii) The execution and delivery of this Agreement by the Seller
and its performance and compliance with the terms of this Agreement
(including any other instruments of transfer to be delivered pursuant
to this Agreement) have been duly and validly authorized by all
necessary action on the part of the Seller and will not violate the
Seller's Articles of Incorporation or Bylaws or constitute a default
(or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in a breach of any provision of,
or result in the imposition of any lien on any assets of the Seller
pursuant to the provision of any mortgage, indenture, contract,
agreement or other instrument or undertaking to which the Seller is a
party or by which the Seller or any of Seller's assets is or are bound,
or 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.
(iii) This Agreement, assuming due authorization, execution and
delivery by the Purchaser, constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the
terms hereof, 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).
(iv) 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 might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
(v) Except as disclosed in writing to the Purchaser there is no
action, suit, proceeding or investigation pending or, to the best of
Seller's knowledge, threatened against the Seller which, either in any
one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or
assets of the Seller or in any material impairment of the right or
ability of the Seller to carry on its business substantially as now
conducted or in any material liability on the part of the Seller or
which would draw into question the validity of this Agreement or the
Mortgage Loans or of any action taken or to be taken in connection with
the obligations of the Seller contemplated herein or which would be
likely to impair the ability of the Seller to perform under the terms
of this Agreement or to collect on the Mortgage Loans.
(vi) Neither this Agreement nor any written statement made or
report or other document issued or delivered, or to be issued or
delivered, by the Seller pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains any untrue
statement of a fact or omits to state any fact necessary to make such
certificate, statement, report or other document not misleading.
-6-
<PAGE>
(vii) Upon the receipt of each Mortgage Loan and other items of
the Mortgage File, including the Note and Mortgage by the Purchaser,
the Purchaser will have good, valid and marketable title to such
Mortgage Loan free and clear of any lien (other than liens which will
be simultaneously released).
(viii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, 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 origination and sale of
the Mortgage Loans and the execution and delivery by the Seller of this
Agreement, 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),
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 on the
part of the Seller and the performance by the Seller of its obligations
under this Agreement.
(ix) The origination practices used by the Seller with respect to
the Mortgage Loans have been and are, in all respects, legal, proper,
prudent and customary in the mortgage loan lending business.
(x) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(xi) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans.
(xii) The Seller did not transfer or sell any interest in any
Mortgage Loan with any intent to hinder, delay or defraud any of its
respective creditors.
(xiii) The Seller is solvent and will not be rendered insolvent
as a result of the sale of the Mortgage Loans to the Purchaser.
The representations and warranties set forth in this paragraph (a) shall
survive the sale and assignment by the Seller of the Mortgage Loans to the
Purchaser and by the Purchaser to any third party. Upon discovery of a
breach of any of the foregoing representations and warranties which
materially and adversely affects the interests of the Purchaser, the
Purchaser shall give prompt written notice to the Seller within 30 days of
its receipt of notice of breach, the Seller shall cure such breach in all
material respects.
(b) The Purchaser hereby represents and warrants to the Seller, that,
as of the date hereof:
-7-
<PAGE>
(i) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California; the execution, delivery and performance of this Agreement
(including any other instruments of transfer to be delivered pursuant
to this Agreement) by the Purchaser and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action and do not violate the organization
documents of the Purchaser, contravene or violate any law or regulation
applicable to the Purchaser or contravene, violate or result in any
breach of any provision of, or constitute a default under, or result in
the imposition of any lien on any assets of the Purchaser pursuant to
the provisions of any material mortgage indenture, contract, agreement
or other instrument to which the Purchaser is a party or which purports
to be binding upon the Purchaser or any of the Purchaser's assets; this
Agreement, assuming due authorization, execution and the delivery by
the Seller, evidences the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditor's rights generally
or the application of equitable principles in any proceeding, whether
at law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or
agency, that are necessary in connection with the execution and
delivery by the Purchaser of this Agreement, 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), 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 on the part of the Purchaser and the
performance by the Purchaser of its obligations under this Agreement;
and
(iii) Except as disclosed in writing to the Purchaser, no
litigation is pending or, to the best of the Seller's knowledge,
threatened against the Seller which litigation might have consequences
that would prohibit its entering into this Agreement 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.
The representations and warranties set forth in this paragraph (b) shall
survive the sale and assignment of the Mortgage Loans to the Purchaser.
Upon discovery of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the
Seller, the Seller shall give prompt written notice to the Purchaser.
Within 30 days of its receipt of notice of breach, the Purchaser shall cure
such breach in all material respects.
Section 6. REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE
MORTGAGE LOANS.
(a) Set forth in paragraph (b) below is a listing of representations
and warranties which will be deemed to have been made by the Seller to the
Purchaser in connection with each Mortgage Loan.
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(b) With respect to each Mortgage Loan as of the related Transfer
Date, the Seller hereby represents, warrants and covenants to the Purchaser
as follows:
(i) Such Mortgage Loan was originated by the Seller and as of the
such Transfer Date the related Mortgage is a valid lien on the related
Mortgaged Property securing the amount owed by the Mortgagor under the
related Note subject only to (i) the lien of current real property
taxes and assessments, (ii) the lien of any related first mortgage (as
to any Mortgage Loan that is not secured by a first priority lien),
(iii) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the related
Mortgaged Property is located or specifically reflected in the
appraisal or title policy obtained in connection with the origination
of the related Mortgage Loan by the Seller and (iv) other matters to
which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by
such Mortgage.
(ii) Each Mortgaged Property consists of one- to four-family
residential real property, a condominium or townhouse located in
California, Oregon, Utah and Washington, or any other state in which
the Purchaser and the Seller are duly licensed and in which they have
agreed in writing to include on this list. No Mortgaged Property
consists solely of raw land, an apartment building having more than
four units, a cooperative apartment or a manufactured or mobile home.
(iii) Immediately prior to the sale, transfer, assignment and
conveyance by the Seller to the Purchaser, the Seller had good title to
such Mortgage Loan, free of any interest of any other Person, and the
Seller has sold, transferred, assigned and conveyed all of its right,
title and interest in and to such Mortgage Loan to the Purchaser.
(iv) The Seller was properly licensed or otherwise authorized, to
the extent required by applicable law, to originate or acquire such
Mortgage Loan. Such Mortgage Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal Truth in-
Lending Act, the Real Estate Settlement Procedure Act and other
federal, state and local consumer protection, usury, equal credit
opportunity, disclosure and recording laws. The consummation of the
transactions herein contemplated, including, without limitation, the
transfer of the Mortgage Loans to the Purchaser, will not violate any
such state or federal law or regulation.
(v) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard California Land Title Association
form or American Land Title Association form by a title insurance
company authorized to transact business in the jurisdiction in which
the subject Mortgaged Property is located, in an amount at least equal
to the original Loan Balance of such Mortgage Loan together, in the
case of a Mortgage Loan that is not a first priority lien, with the
original principal amount of the note relating to any senior liens,
insuring the Purchaser's interest under the related Mortgage Loan as
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the holder of a valid first or second 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 6(b)(i)
above, was effective on the date of the origination of such Mortgage
Loan, and, as of the related Transfer Date, such policy will be valid
and thereafter such policy shall continue in full force and effect.
(vi) The information set forth on each Schedule of Loans
Delivered is true and correct in all material respects.
(vii) The Seller has not received a notice of default on any
senior loan secured by the related Mortgaged Property which has not
been cured.
(viii) Each Note and Mortgage is in substantially the form
provided to the Purchaser on the related Transfer Date.
(ix) As of its date of origination, no Mortgage Loan had a
Combined Loan-to-Value Ratio in excess of 80%.
(x) No senior loan secured by the related Mortgaged Property
provides for negative amortization of the principal balance thereof.
Each Mortgage Loan is a closed-end Mortgage Loan, all amounts due under
the related Note have been advanced and no future advances are required
to be made.
(xi) Each original Mortgage was recorded, or is in the process of
being recorded and will be recorded no later than 75 days after the
Transfer Date, and all subsequent assignments of the original Mortgage
have been recorded, or are in the process of being recorded, in the
appropriate jurisdictions wherein such recordation is necessary to
perfect the lien thereof as against creditors of the Purchaser and the
Seller or as against creditors of the Purchaser's and the Seller's
predecessors in title.
(xii) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
related Mortgage. Each senior loan on a Mortgaged Property permits the
granting of a junior lien similar to the related Mortgage Loan without
consent.
(xiii) As of the related Transfer Date, there is no mechanics'
lien or claim for work, labor or material affecting the premises
subject to the related Mortgage which is or may be a lien prior to, or
equal to, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (v) above.
(xiv) As of the related Transfer Date, there is no delinquent tax
or delinquent assessment lien against any Mortgaged Property. As of
the related Transfer Date, there is no valid offset, defense or
counterclaim to the related Note or Mortgage.
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(xv) As of the related Transfer Date, to the best knowledge of
the Seller, the physical property subject to the related Mortgage is
free of material damage and is in good repair.
(xvi) The sale, transfer, assignment and conveyance of such
Mortgage Loan and the Mortgage Files by the Seller to the Purchaser
pursuant to this Agreement, are not subject to the bulk transfer laws
or any similar statutory provisions in effect in any applicable
jurisdiction.
(xvii) As of the related Transfer Date, such Mortgage Loan is
being serviced by the Seller or by a subservicer appointed by the
Seller (the "Sub-Servicer").
(xviii) At the related Transfer Date, the improvements upon the
related Mortgaged Property are covered by a valid and existing hazard
insurance policy with a generally acceptable carrier that provides for
fire and extended coverage.
(xix) The related Mortgage and Note are the legal, valid and
binding obligations of the Mortgagor thereof and are enforceable in
accordance with their terms, except only as such enforcement may be
limited by bankruptcy, insolvency, 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 all parties to such Mortgage Loan
had full legal capacity to execute all documents relating to such
Mortgage Loan and to convey the estate therein purported to be
conveyed.
(xx) The Seller has caused to be performed any and all acts
required to be performed to preserve the rights and remedies of the
Purchaser in any insurance policies applicable to such Mortgage Loan
delivered by the Seller including, without limitation, any necessary
notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and
mortgagee rights.
(xxi) The terms of the related Note and 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 Seller or the Purchaser. The substance of any such
alteration or modification is reflected on the Schedule of Loans
Delivered.
(xxii) None of the Mortgage Loans have a shared appreciation
feature or other contingent interest feature.
(xxiii) To the best knowledge of the Seller, no improvement
located on or being part of the related Mortgaged Property is in
violation of any applicable zoning law or regulation. To the best
knowledge of the Seller, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of
the related 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.
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(xxiv) With respect to each 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 deed of trust,
and no fees or expenses (except in connection with a trustee's sale
after default by the related Mortgagor) are or will become payable to
the trustee under the deed of trust.
(xxv) The related Note and 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 by
trustee's sale. There is no homestead or other exemption available to
the related Mortgagor which would materially interfere with the right
to sell the related Mortgaged Property at a trustee's sale or the right
to foreclose the related Mortgaged Property.
(xxvi) None of the Mortgage Loans were selected from among the
Seller's assets in a manner which would cause them to be adversely
selected as to credit risk from the pool of mortgage loans owned by the
Seller.
(xxvii) The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note
or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage Note or the Mortgage unenforceable in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-
off, counterclaim or defense has been asserted with respect thereto.
(xxviii) As of the Transfer Date, no Mortgage Loan is 30 or more
days contractually delinquent.
(xxix) 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 Federal 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 Mortgage Loan that is
not a first priority lien, with the outstanding principal balance of
any liens that are prior to the related Mortgage Loan 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.
(xxx) The proceeds of each Mortgage Loan have been fully
disbursed, there is no obligation on the part of the Seller to make
future advances thereunder and 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.
(xxxi) Each Mortgage Loan contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Mortgage Loan in the event the
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related Mortgaged Property is sold without the prior consent of the
holder of the Mortgage subject to limitations under applicable law.
(xxxii) 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, to the best of the Seller's
knowledge, each Mortgaged Property is undamaged by waste, fire, flood,
water, earthquake or earth movement.
(xxxiii) All of the improvements which were included for the
purposes of determining the 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 are affirmatively insured.
(xxxiv) There is no default, breach, violation or event of
acceleration existing under any Mortgage Loan or the related Note and
no event which, after the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; and
neither the Purchaser nor the Seller has waived any default, breach,
violation or event of acceleration.
(xxxv) 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, from his or her obligations thereunder.
(xxxvi) As of the Transfer Date, each Mortgage is a valid and
subsisting first or second lien on the Mortgaged Property subject in
the case of any second Mortgage only to senior liens on such Mortgaged
Property and subject in all cases to the exemptions to title set forth
in the title insurance policy 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 the related Mortgage.
(xxxvii) Any advances made after the date of origination of a
Mortgage Loan but prior to the Transfer 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 a single repayment term reflected on the Schedule of
Mortgage Loans. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note
permits or obligates the Seller or the Sub-Servicer to make future
advances to the related Mortgagor at the option of the Mortgagor.
(xxxviii) As of the Transfer Date, 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.
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(xxxix) All parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage has been duly and properly executed by such
parties.
(xl) Each Mortgage Note provides for level monthly payments
sufficient to fully amortize the principal balance of such Mortgage
Note on its maturity date or provides for level monthly payments and a
single balloon payment of unamortized principal on its maturity date
sufficient to fully amortize the principal balance of such Mortgage
Note on such date.
(xli) No Mortgaged Property consists solely of raw land, an
apartment building having more than four units, a cooperative apartment
or a manufactured or mobile home.
(xlii) There is no homestead or other exemption available to the
related Obligor which would materially interfere with the right to sell
the related Mortgaged Property at a trustee's sale or the right to
foreclose the related Mortgaged Property.
(xliii) Each Mortgage Loan conforms to the Underwriting
Guidelines/Purchasing Guidelines.
The Representations and Warranties shall survive the transfer and assignment
of the Mortgage Loans to the Purchaser. Upon discovery by the Seller or the
Purchaser of a breach of any of the Representations and Warranties, without
regard to any limitation set forth in such Representation or Warranty
concerning the knowledge of the Seller as to the facts stated therein, which
breach, in the opinion of the Purchaser, materially and adversely affects
the interests of the Purchaser in the related Mortgage Loan or Mortgage
Loans, the party discovering such breach shall give prompt written notice to
the other party, and the Seller shall be required to take the remedial
actions set out in Section 7 hereof
Section 7. REMEDIES.
(a) Upon receipt of the notice set out in the last paragraph of
Section 6 hereof, the Seller shall repurchase each affected Mortgage Loan at
a price equal to the Repurchase Price for such Mortgage Loan.
(b) Any repurchase pursuant to this Section 7 shall be accomplished by
the Seller by wire transfer of immediately available federal funds to the
account designated by the Purchaser.
Section 8. TERM OF AGREEMENT. This Agreement shall terminate upon (i)
the final payment or other liquidation of the last Mortgage Loan required
pursuant to this Agreement or (ii) the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan.
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Section 9. AUTHORIZED REPRESENTATIVES. The names of the officers of
the Seller and of the Purchaser who are authorized to give and receive
notices, requests and instructions and to deliver certificates and documents
in connection with this Agreement on behalf of the Seller and of the
Purchaser ("Authorized Representatives") are set forth on Exhibit C, along
with the specimen signature of each such officer. From time to time, the
Seller and the Purchaser may, change the information previously given, but
each party shall be entitled to rely conclusively on the last exhibit until
receipt of a superseding exhibit.
Section 10. NOTICES. All demands, notices and communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other
party or parties by like notice. Any such demand, notice or communication
hereunder shall be deemed to have been received on the date delivered to or
received at the premises of the addressee.
If to the Seller:
Nationscapital Mortgage Corporation
2922 E. Chapman Avenue #202
Orange, CA 92669
Attention: Jamie Chisick
Telecopy: (714) 516-4567
Telephone: (714) 639-2700
If to the Purchaser:
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, CA 92714
Attention: Cassandra Fraulino
Telecopy: (714) 224-8357
Telephone: (714) 224-8366
Section 11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to conflict of laws rules applied in the State of California.
Section 12. ASSIGNMENT. No party to this Agreement may assign its
rights or delegate its obligations under this Agreement without the express
written consent of the other parties, except as otherwise set forth in this
Agreement.
Section 13. COUNTERPARTS. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall
be deemed to be an original, and together shall constitute and be one and
the same instrument.
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Section 14. AMENDMENT. This Agreement may be amended from time to
time by the Seller and the Purchaser only by a written instrument executed
by such parties.
Section 15. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 16. NO AGENCY: NO PARTNERSHIP OR JOINT VENTURE. Neither the
Seller nor the Purchaser is the agent or representative of the other, and
nothing in this Agreement shall be construed to make either the Seller nor
the Purchaser liable to any third party for services performed by it or for
debts or claims accruing to it against the other party. Nothing contained
herein nor the acts of the parties hereto shall be construed to create a
partnership or joint venture between the Purchaser and the Seller.
Section 17. FURTHER ASSURANCES. The Seller and the Purchaser agree to
cooperate reasonably and in good faith with one another in the performance
of this Agreement.
Section 18. MAINTENANCE OF RECORDS. The Seller shall continuously
keep an original executed counterpart of this Agreement in its official
records.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers all as of the day and year first
above written.
FIRST ALLIANCE MORTGAGE COMPANY,
as Purchaser
By: /s/ Jeffrey W. Smith
--------------------------------
Name: Jeffrey W. Smith
Title: Executive Vice President,
Sales and Marketing
NATIONSCAPITAL MORTGAGE CORPORATION,
as Seller
By: /s/ Jamie Chisick
--------------------------------
Name: Jamie Chisick
Title: President
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MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
Dated as of July 1, 1996
by and between
COAST SECURITY MORTGAGE INC.,
as the Seller
and
FIRST ALLIANCE MORTGAGE COMPANY,
as the Purchaser
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TABLE OF CONTENTS
-----------------
Page
Section 1. Definitions.................................................1
Section 2. Purchase and Sale of Mortgage Loans.........................4
Section 3. Interest Calculations.......................................5
Section 4. Reserved....................................................5
Section 5. Representations, Warranties and Covenants Regarding
the Seller and the Purchaser................................5
Section 6. Representations and Warranties of the Seller Regarding
the Mortgage Loans..........................................8
Section 7. Remedies...................................................14
Section 8. Term of Agreement..........................................14
Section 9. Authorized Representatives.................................15
Section 10. Notices....................................................15
Section 11. Governing Law..............................................15
Section 12. Assignment.................................................15
Section 13. Counterparts...............................................15
Section 14. Amendment..................................................16
Section 15. Severability of Provisions.................................16
Section 16. No Agency: No Partnership or Joint Venture.................16
Section 17. Further Assurances.........................................16
Section 18. Maintenance of Records.....................................16
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THIS MORTGAGE LOAN PURCHASE AND SALE AGREEMENT, dated as of July 1,
1996, is made between FIRST ALLIANCE MORTGAGE COMPANY, a California
corporation (the "Purchaser") and COAST SECURITY MORTGAGE INC., a
California corporation (the "Seller").
A. The Seller is an originator of mortgage loans which it desires,
from time to time, to sell to the Purchaser;
B. The Purchaser may, from time to time, purchase such mortgage loans
from the Seller;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties agree as follows:
Section 1. DEFINITIONS. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.
AGREEMENT: This Mortgage Loan Purchase and Sale Agreement as it
may be amended from time to time, including the exhibits and supplements
hereto.
CODE: The Internal Revenue Code of 1986, as amended, and any
successor statute.
COUPON RATE: The rate of interest borne by each Note.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FIRST MORTGAGE LOAN: A Mortgage Loan which constitutes a first
priority mortgage lien with respect to any Mortgaged Property.
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.
LOAN BALANCE: With respect to each Mortgage Loan, the outstanding
principal balance thereof on the related Transfer Date.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first, second or third lien on an estate in fee simple in real
property, in accordance with applicable law, securing a Note.
MORTGAGE FILE: The file containing those Mortgage Loan Documents
pertaining to a particular Mortgage Loan.
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MORTGAGE LOAN DOCUMENTS: With respect to each Mortgage Loan, the
following documents:
(a) The original Mortgage Note, endorsed "Pay to the order of
First Alliance Mortgage Company without recourse" and signed, by
manual signature of a person authorized to do so, in the name and
on behalf of the Seller.
(b) The original of any guaranty executed in connection with the
Mortgage Note, if any;
(c) Either: (i) the original Mortgage, with evidence of recording
thereon or, if the original has been transmitted for recording,
(ii) a copy of the Mortgage certified as a true copy by the Seller
or by the closing attorney, or by an officer of the title insurer
or agent of the title insurer which issued the related title
insurance policy or commitment therefor, until such time as the
original is returned by the public recording officer, at which
time the original Mortgage with evidence of recording thereon
shall be forwarded to Purchaser or, in those instances where the
original recorded Mortgage has been lost, (iii) a copy of the
Mortgage certified by the public recording officer;
(d) The original Assignment of Mortgage from the Seller to the
Purchaser without recourse provided that, if the related Mortgage
has not at the date of such Assignment of Mortgage been returned
from the applicable public recording office, such Assignment of
Mortgage may exclude the information to be provided by the
recording office;
(e) The original policy of title insurance or a certified copy thereof
certified by the Seller or, if such policy has not yet been
delivered by the insurer, the commitment or binder to issue same;
(f) Either: (i) originals of all intervening assignments, if any,
showing a complete chain of assignment from the originator of such
Mortgage Loan to the Seller including any recorded warehousing
assignments, with evidence of recording thereon or, if the
original intervening assignments have not yet been returned from
the recording office, (ii) a copy of the originals of such
intervening assignments together with a certificate of the Seller
or the closing attorney or an officer of the title insurer which
issued the related title insurance policy, or commitment therefor,
or its duly authorized agent certifying that the copy is a true
copy of the original of such intervening assignment which shall be
held until such time as the original is returned from the public
recording office and thereupon promptly forwarded to Purchaser or,
in those instances where the original recorded intervening
assignment has been lost, (iii) a copy of the intervening
assignment certified by the public recording office;
(g) Originals of all assumption, modification and substitution
agreements, if any; and
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(h) The original power of attorney, if any, or a copy thereof
certified by an authorized officer of the Seller, for any document
described above.
MORTGAGE LOANS: The Mortgage Loans identified in the Schedule of
Loans Delivered as from time to time are subject to this Agreement.
MORTGAGED PROPERTY: The residential real property subject to a
Mortgage which secures the Mortgage Loan.
MORTGAGOR OR BORROWER: The obligor under a Mortgage Loan.
NOTE: The original note or bond or other evidence of indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof
PURCHASE PRICE: With respect to any Mortgage Loan, a price equal
to the product of (x) the outstanding principal balance of the Mortgage Loan
as of the related Transfer Date and (y) the Purchase Price Percentage for
such Mortgage Loans.
PURCHASE PRICE PERCENTAGE: With respect to any Mortgage Loan, the
percentage set out on the related Schedule of Mortgage Loans Delivered.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price
equal to the product of (x) the then outstanding principal balance of the
Mortgage Loan and (y) the Purchase Price Percentage for such Mortgage Loans
actually paid by the Purchaser to the Seller upon the purchase thereof.
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).
SCHEDULE OF LOANS DELIVERED: The Mortgage Loans set forth on a
schedule in the form of Exhibit A hereto that the Purchaser has offered to
purchase from the Seller and including the Purchase Price Percentage
therefor.
SECOND MORTGAGE LOAN: A Mortgage Loan which constitutes a second
priority mortgage lien with respect to the related Mortgaged Property.
SENIOR LIEN: With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Mortgaged Property having a
first priority lien.
SERVICER: First Alliance Mortgage Company, a California
corporation, and its permitted successors and assigns.
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SERVICING RIGHTS: With respect to each Mortgage Loan, any and all
of the following: (a) all rights to service the Mortgage Loans; (b) any
payments or monies payable or received for servicing the Mortgage Loans; (c)
any late fees, assumption fees, penalties or similar payments with respect
to the Mortgage Loans; (d) all agreements or documents creating, defining or
evidencing any such Servicing Rights and all rights of the Seller
thereunder, including, but not limited to any clean-up calls and termination
options; (e) escrow payments or other similar payments with respect to the
Mortgage Loans and any amounts actually collected with respect thereto; (f)
all accounts and other rights to payment related to any of the property
described in this paragraph; (g) possession and use of any and all servicing
files pertaining to the Mortgage Loans or pertaining to the past, present or
prospective servicing of the Mortgage Loans; and (h) all rights, powers and
privileges incident to any of the foregoing.
TRANSFER DATE: The date of the funding or payment of Purchase
Price by the Purchaser for Mortgage Loans purchased pursuant to this
Agreement. Each settlement shall be held at the offices of the Purchaser,
17305 Von Karman Avenue, Irvine, California 92714.
UNDERWRITING GUIDELINES/PURCHASING GUIDELINES: Exhibit "B"
attached hereto and made a part hereof as may from time to time be amended
by the Purchaser.
Section 2. PURCHASE AND SALE OF MORTGAGE LOANS.
(a) On or before the business day immediately preceding each Transfer
Date, the Seller shall deliver to the Purchaser or to a custodian designated
by the Purchaser the following for each Mortgage Loan purchased as the
Purchaser may direct:
(i) Those Mortgage Loans, including the Servicing Rights thereto,
described by the Purchaser on each Schedule of Loans Delivered which
are purchased by the Purchaser pursuant to this Agreement;
(ii) The agreed upon priority liens and/or mortgages on Mortgaged
Property;
(iii) The Note(s) and the Mortgage(s) endorsed by an authorized
officer of the Seller to the Purchaser together with an individual
assignment to the Purchaser (certified copy of the assignment submitted
for recording) and originals of all intervening assignments, if any, of
the Seller's beneficial interest in the Mortgage, showing a complete
chain of title from origination to the Seller, including warehousing
assignment, if any, with evidence of recording thereon.
(iv) Any and all documents, instruments, collateral agreements,
and assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Notes and/or Mortgages or
related thereto, including, without limitation, insurance policies
(private mortgage insurance, if applicable; flood insurance, if
applicable; hazard insurance; title insurance; and other applicable
insurance policies) covering the Mortgaged Property or relating to the
Notes and all files, books, papers, ledger cards, reports and records
including, without limitation, loan applications, borrower financial
statements, separate assignments of rents, if any, credit reports and
appraisals, relating to the Mortgage Loans (the "Related Assets"). In
all cases, the Related Assets shall be the original documents.
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(v) The list of Mortgage Loan Documents, including all writings
evidencing the Mortgage Loan(s) purchased by the Purchaser. In all
cases, these documents shall be the original documents.
(vi) In the event that the Seller cannot deliver to the Purchaser
a duly recorded assignment of Mortgage or any other document required
to be recorded under this Agreement on the Transfer Date solely because
of a delay caused by the public recording office, when such document(s)
has/have been delivered for recordation the Seller shall deliver to the
Purchaser a certified copy of each such document(s) with a statement
thereon signed by an officer of the Seller or an officer of a title
insurer acceptable to the Purchaser certifying each to be a true and
correct copy of document(s) delivered to the appropriate public
recording official for recordation. The Seller shall deliver to the
Purchaser such recorded document(s) with evidence of recording
indicated thereon no later than 15 days after the Seller receives such
document, but in any event, no later than 90 days from the Transfer
Date.
(vii) A full copy file of the original Mortgage Loan Documents.
(b) On each Transfer Date hereunder, the Seller shall sell, assign,
transfer, convey and deliver to the Purchaser, or to a custodian designated
by the Purchaser all of its rights, title and interest in and to the
Mortgage Loans, assets and documents as more fully enumerated and set forth
in Section 2(a)(i) through (vii) inclusive, which is incorporated herein by
reference.
(c) The Purchase Price for the Mortgage Loans paid on the Transfer
Date by wire transfer to the Seller's bank, or such title insurer's offices
and/or public escrow offices as to which the Purchaser and the Seller shall
agree.
Section 3. INTEREST CALCULATIONS. All calculations of interest
hereunder, including, without limitation, calculations of interest at the
Coupon Rate, which are made in respect of the Loan Balance of a Mortgage
Loan shall be made on the basis of a 360-day year comprised of twelve 30-day
months.
Section 4. RESERVED.
Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING THE
SELLER AND THE PURCHASER.
(a) The Seller hereby represents and warrants to the Purchaser and its
successors and assigns that, as of each Transfer Date and as of the date of
this Agreement and at all times while this Agreement is in full force and
effect:
(i) The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and is
in good standing as a foreign corporation in each jurisdiction in which
the nature of its business or the properties owned
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or leased by it make such qualification necessary. The Seller has all
requisite organizational 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.
(ii) The execution and delivery of this Agreement by the Seller
and its performance and compliance with the terms of this Agreement
(including any other instruments of transfer to be delivered pursuant
to this Agreement) have been duly and validly authorized by all
necessary action on the part of the Seller and will not violate the
Seller's Articles of Incorporation or Bylaws or constitute a default
(or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in a breach of any provision of,
or result in the imposition of any lien on any assets of the Seller
pursuant to the provision of any mortgage, indenture, contract,
agreement or other instrument or undertaking to which the Seller is a
party or by which the Seller or any of Seller's assets is or are bound,
or 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.
(iii) This Agreement, assuming due authorization, execution and
delivery by the Purchaser, constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the
terms hereof, 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).
(iv) 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 might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
(v) Except as disclosed in writing to the Purchaser there is no
action, suit, proceeding or investigation pending or, to the best of
Seller's knowledge, threatened against the Seller which, either in any
one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or
assets of the Seller or in any material impairment of the right or
ability of the Seller to carry on its business substantially as now
conducted or in any material liability on the part of the Seller or
which would draw into question the validity of this Agreement or the
Mortgage Loans or of any action taken or to be taken in connection with
the obligations of the Seller contemplated herein or which would be
likely to impair the ability of the Seller to perform under the terms
of this Agreement or to collect on the Mortgage Loans.
(vi) Neither this Agreement nor any written statement made or
report or other document issued or delivered, or to be issued or
delivered, by the Seller pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains any untrue
statement of a fact or omits to state any fact necessary to make such
certificate, statement, report or other document not misleading.
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(vii) Upon the receipt of each Mortgage Loan and other items of
the Mortgage File, including the Note and Mortgage by the Purchaser,
the Purchaser will have good, valid and marketable title to such
Mortgage Loan free and clear of any lien (other than liens which will
be simultaneously released).
(viii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, 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 origination and sale of
the Mortgage Loans and the execution and delivery by the Seller of this
Agreement, 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),
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 on the
part of the Seller and the performance by the Seller of its obligations
under this Agreement.
(ix) The origination practices used by the Seller with respect to
the Mortgage Loans have been and are, in all respects, legal, proper,
prudent and customary in the mortgage loan lending business.
(x) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(xi) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans.
(xii) The Seller did not transfer or sell any interest in any
Mortgage Loan with any intent to hinder, delay or defraud any of its
respective creditors.
(xiii) The Seller is solvent and will not be rendered insolvent
as a result of the sale of the Mortgage Loans to the Purchaser.
The representations and warranties set forth in this paragraph (a) shall
survive the sale and assignment by the Seller of the Mortgage Loans to the
Purchaser and by the Purchaser to any third party. Upon discovery of a
breach of any of the foregoing representations and warranties which
materially and adversely affects the interests of the Purchaser, the
Purchaser shall give prompt written notice to the Seller within 30 days of
its receipt of notice of breach, the Seller shall cure such breach in all
material respects.
(b) The Purchaser hereby represents and warrants to the Seller, that,
as of the date hereof:
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(i) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California; the execution, delivery and performance of this Agreement
(including any other instruments of transfer to be delivered pursuant
to this Agreement) by the Purchaser and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action and do not violate the organization
documents of the Purchaser, contravene or violate any law or regulation
applicable to the Purchaser or contravene, violate or result in any
breach of any provision of, or constitute a default under, or result in
the imposition of any lien on any assets of the Purchaser pursuant to
the provisions of any material mortgage indenture, contract, agreement
or other instrument to which the Purchaser is a party or which purports
to be binding upon the Purchaser or any of the Purchaser's assets; this
Agreement, assuming due authorization, execution and the delivery by
the Seller, evidences the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditor's rights generally
or the application of equitable principles in any proceeding, whether
at law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or
agency, that are necessary in connection with the execution and
delivery by the Purchaser of this Agreement, 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), 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 on the part of the Purchaser and the
performance by the Purchaser of its obligations under this Agreement;
and
(iii) Except as disclosed in writing to the Purchaser, no
litigation is pending or, to the best of the Seller's knowledge,
threatened against the Seller which litigation might have consequences
that would prohibit its entering into this Agreement 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.
The representations and warranties set forth in this paragraph (b) shall
survive the sale and assignment of the Mortgage Loans to the Purchaser.
Upon discovery of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the
Seller, the Seller shall give prompt written notice to the Purchaser.
Within 30 days of its receipt of notice of breach, the Purchaser shall cure
such breach in all material respects.
Section 6. REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE
MORTGAGE LOANS.
(a) Set forth in paragraph (b) below is a listing of representations
and warranties which will be deemed to have been made by the Seller to the
Purchaser in connection with each Mortgage Loan.
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(b) With respect to each Mortgage Loan as of the related Transfer
Date, the Seller hereby represents, warrants and covenants to the Purchaser
as follows:
(i) Such Mortgage Loan was originated by the Seller and as of the
such Transfer Date the related Mortgage is a valid lien on the related
Mortgaged Property securing the amount owed by the Mortgagor under the
related Note subject only to (i) the lien of current real property
taxes and assessments, (ii) the lien of any related first mortgage (as
to any Mortgage Loan that is not secured by a first priority lien),
(iii) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the related
Mortgaged Property is located or specifically reflected in the
appraisal or title policy obtained in connection with the origination
of the related Mortgage Loan by the Seller and (iv) other matters to
which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by
such Mortgage.
(ii) Each Mortgaged Property consists of one- to four-family
residential real property, a condominium or townhouse located in
California, Oregon, Utah and Washington, or any other state in which
the Purchaser and the Seller are duly licensed and in which they have
agreed in writing to include on this list. No Mortgaged Property
consists solely of raw land, an apartment building having more than
four units, a cooperative apartment or a manufactured or mobile home.
(iii) Immediately prior to the sale, transfer, assignment and
conveyance by the Seller to the Purchaser, the Seller had good title to
such Mortgage Loan, free of any interest of any other Person, and the
Seller has sold, transferred, assigned and conveyed all of its right,
title and interest in and to such Mortgage Loan to the Purchaser.
(iv) The Seller was properly licensed or otherwise authorized, to
the extent required by applicable law, to originate or acquire such
Mortgage Loan. Such Mortgage Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal Truth in-
Lending Act, the Real Estate Settlement Procedure Act and other
federal, state and local consumer protection, usury, equal credit
opportunity, disclosure and recording laws. The consummation of the
transactions herein contemplated, including, without limitation, the
transfer of the Mortgage Loans to the Purchaser, will not violate any
such state or federal law or regulation.
(v) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard California Land Title Association
form or American Land Title Association form by a title insurance
company authorized to transact business in the jurisdiction in which
the subject Mortgaged Property is located, in an amount at least equal
to the original Loan Balance of such Mortgage Loan together, in the
case of a Mortgage Loan that is not a first priority lien, with the
original principal amount of the note relating to any senior liens,
insuring the Purchaser's interest under the related Mortgage Loan as
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the holder of a valid first or second 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 6(b)(i)
above, was effective on the date of the origination of such Mortgage
Loan, and, as of the related Transfer Date, such policy will be valid
and thereafter such policy shall continue in full force and effect.
(vi) The information set forth on each Schedule of Loans
Delivered is true and correct in all material respects.
(vii) The Seller has not received a notice of default on any
senior loan secured by the related Mortgaged Property which has not
been cured.
(viii) Each Note and Mortgage is in substantially the form
provided to the Purchaser on the related Transfer Date.
(ix) As of its date of origination, no Mortgage Loan had a
Combined Loan-to-Value Ratio in excess of 80%.
(x) No senior loan secured by the related Mortgaged Property
provides for negative amortization of the principal balance thereof.
Each Mortgage Loan is a closed-end Mortgage Loan, all amounts due under
the related Note have been advanced and no future advances are required
to be made.
(xi) Each original Mortgage was recorded, or is in the process of
being recorded and will be recorded no later than 75 days after the
Transfer Date, and all subsequent assignments of the original Mortgage
have been recorded, or are in the process of being recorded, in the
appropriate jurisdictions wherein such recordation is necessary to
perfect the lien thereof as against creditors of the Purchaser and the
Seller or as against creditors of the Purchaser's and the Seller's
predecessors in title.
(xii) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
related Mortgage. Each senior loan on a Mortgaged Property permits the
granting of a junior lien similar to the related Mortgage Loan without
consent.
(xiii) As of the related Transfer Date, there is no mechanics'
lien or claim for work, labor or material affecting the premises
subject to the related Mortgage which is or may be a lien prior to, or
equal to, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (v) above.
(xiv) As of the related Transfer Date, there is no delinquent tax
or delinquent assessment lien against any Mortgaged Property. As of
the related Transfer Date, there is no valid offset, defense or
counterclaim to the related Note or Mortgage.
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(xv) As of the related Transfer Date, to the best knowledge of
the Seller, the physical property subject to the related Mortgage is
free of material damage and is in good repair.
(xvi) The sale, transfer, assignment and conveyance of such
Mortgage Loan and the Mortgage Files by the Seller to the Purchaser
pursuant to this Agreement, are not subject to the bulk transfer laws
or any similar statutory provisions in effect in any applicable
jurisdiction.
(xvii) As of the related Transfer Date, such Mortgage Loan is
being serviced by the Seller or by a subservicer appointed by the
Seller (the "Sub-Servicer").
(xviii) At the related Transfer Date, the improvements upon the
related Mortgaged Property are covered by a valid and existing hazard
insurance policy with a generally acceptable carrier that provides for
fire and extended coverage.
(xix) The related Mortgage and Note are the legal, valid and
binding obligations of the Mortgagor thereof and are enforceable in
accordance with their terms, except only as such enforcement may be
limited by bankruptcy, insolvency, 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 all parties to such Mortgage Loan
had full legal capacity to execute all documents relating to such
Mortgage Loan and to convey the estate therein purported to be
conveyed.
(xx) The Seller has caused to be performed any and all acts
required to be performed to preserve the rights and remedies of the
Purchaser in any insurance policies applicable to such Mortgage Loan
delivered by the Seller including, without limitation, any necessary
notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and
mortgagee rights.
(xxi) The terms of the related Note and 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 Seller or the Purchaser. The substance of any such
alteration or modification is reflected on the Schedule of Loans
Delivered.
(xxii) None of the Mortgage Loans have a shared appreciation
feature or other contingent interest feature.
(xxiii) To the best knowledge of the Seller, no improvement
located on or being part of the related Mortgaged Property is in
violation of any applicable zoning law or regulation. To the best
knowledge of the Seller, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of
the related 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.
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(xxiv) With respect to each 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 deed of trust,
and no fees or expenses (except in connection with a trustee's sale
after default by the related Mortgagor) are or will become payable to
the trustee under the deed of trust.
(xxv) The related Note and 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 by
trustee's sale. There is no homestead or other exemption available to
the related Mortgagor which would materially interfere with the right
to sell the related Mortgaged Property at a trustee's sale or the right
to foreclose the related Mortgaged Property.
(xxvi) None of the Mortgage Loans were selected from among the
Seller's assets in a manner which would cause them to be adversely
selected as to credit risk from the pool of mortgage loans owned by the
Seller.
(xxvii) The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note
or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage Note or the Mortgage unenforceable in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-
off, counterclaim or defense has been asserted with respect thereto.
(xxviii) As of the Transfer Date, no Mortgage Loan is 30 or more
days contractually delinquent.
(xxix) 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 Federal 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 Mortgage Loan that is
not a first priority lien, with the outstanding principal balance of
any liens that are prior to the related Mortgage Loan 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.
(xxx) The proceeds of each Mortgage Loan have been fully
disbursed, there is no obligation on the part of the Seller to make
future advances thereunder and 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.
(xxxi) Each Mortgage Loan contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Mortgage Loan in the event the
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related Mortgaged Property is sold without the prior consent of the
holder of the Mortgage subject to limitations under applicable law.
(xxxii) 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, to the best of the Seller's
knowledge, each Mortgaged Property is undamaged by waste, fire, flood,
water, earthquake or earth movement.
(xxxiii) All of the improvements which were included for the
purposes of determining the 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 are affirmatively insured.
(xxxiv) There is no default, breach, violation or event of
acceleration existing under any Mortgage Loan or the related Note and
no event which, after the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; and
neither the Purchaser nor the Seller has waived any default, breach,
violation or event of acceleration.
(xxxv) 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, from his or her obligations thereunder.
(xxxvi) As of the Transfer Date, each Mortgage is a valid and
subsisting first or second lien on the Mortgaged Property subject in
the case of any second Mortgage only to senior liens on such Mortgaged
Property and subject in all cases to the exemptions to title set forth
in the title insurance policy 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 the related Mortgage.
(xxxvii) Any advances made after the date of origination of a
Mortgage Loan but prior to the Transfer 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 a single repayment term reflected on the Schedule of
Mortgage Loans. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note
permits or obligates the Seller or the Sub-Servicer to make future
advances to the related Mortgagor at the option of the Mortgagor.
(xxxviii) As of the Transfer Date, 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.
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(xxxix) All parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage has been duly and properly executed by such
parties.
(xl) Each Mortgage Note provides for level monthly payments
sufficient to fully amortize the principal balance of such Mortgage
Note on its maturity date or provides for level monthly payments and a
single balloon payment of unamortized principal on its maturity date
sufficient to fully amortize the principal balance of such Mortgage
Note on such date.
(xli) No Mortgaged Property consists solely of raw land, an
apartment building having more than four units, a cooperative apartment
or a manufactured or mobile home.
(xlii) There is no homestead or other exemption available to the
related Obligor which would materially interfere with the right to sell
the related Mortgaged Property at a trustee's sale or the right to
foreclose the related Mortgaged Property.
(xliii) Each Mortgage Loan conforms to the Underwriting
Guidelines/Purchasing Guidelines.
The Representations and Warranties shall survive the transfer and assignment
of the Mortgage Loans to the Purchaser. Upon discovery by the Seller or the
Purchaser of a breach of any of the Representations and Warranties, without
regard to any limitation set forth in such Representation or Warranty
concerning the knowledge of the Seller as to the facts stated therein, which
breach, in the opinion of the Purchaser, materially and adversely affects
the interests of the Purchaser in the related Mortgage Loan or Mortgage
Loans, the party discovering such breach shall give prompt written notice to
the other party, and the Seller shall be required to take the remedial
actions set out in Section 7 hereof.
Section 7. REMEDIES.
(a) Upon receipt of the notice set out in the last paragraph of
Section 6 hereof, the Seller shall repurchase each affected Mortgage Loan at
a price equal to the Repurchase Price for such Mortgage Loan.
(b) Any repurchase pursuant to this Section 7 shall be accomplished by
the Seller by wire transfer of immediately available federal funds to the
account designated by the Purchaser.
Section 8. TERM OF AGREEMENT. This Agreement shall terminate upon (i)
the final payment or other liquidation of the last Mortgage Loan required
pursuant to this Agreement or (ii) the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan.
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Section 9. AUTHORIZED REPRESENTATIVES. The names of the officers of
the Seller and of the Purchaser who are authorized to give and receive
notices, requests and instructions and to deliver certificates and documents
in connection with this Agreement on behalf of the Seller and of the
Purchaser ("Authorized Representatives") are set forth on Exhibit C, along
with the specimen signature of each such officer. From time to time, the
Seller and the Purchaser may, change the information previously given, but
each party shall be entitled to rely conclusively on the last exhibit until
receipt of a superseding exhibit.
Section 10. NOTICES. All demands, notices and communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other
party or parties by like notice. Any such demand, notice or communication
hereunder shall be deemed to have been received on the date delivered to or
received at the premises of the addressee.
If to the Seller:
Coast Security Mortgage Inc.
500 North State College Boulevard, Suite 800
Orange, CA 92668
Attention: Mark Chisick
Telecopy: (714) 978-2334
Telephone: (714) 978-7770
If to the Purchaser:
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, CA 92714
Attention: Cassandra Fraulino
Telecopy: (714) 224-8357
Telephone: (714) 224-8366
Section 11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to conflict of laws rules applied in the State of California.
Section 12. ASSIGNMENT. No party to this Agreement may assign its
rights or delegate its obligations under this Agreement without the express
written consent of the other parties, except as otherwise set forth in this
Agreement.
Section 13. COUNTERPARTS. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall
be deemed to be an original, and together shall constitute and be one and
the same instrument.
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<PAGE>
Section 14. AMENDMENT. This Agreement may be amended from time to
time by the Seller and the Purchaser only by a written instrument executed
by such parties.
Section 15. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 16. NO AGENCY: NO PARTNERSHIP OR JOINT VENTURE. Neither the
Seller nor the Purchaser is the agent or representative of the other, and
nothing in this Agreement shall be construed to make either the Seller nor
the Purchaser liable to any third party for services performed by it or for
debts or claims accruing to it against the other party. Nothing contained
herein nor the acts of the parties hereto shall be construed to create a
partnership or joint venture between the Purchaser and the Seller.
Section 17. FURTHER ASSURANCES. The Seller and the Purchaser agree to
cooperate reasonably and in good faith with one another in the performance
of this Agreement.
Section 18. MAINTENANCE OF RECORDS. The Seller shall continuously
keep an original executed counterpart of this Agreement in its official
records.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers all as of the day and year first
above written.
FIRST ALLIANCE MORTGAGE COMPANY,
as Purchaser
By: /s/ Jeffrey W. Smith
--------------------------------
Name: Jeffrey W. Smith
Title: Executive Vice President,
Sales and Marketing
COAST SECURITY MORTGAGE INC.,
as Seller
By: /s/ Mark Chisick
--------------------------------
Name: Mark Chisick
Title: President
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<PAGE>
INTERIM WAREHOUSE AND SECURITY AGREEMENT
----------------------------------------
This INTERIM WAREHOUSE AND SECURITY AGREEMENT, dated as of February
15, 1997 (as amended or otherwise modified from time to time, this
"Agreement"), is entered into between FIRST ALLIANCE MORTGAGE COMPANY (the
"Lender"), a California corporation, NATIONSCAPITAL MORTGAGE COMPANY, (the
"Borrower"), a California corporation, and JAMIE CHISICK and BRAD CHISICK
(each a "Guarantor" and collectively, the "Guarantors"), the sole
shareholders of the Borrower.
WHEREAS, the Lender has agreed, subject to the terms and conditions
contained herein, to provide interim funding from time to time to finance
the origination of Mortgage Loans (as defined herein).
NOW, THEREFORE, the parties to this Agreement hereby agree as follows
(an index of certain capitalized, defined terms appears in Section 26 of
this Agreement):
SECTION 1. THE ADVANCES. Subject to the terms of this Agreement, the
Lender agrees to lend to the Borrower from time to time in an aggregate
principal amount not to exceed at any one time outstanding an amount (the
"Maximum Funding Amount") equal to (i) for the period from the date hereof
to and including the initial Termination Date, $5,000,000, and (ii) if the
Termination Date is extended in accordance with Section 2(a) hereof, for
each subsequent Funding Period the amount specified in the Notice of
Extension of Agreement delivered in accordance herewith in respect of such
Funding Period, to be made in one or more advances (each an "Advance" and,
collectively, "Advances"). Each Advance shall be made on a date other than
a Saturday, Sunday or other day on which banks in Los Angeles, California
are authorized or required by law to be closed (each such date, a "Business
Day") that is prior to the Termination Date (each such date on which an
Advance is made, a "Funding Date"); provided that:
(a) the representations and warranties of the Borrower in Section 7
hereof shall be true and correct on and as of such Funding Date as if made
on and as of such date;
(b) no Default or Event of Default shall have occurred and be
continuing or would exist after the making of any Advance on such Funding
Date;
(c) if requested by the Lender, the Lender shall have conducted a due
diligence review of the mortgage files relating to the Mortgage Loans, the
results of which shall have been satisfactory to the Lender;
(d) the Lender shall have received, in connection with the first
Advance, (A) a legal opinion from counsel to the Borrower, in the form of
Exhibit C attached hereto, and (B) the Secured Note (as defined below) duly
executed by the Borrower;
(e) the Borrower shall have delivered to the Lender all documents to
be delivered with respect to the Mortgage Loans being pledged on such
Funding Date, including without limitation the information specified in
Schedule 1 with respect to each Mortgage Loan;
<PAGE>
(f) the Lender shall have ascertained that there are no material
deficiencies with respect to the Mortgage Loan Documents (as defined below)
related to such Advance, by no later than 5:00 p.m. two Business Days
before such Funding Date;
(g) the Lender shall have received a guaranty (the "Guaranty")
substantially in the form set forth in Exhibit I attached hereto, fully
executed by each Guarantor;
(h) the Lender shall have received a copy of the Mortgage Loan
Subservicing Agreement, if any, in respect of the Mortgage Loans relating to
such Advance, which Mortgage Loan Subservicing Agreement shall be in form
and substance acceptable to the Lender;
(i) each rescission period, under applicable federal, state or local
law, in respect of the Mortgage Loans being pledged in connection with the
Advance being made on such Funding Date shall have expired, and the Lender
shall have received evidence satisfactory to it to that effect; and
(j) any general conditions for the making of Advances, specified in
Section 2 below, have been satisfied and will continue to be satisfied if
such Advance is made.
SECTION 2. TERMS AND CONDITIONS FOR ALL ADVANCES.
(a) Each outstanding Advance shall mature on the related Maturity
Date (as defined below), and the obligation of the Lender to make any
Advances hereunder shall terminate, on July 31, 1998 (the "Termination
Date"); provided, that the Termination Date may be extended from time to
time, in the sole and absolute discretion of the Lender, upon (i) the
execution and delivery by the parties hereto of (A) a Notice of Extension of
Agreement substantially in the form of Exhibit B-1 attached hereto, and (B)
an Endorsement to the Secured Note, substantially in the form of Exhibit B-2
and (ii) the delivery of an opinion of counsel to the Borrower substantially
in the form of Exhibit B-3 attached hereto; provided further, that such an
extension alone shall not be deemed an Event of Default hereunder.
(b) (i) If the Borrower wishes to receive an Advance in respect of
Mortgage Loans, then the Borrower shall give the Lender written notice
by no later than 12:00 p.m. two Business Days prior to the Funding Date
for such Mortgage Loans of the amount of such Advance to be advanced on
such Funding Date by delivering a Notice of Borrowing substantially in
the form of Exhibit D attached hereto ("Notice of Borrowing");
provided, that the Lender may, in its sole discretion, require, for any
one or more such Mortgage Loans, that as a condition precedent to
making an Advance with respect thereto the Borrower provide a written
confirmation of a guarantee to purchase the related Mortgage Loan
subsequent to the Funding Date ("Unconditional Commitment Letter"), in
the form of Exhibit E attached hereto. The Unconditional Commitment
Letter shall be provided to the Borrower by any entity which delivers
to the Borrower an Unconditional Commitment Letter prior to the Funding
Date and purchases the related Mortgage Loan(s) subsequent to the
Funding Date ("Third Party Buyer"). Lender shall, by the end of the
Business Day on which it receives a Notice of Borrowing, advise
Borrower of any Mortgage Loan(s) for which Unconditional Commitment
Letter(s) will be so required and which were not provided with the
Notice of Borrowing, and the Funding Date with respect thereto shall be
made as a separate Advance within two Business Days of the date on
which the Unconditional Commitment Letter(s) is/are provided as
required herein.
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<PAGE>
(ii) Each Advance shall bear interest from the related Funding
Date to but excluding the earlier of the date of its prepayment or the
Maturity Date, at a rate per annum equal to ten percent (10.00%) per
annum.
(c) Each outstanding Advance shall mature on the Related Maturity
date specified for such Advance as set forth in the related Notice of
Borrowing (the "Maturity Date"); provided, that the Maturity Date shall,
subject to the second succeeding proviso hereto, for any Advance be no later
than the earlier of (A) the Termination Date, (B) the date upon which the
Mortgage Loans funded by such Advance shall be sold to a Third Party Buyer
(but only with respect to that portion of the Advance related to Mortgage
Loans so sold), or (C) the date which is ninety (90) days after the Funding
Date with respect to such Advance; provided further, that the Lender shall
have the option, in its sole discretion, to extend the Maturity Date of an
Advance from time to time for a period of up to thirty (30) days by
delivering to the Borrower notice of such election in the form of Exhibit F
attached hereto no later than thirty (30) days preceding the then scheduled
Maturity Date of such Advance; provided further, that if the Lender chooses
to extend the Maturity Date of an Advance and such Maturity Date is a date
later than the Termination Date of this Agreement, then the Borrower shall
deliver to the Lender an endorsement in the form of Exhibit G attached
hereto. If no such notice or endorsement, as applicable, is delivered to
the Lender, such Advance shall automatically become due and payable without
any further action by the Lender on its respective Maturity Date, and in
such event the Lender may exercise all rights and remedies available to it
as the holder of a first perfected security interest under the Uniform
Commercial Code as in effect in the State of California (the "California
UCC"). The extension of the Maturity Date of any Advance beyond the
Termination Date of this Agreement shall not be deemed to be an extension or
renewal, beyond such Termination Date, of the Lender's obligations to lend
to the Borrower under this Agreement, and the Borrower's obligations in
respect of an Advance so extended shall survive the termination of this
Agreement.
(d) Interest shall be calculated on the basis of a 360 day year
comprised of twelve 30-day months, and paid for the actual number of days
elapsed. Interest is due and payable on the fifth day (or if such day is
not a Business Day, the first Business Day thereafter) of each calendar
month (the "Interest Payment Date") with respect to all Advances outstanding
during the previous calendar month.
(e) Advances are prepayable at any time without premium or penalty,
in whole or in part. Any amounts prepaid shall be applied to repay the
outstanding principal amount of any Advances until paid in full. Amounts
repaid may be borrowed in accordance with the terms of this Agreement.
(f) If an Advance is not repaid in full on the date when due such
Advance shall, commencing on such date, bear interest at a rate per annum
equal to eleven percent (11.00%) per annum for the period from and including
the due date thereof to but excluding the date the same is paid in full.
All such interest shall be payable on demand.
-3-
<PAGE>
(g) The Advances shall be evidenced collectively by the secured
promissory note of the Borrower in the form attached hereto as Exhibit A
(the "Secured Note"). The Lender is authorized to record the date and
amount of each Advance and the date and amount of each repayment of
principal thereof on the schedule annexed to the Secured Note and any such
recordation shall be conclusive evidence of the accuracy of the amounts so
recorded (absent manifest error); provided, that the failure of the Lender
to make such recordation (or any error in such recordation) shall not affect
the rights and obligations of the Borrower hereunder or under the Secured
Note.
(h) Each Advance shall be repaid in full on the related Maturity
Date, and the Lender shall release its security interest in the Mortgage
Loans when the Advances are so repaid.
(i) If an Advance is not repaid in full when due, thereafter all
payments and prepayments of the related Mortgage Loans shall be paid to the
Lender as promptly as practicable following receipt of such payments but in
any event no later than fifteen days following Borrower's receipt thereof.
(j) If at any time the outstanding principal amount of the aggregate
of all Advances exceeds the lesser of the following:
(i) the aggregate market value of Mortgage Loans held as
Collateral (such amount not to exceed the par amount thereof), and
(ii) the aggregate par amount of Mortgage Loans held as
Collateral, in each case as determined by the Lender and notified to
the Borrower on the third business day of each week (or, in the sole
discretion of the Lender following notice to the Borrower, on any
Business Day), the Borrower shall no later than one Business Day after
receipt of notice of such excess and written demand by Lender, either
prepay such Advances (together with interest thereon) in part or in
whole or pledge additional Collateral (as hereinafter defined) to the
Lender, such that after giving effect to such prepayment or pledge the
unpaid principal amount of such Advances does not exceed such lesser
amount.
(k) If more than one monthly installment of a Mortgage Loan is
delinquent as of the end of any calendar month, the Borrower shall prepay
the amount of the Advances made in respect of such Mortgage Loan or pledge
one or more replacement Mortgage Loans having an aggregate unpaid principal
amount of not less than the principal amount of such delinquent Mortgage
Loan and otherwise meeting the requirements of this Agreement.
(l) Notwithstanding anything to the contrary in this Agreement, the
Lender shall have no obligation to make any Advance hereunder if (i) the
Lender is unable, after good faith effort, to obtain a source of funds for
the proposed Advance on substantially the same economic terms as are
available to the Lender as of the date of this Agreement, or (ii) there
shall have occurred any material adverse change in (A) the financial
condition of the Lender, (B) the financial markets generally or (C) the
secondary market for mortgage loans or mortgage-related securities. The
Lender shall promptly notify the Borrower of any such determination by the
Lender.
-4-
<PAGE>
(m) No Advance shall be made in respect of any Mortgage Loans unless,
if requested by the Lender, the Lender shall have reviewed a sample of the
Mortgage Loans to be funded by such Advance and been satisfied in its sole
discretion with the results of such review.
(n) No Advance shall be made in respect of a Mortgage Loan if the
aggregate principal amount of all Advances previously made and outstanding
in respect of Mortgage Loans, together with the amount of the Advance to be
made, exceeds $5,000,000.
SECTION 3. PURPOSE AND DISBURSEMENT OF FUNDS ADVANCED. Each Advance
shall be used to originate six-month LIBOR-indexed first mortgage loans and
fixed-rate first mortgage loans and such other loans (the "Mortgage Loans").
All Advances shall be disbursed by the Lender in accordance with wiring
instructions accompanying the daily Notice of Borrowing. For purposes of
this Agreement, "LIBOR" shall mean the London Interbank Offered Rate for the
corresponding number of months on the date of determination.
SECTION 4. NO COMMITMENT TO EXTEND MATURITY DATE OR TERMINATION DATE.
The Lender shall have no obligation hereunder to extend the Maturity Date of
any Advance or the Termination Date hereunder, and the Borrower expressly
waives, and agrees not to assert, any claim or cause of action the Borrower
may have in respect of any determination by the Lender not to extend the
Maturity Date of any Advance or the Termination Date hereunder.
SECTION 5. DELIVERY OF MORTGAGE LOAN DOCUMENTS. In connection with
each Advance the Borrower shall deliver, or heretofore has delivered, to
Lender, the documents and instruments listed in Schedule 1 hereto, all such
documents and instruments evidencing and relating to the Mortgage Loans
(collectively, the "Mortgage Loan Documents"), together with all computer
records and tapes relating thereto, and any proceeds thereof, being
hereinafter referred to as the "Collateral." Lender shall upon receipt
thereof review such Mortgage Loan Documents and identify any deficiencies in
such Mortgage Loan Documents as so reviewed.
SECTION 6. GRANT OF SECURITY INTEREST. The Borrower hereby pledges
and grants a security interest in all of its respective right, title and
interest in and to the Collateral to the Lender to secure the repayment of
principal of and interest on all Advances and all other amounts owing to the
Lender hereunder (collectively, the "Secured Obligations"). The Borrower
agrees to mark its computer records and tapes to evidence the security
interests granted to the Lender hereunder.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
(a) The Borrower represents and warrants to the Lender that:
(i) It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of California.
(ii) It is duly licensed as a licensee or is otherwise qualified
in each state in which it transacts business and is not in default of
such state's applicable laws, rules and regulations. It has the
requisite power and authority and legal right to own and grant a lien
on all of its right, title and interest in and to the Collateral, and
to execute and deliver, engage in the transactions contemplated by, and
perform and observe the terms and conditions of, this Agreement and the
Secured Note.
-5-
<PAGE>
(iii) It is solvent and is not in default under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money, and the execution, delivery and
performance by it of this Agreement and the Secured Note do not
conflict with any term or provision of its articles of incorporation or
bylaws or any law, rule, regulation, order, judgment, writ, injunction,
or decree applicable to any of them of any court, regulatory body,
administrative agency or governmental body having jurisdiction over it
and will not result in any violation of any such mortgage, instrument
or agreement.
(iv) All financial statements and certificates of the Borrower
or any of its officers furnished to the Lender are true and complete
and do not omit to disclose any material liabilities or other facts
relevant to the Borrower's condition. All such financial statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied. No financial statement or other
financial information as of a date later than December 31, 1996 has
been furnished by the Borrower to any lender that has not been
furnished to the Lender.
(v) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or
court is required under applicable law in connection with the
execution, delivery and performance by it of this Agreement or the
Secured Note, where the failure to obtain any of the foregoing would
materially adversely affect the business, operations, property or
financial condition of the Borrower taken as a whole, the ability of
the Borrower to perform its obligations under this Agreement or the
Secured Note or the validity or enforceability of this Agreement or the
Secured Note, except as have been obtained and are in full force and
effect.
(vi) There is no action, proceeding or investigation pending or,
to the best of its knowledge, threatened against it before any court,
administrative agency or other tribunal (A) asserting the invalidity of
this Agreement or the Secured Note, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or the Secured Note, or (C) which might materially and adversely affect
the validity of the Mortgage Loans or the performance by it of its
obligations under, or the validity or enforceability of, this Agreement
or the Secured Note.
(vii) There has been no material adverse change in the business,
operations, financial condition, properties or prospects of the
Borrower since December 31, 1996.
(viii) This Agreement and the Secured Note have each been duly
authorized, executed and delivered by the Borrower, all requisite
corporate action having been taken, and each is legal, valid and
binding and enforceable against the Borrower in accordance with its
terms.
(b) With respect to every Mortgage Loan for which Mortgage Loan
Documents are delivered to the Lender, the Borrower warrants to the Lender
that:
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<PAGE>
(i) Such Mortgage Loan and all accompanying documents are
complete and authentic and all signatures thereon are genuine.
(ii) Such Mortgage Loan arose from a bona fide loan, complying
with all applicable State and Federal laws and regulations, to persons
having legal capacity to contract and is not subject to any defense,
set-off or counterclaim.
(iii) All amounts represented to be payable on such Mortgage
Loan are, in fact, payable in accordance with the provisions of such
Mortgage Loan.
(iv) No monetary default has occurred in any provisions of such
Mortgage Loan that has or will cause a prepayment of Advances made in
respect of such Mortgage Loan pursuant to Section 2(k) hereof, and no
non-monetary default has occurred with respect to any provisions of
such Mortgage Loan.
(v) To the best of the Borrower's knowledge, any property
subject to any security interest given in connection with such Mortgage
Loan is not subject to any encumbrance other than a stated first or
second mortgage.
(vi) The Borrower held good and indefeasible title to, and was
the sole owner of, such Mortgage Loan subject to no liens, charges,
mortgages, participations, encumbrances or rights of others or other
liens released simultaneously with such pledge.
(vii) Each Mortgage Loan has been originated according to
Borrower's underwriting guidelines previously provided to Lender, and
conforms to the description thereof as set forth on the related
Mortgage Loan Schedule.
(viii) All disclosures required by Regulation Z of the Board of
Governors of the Federal Reserve System promulgated pursuant to the
statute commonly known as the Truth-in-Lending Act and the Notice of
the Right to Cancel required by said statute and regulation have been
properly made and given.
(ix) None of the Mortgage Loans repurchased by the Borrower from
lenders were repurchased because such Mortgage Loans were in default to
such other lenders.
(x) Upon receipt by the Lender of the Collateral with respect to
any Mortgage Loan and for so long as the Lender maintains actual
physical possession of such Collateral, the Lender shall have a fully-
perfected first priority security interest in such Collateral;
provided, however, that until such time as assignments of mortgage with
respect to the Mortgage Loans are recorded in the appropriate office in
the name of the Lender, (A) the Lender may not be able to enforce a
mortgage against the related mortgage property or the related
mortgagor, (B) the Borrower could record an assignment of such mortgage
in the name of a third party or record a discharge and satisfaction of
such mortgage with the result that, in the former case such third party
could acquire the rights represented by such mortgage and, in the
latter case, the lien of such mortgage could be discharged, with the
result that such mortgage note would no longer be secured by the
related property, and (C) any notice which may be given to the record
holder of a mortgage including, without limitation, notice regarding
the non-payment of real estate taxes, would instead be given to the
Borrower.
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<PAGE>
(xi) All payments required to be made through the related
Funding Date for each Mortgage Loan have been made and credited, and no
payment required under any Mortgage Loan was more than sixty (60) days
past due as of the Funding Date for such Mortgage Loan.
(xii) The additional representations and warranties set forth in
Schedule 2 attached hereto are true and correct with respect to each
Mortgage Loan.
SECTION 8. RIGHTS OF LENDER; LIMITATIONS ON LENDER'S OBLIGATIONS.
(a) Anything herein to the contrary notwithstanding, the Borrower
shall remain liable under each of the Mortgage Loan Documents to which it is
a party to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant
to the terms and provisions of each such Mortgage Loan Document. The Lender
shall not have any obligation or liability under any Mortgage Loan Document
by reason of or arising out of this Agreement or the receipt by the Lender
of any payment relating to such Mortgage Loan Document pursuant hereto, nor
shall the Lender be obligated in any manner to perform any of the
obligations of the Borrower under or pursuant to any Mortgage Loan Document,
to make any payment, to make any inquiry as to the nature or the sufficiency
of any payment received by it or as to the sufficiency of any performance by
any party under any Mortgage Loan Document, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.
(b) Upon the request of the Lender at any time after the occurrence
and during the continuance of an Event of Default, the Borrower shall notify
parties to the Mortgage Loan Documents to which it is a party that the
Mortgage Loan Documents have been assigned to the Lender and that payments
in respect thereof shall be made directly to the Lender. The Lender may in
its own name or in the name of others communicate with parties to the
Mortgage Loan Documents to verify with them to its satisfaction the
existence, amount and terms of any Mortgage Loan Documents.
SECTION 9. COVENANTS. The Borrower covenants and agrees with the
Lender that, from and after the date of this Agreement until the obligations
of the Borrower hereunder and under the Secured Note are paid in full:
(a) FURTHER DOCUMENTATION. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrower,
the Borrower will promptly and duly execute and deliver such further
instruments and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction
with respect to the security interests created hereby and the delivery to
the Lender of any reports or notices provided to the Borrower by the
Subservicer (as defined below) in connection with the Mortgage Loans. The
Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
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<PAGE>
(b) LIMITATION ON LIENS ON COLLATERAL. The Borrower will not, nor
will it permit or allow the Subservicer to, create, incur or permit to
exist, will defend the Collateral against, and the Borrower will take such
other action as is necessary to remove, any lien, security interest or claim
on or to the Collateral, other than the security interests created hereby,
and will defend the right, title and interest of the Lender in and to any of
the Collateral against the claims and demands of all persons whomsoever.
(c) LIMITATIONS ON MODIFICATIONS, WAIVERS AND EXTENSIONS OF
CONTRACTS. The Borrower will not, nor will it permit the Subservicer to,
(i) amend, modify, terminate or waive any provision of any Mortgage Loan
Document to which the Borrower is a party in any manner which could
reasonably be expected to materially adversely affect the value of such
Mortgage Loan Document as Collateral, (ii) fail to exercise promptly and
diligently each and every material right which the Borrower may have under
each such Mortgage Loan Document (other than any right of termination) where
the failure to so act could materially adversely affect the Collateral
relating to such Mortgage Loan Document or (iii) fail to deliver to the
Lender a copy of each material demand, notice or document received by it
relating in any way to any such Mortgage Loan Document other than any such
demand, notice or document relating to the delinquency of a Mortgage Loan or
the bankruptcy of the obligor thereunder.
(d) CHANGE IN UNDERWRITING GUIDELINES. The Borrower will provide
Lender with a copy of any changes to its underwriting guidelines prior to
the effectiveness thereof, and will not make any adverse changes to such
guidelines without Lender's prior written consent.
(e) FURTHER IDENTIFICATION OF COLLATERAL. The Borrower will furnish
to the Lender from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
(f) LIMITATION ON DELINQUENCIES. The Borrower will not permit or
allow any payment under any Mortgage Loan to become more than sixty (60)
days past due.
(g) LIMITATION ON FORECLOSURES. The Borrower will not, nor will it
permit or allow the Subservicer to, take title to real estate mortgaged in
connection with a Mortgage Loan, whether by means of a foreclosure action
(judicial or non-judicial), acceptance of a deed in lieu of foreclosure, or
any voluntary transfer, without the express written consent of the Lender.
(h) LIMITATION ON COLLECTION ACCOUNT. The Borrower will not permit
or allow the Subservicer to establish a "collection account" with a
financial institution other than one acceptable to the Lender in the
exercise of its reasonable discretion.
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<PAGE>
(i) NO VIOLATION OF LAWS. At all times after the Lender's receipt of
Mortgage Loan Documents from the Borrower and until payment in full of all
Advances, the Borrower will not commit any act in violation of applicable
laws, or regulations promulgated pursuant thereto.
(j) NOTICES. The Borrower will notify the Lender promptly, in
reasonable detail and in accordance with Section 24 of this Agreement, (i)
of any lien or security interest (other than security interests created
hereby) on, or claim asserted against, any of the Collateral; (ii) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on either (A) the business, operations, financial
condition, properties or prospects of Borrower or any subsidiary of
Borrower, (B) Borrower's ability to perform its obligations under this
Agreement or the Secured Note, or (C) the aggregate value of the Collateral
or on the security interests created hereunder; and (iii) of the existence
of circumstances requiring the Borrower, or permitting the Lender to require
the Borrower, to prepay the Advances pursuant to Section 2(j), Section 2(k),
Section 10(b) or Section 16 hereof.
SECTION 10. REPAYMENT OF ADVANCES IF MORTGAGE LOAN FOUND DEFECTIVE.
(a) Upon discovery by the Borrower or the Lender of any breach of any
of the representations and warranties listed in Section 7 hereof, the party
discovering such breach shall promptly give notice of such discovery to the
other.
(b) The Lender has the right to require, in its unreviewable
discretion, the Borrower to prepay the amount of any Advance made in respect
of any Mortgage Loan which breaches one or more of the representations and
warranties listed in Section 7(b) hereof, no later than five Business Days
after notice from the Lender to the Borrower of such breach.
SECTION 11. RELEASE OF MORTGAGE FILES FOLLOWING PAYMENT OF SECURED
OBLIGATIONS. The Lender agrees to deliver the documents and instruments
held by the Lender pursuant to Section 5 hereof upon request of the Borrower
upon payment in full of the Secured Obligations.
SECTION 12. SERVICING. The Borrower shall, or shall cause the
Subservicer to, service the Mortgage Loans in accordance with the standards,
covenants and terms set forth in Schedule 4 attached hereto. The term
"Subservicer" means a subservicer, satisfactory to the Lender, which
provides subservicing pursuant to a written agreement in form and substance
satisfactory to Lender. The Borrower will not, nor will it permit or allow
the Subservicer to, amend or modify such written agreement without the
express written consent of the Lender, which consent shall not be
unreasonably withheld.
SECTION 13. NO ORAL MODIFICATIONS; SUCCESSORS AND ASSIGNS. No
provisions of this Agreement shall be waived or modified except by a writing
duly signed by the authorized agents of the Lender and the Borrower. This
Agreement shall be binding upon the successors and assigns of the parties
hereto.
SECTION 14. WEEKLY AGING REPORT. The Borrower shall provide the
Lender, on the first Business Day of each week, with an accurate listing of
each Mortgage Loan maintained in the warehouse facility as of the last day
of the previous week. Such Weekly Aging Report shall be substantially in
the form set forth in Exhibit H attached hereto.
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<PAGE>
SECTION 15. EVENTS OF DEFAULT. Each of the following shall constitute
an event of default (an "Event of Default") hereunder (a "Default" being any
of the following whether or not any requirement for the giving of notice,
the lapse of time, or both, has been satisfied):
(a) Failure of the Borrower to make any payment of interest or
principal or any other sum which has become due, whether by acceleration or
otherwise, under the terms of the Secured Note, this Agreement or any other
document evidencing or securing indebtedness of the Borrower to the Lender;
(b) Failure of the Borrower to prepay Advances or pledge additional
Collateral when required to do so pursuant to Section 2(j), Section 10(b) or
Section 16 hereof;
(c) Failure of the Borrower to observe or perform any other agreement
contained in this Agreement thirty (30) days after notice from the Lender of
such failure to observe or perform;
(d) Any representation or warranty made by the Borrower herein in
connection with any Advance made hereunder or in any certificate, document
or financial or other statement furnished at any time under or in connection
with this Agreement, shall prove to have been incorrect in any material
respect on or as of the date made;
(e) Assignment or attempted assignment by the Borrower of this
Agreement or any rights hereunder, without first obtaining the specific
written consent of Lender, or the granting by the Borrower of any security
interest, lien or other encumbrance on any Collateral to other than the
Lender;
(f) The filing by or against the Borrower or any subsidiary of the
Borrower of a petition for liquidation, reorganization, arrangement or
adjudication as a bankrupt or similar relief under the bankruptcy,
insolvency or similar laws of the United States or any state or territory
thereof or of any foreign jurisdiction; the failure of the Borrower or such
subsidiary to secure dismissal of any such petition filed against it within
thirty (30) days of such filing; the making of any general assignment by the
Borrower or any subsidiary for the benefit of creditors; the appointment of
a receiver or trustee for the Borrower or any subsidiary, or for any part of
the Borrower or such subsidiary's assets; the institution by the Borrower or
any subsidiary of any other type of insolvency proceeding (under the
Bankruptcy Code or otherwise) or of any formal or informal proceeding, for
the dissolution or liquidation of, settlement of claims against, or winding
up of the affairs of, the Borrower or any subsidiary; the institution of any
such proceeding against the Borrower or any subsidiary if the Borrower or
such subsidiary shall fail to secure dismissal thereof within thirty (30)
days thereafter; the consent by the Borrower or any subsidiary to any type
of insolvency proceeding against the Borrower or such subsidiary (under the
Bankruptcy Code or otherwise); the occurrence of any event or existence of
any condition which could be the ground, basis or cause for any proceeding
or petition described in this Section 15(f);
(g) Any materially adverse change in the business, operations,
financial condition, properties or prospects of the Borrower or of any
subsidiary as determined by the Lender in its discretion or the existence of
any other condition which, in the Lender's determination, constitutes an
impairment of the Borrower's or such subsidiary's ability to perform their
obligations under this Agreement or the Borrower's obligations under the
Secured Note;
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<PAGE>
(h) Guarantors shall cease to collectively own, directly or
indirectly, 100% of the outstanding shares of capital stock having voting
power for the election of directors of Borrower, whether at all times or
only so long as no senior class of stock has such voting power because of
default in dividends or other default, or shall otherwise cease to control,
the Borrower; and
(i) Failure by the Borrower or the Subservicer to service the
Mortgage Loans in substantial compliance with servicing requirements
approved by Lender.
SECTION 16. REMEDIES UPON DEFAULT.
(a) Upon the happening of one or more Events of Default, the Lender
may immediately declare the principal of all Advances under the Secured Note
then outstanding to be immediately due and payable, together with all
interest thereon and fees and expenses accruing under this Agreement;
provided, that upon the occurrence of the Event of Default referred to in
Section 15(f), such amounts shall immediately and automatically become due
and payable without any further action by any person or entity. Upon such
declaration or such automatic acceleration, the balance then outstanding
shall become immediately due and payable without presentation, demand or
further notice of any kind to the Borrower.
(b) Upon the happening of one or more Events of Default, the Lender
shall have the right to retain physical possession of all files of the
Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come into the possession of the
Borrower or any third party acting for the Borrower, and the Borrower shall
deliver to the Lender such assignments of mortgage as the Lender shall
request. The Lender shall be entitled to specific performance of all
agreements of the Borrower contained in this Agreement.
(c) Upon the happening of one or more Events of Default, the Lender
shall have the right to collect and receive all further payments made on the
Collateral, and if any such payments are received by the Borrower, the
Borrower shall not commingle the amounts received with other funds of the
Borrower and shall promptly pay them over to the Lender. In addition, the
Lender shall have the right to dispose of the Collateral as provided herein,
or as provided in the other documents executed in connection herewith, or in
any commercially reasonable manner, or as provided by law. The Lender shall
be entitled to place the Mortgage Loans which it recovers after any default
in a pool for issuance of asset-backed securities at the then-prevailing
price for such securities and to sell such securities for such prevailing
price in the open market as a commercially reasonable disposition of
collateral subject to the applicable requirements of the California UCC.
The Lender shall also be entitled to sell any or all of such Mortgage Loans
individually for the prevailing price as a commercially reasonable
disposition of collateral subject to the applicable requirements of the
California UCC. The specification in this Section 16 of manners of
disposition of collateral as being commercially reasonable shall not
preclude the use of other commercially reasonable methods at the option of
the Lender. Upon disposition of the Collateral and repayment in full to the
Lender of all amounts owing hereunder plus the reasonable expenses incurred
(including fees and expenses of its counsel), the Lender shall promptly
remit any remaining proceeds to the Borrower or as required by law or as a
court of competent jurisdiction shall direct.
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<PAGE>
SECTION 17. INDEMNIFICATION AND EXPENSES.
(a) The Borrower shall hold the Lender harmless from and indemnify
the Lender against all liabilities, losses, damages, judgments, costs and
expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender relating to or arising out of this Agreement or the
Secured Note, any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or
in respect of this Agreement or the Secured Note, or any transaction
contemplated hereby or thereby, resulting from anything other than the
Lender's gross negligence or willful misconduct. In any suit, proceeding or
action brought by the Lender in connection with any Mortgage Loan Document
for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan Document, the Borrower will save, indemnify and keep the Lender
harmless from and against all expense, loss or damage suffered by reason of
any defense, set-off, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by the
Borrower of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such obligor
or its successors from the Borrower. The Borrower also agrees to reimburse
the Lender for all its costs and expenses incurred in connection with the
enforcement or the preservation of the Lender's rights under this Agreement
or the Secured Note, or any transaction contemplated hereby or thereby
including, without limitation, the reasonable fees and disbursements of
counsel. The Borrower hereby acknowledges that, notwithstanding the fact
that the Secured Note is secured by the Collateral, the obligation of the
Borrower under the Secured Note is a recourse obligation of the Borrower.
(b) The Borrower agrees to pay when billed by the Lender all of the
out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to this Agreement or the Secured Note, or any other documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby
including, without limitation, (i) all the reasonable fees, disbursements
and expenses of Lender's counsel, and (ii) all the reasonable due diligence,
inspection, testing, and review costs and expenses incurred by the Lender
(or a third-party contract underwriter that is both acceptable to the Lender
and is acting on behalf of the Lender), with respect to Mortgage Loans
pledged as Collateral under this Agreement.
(c) The Borrower's agreements in this Section 17 shall survive the
payment in full of the Advances and the expiration or termination of this
Agreement.
SECTION 18. POWER OF ATTORNEY. The Borrower hereby authorizes the
Lender (without requiring the Lender), at the Borrower's expense, to file
such financing statement or statements relating to the Collateral without
the Borrower's signature thereon as the Lender at its option may deem
appropriate, and appoints the Lender as the Borrower's attorney-in-fact to
execute any such financing statement or statements in the Borrower's name
and to perform all other acts which the Lender deems appropriate to perfect
and continue the security interest granted hereby and to protect, preserve
and realize upon the Collateral, including, but not limited to, the right to
endorse notes, complete blanks in documents and sign assignments on behalf
of the Borrower as its attorney-in-fact. This Power of Attorney is coupled
with an interest and is irrevocable without the Lender's consent.
Notwithstanding the foregoing, the power of attorney hereby granted shall
only be effective during the occurrence and continuance of any Event of
Default hereunder.
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<PAGE>
SECTION 19. AGREEMENT CONSTITUTES SECURITY AGREEMENT. This Agreement
is intended by the parties hereto to be governed by California law, and to
constitute a security agreement within the meaning of the California UCC.
SECTION 20. NO DUTY ON LENDER'S PART. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the
Collateral and shall not impose any duty upon it to exercise any such
powers. The Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and neither it nor any
of its officers, directors, employees, shareholders or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except
for its own gross negligence or willful misconduct.
SECTION 21. LIMITATION ON DUTIES REGARDING PRESENTATION OF COLLATERAL.
The Lender's sole duty with respect to the custody, safekeeping and physical
preservation of any Collateral in its possession, under Section 9-207 of the
Uniform Commercial Code or otherwise, shall be to deal with it in the same
manner as the Lender deals with similar property for its own account.
Neither the Lender nor any of its directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any
part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request
of the Borrower or otherwise.
SECTION 22. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers are coupled with an interest.
SECTION 23. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 24. NOTICES. All written communications hereunder shall be
mailed, telecopied or delivered to the respective addresses as listed below
or to such other address as shall be designated by a party in a written
notice to the other party. All such notices and communications shall be
effective when delivered to the party to which such notice is to be given.
If to Lender:
First Alliance Mortgage Company
17305 Von Karman
Irvine, California 92614-6203
Attention: Cassandra Fraulino
Telecopy: (714) 224-8366
Telephone: (714) 224-8357
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<PAGE>
If to Borrower:
Nationscapital Mortgage Company
1045 W. Katella, #200
Orange, California 92667
Attention: Jamie Chisick
Telecopy: (714) 516-4567
Telephone: (714) 639-2700
SECTION 25. RIGHT OF FIRST REFUSAL. In consideration of Lender's
agreement to provide Advances as set forth in this Agreement, Borrower
hereby grants to Lender a right of first refusal to purchase all Mortgage
Loans with respect to which Advances are made hereunder, pursuant to which
no such Mortgage Loan shall be sold by Borrower to any third party (except
one from whom an Unconditional Commitment Letter has been obtained) without
Lender's consent, such consent not to be unreasonably withheld. Such
purchases shall be made pursuant to and in accordance with that certain
Mortgage Loan Purchase and Sale Agreement dated as of July 1, 1996 between
Borrower and Lender, as the same may from time to time be amended.
SECTION 26. CERTAIN DEFINITIONS. The following capitalized terms are
defined in the corresponding sections specified below:
"Advance" - Section 1.
"Agreement" - Introductory Clause.
"Borrower" - Introductory Clause.
"Business Day" - Section 1.
"California UCC" - Section 2(c).
"Collateral" - Section 5.
"Default"- Section 15.
"Event of Default" - Section 15.
"Funding Date" - Section 1.
"Funding Period" - Section.
"Guarantor" - Introductory Clause.
"Guaranty" - Section 1.
"Interest Payment Date" - Section 2(d).
"Lender" - Introductory Clause.
"LIBOR" - Section 3.
"Maturity Date" - Section 2(c).
"Maximum Funding Amount" - Section 1.
"Mortgage Loan Documents" - Section 5.
"Mortgage Loans" - Section 3.
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<PAGE>
"Notice of Borrowing" - Section 2(b).
"Secured Note" - Section 2(g).
"Secured Obligations" - Section 5.
"Termination Date" - Section 2(a).
"Third Party Buyer" - Section 2(b).
"Unconditional Commitment Letter" - Section 2(b).
SECTION 27. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
SECTION 28. NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by
any act (except by a written instrument pursuant to Section 13 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right
or remedy hereunder or to have acquiesced in any Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any right, or power
or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Lender of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy
which the Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by
law.
SECTION 29. ASSIGNMENT. Borrower may not assign its rights or
delegate its obligations under this Agreement without the express written
consent of the Lender. The Lender may assign its rights and obligations
hereunder to any affiliate of the Lender upon written notice thereof to the
Borrower.
SECTION 30. HYPOTHECATION OR PLEDGE OF COLLATERAL. Nothing in this
Agreement shall preclude the Lender from engaging in repurchase transactions
with any of the Collateral or otherwise pledging, repledging, hypothecating,
or rehypothecating any of the Collateral, but no such transaction shall
relieve the Lender of its obligations to the Borrower under this Agreement
with respect to the Collateral.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Borrower: NATIONSCAPITAL MORTGAGE COMPANY
By:_____________________________
Name: Jamie Chisick
Title: President
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Lender: FIRST ALLIANCE MORTGAGE COMPANY
By:_____________________________
Name: Mark K. Mason
Title: Executive Vice President,
Chief Financial Officer
Guarantor: ________________________________
Jamie Chisick
Guarantor: ________________________________
Brad Chisick
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<PAGE>
INTERIM WAREHOUSE AND SECURITY AGREEMENT
----------------------------------------
This INTERIM WAREHOUSE AND SECURITY AGREEMENT, dated as of February
15, 1997 (as amended or otherwise modified from time to time, this
"Agreement"), is entered into between FIRST ALLIANCE MORTGAGE COMPANY (the
"Lender"), a California corporation, and COAST SECURITY MORTGAGE, INC. (the
"Borrower"), a California corporation, and MARK CHISICK and BRAD CHISICK
(each a "Guarantor" and, collectively, the "Guarantors"), shareholders of
the Borrower.
WHEREAS, the Lender has agreed, subject to the terms and conditions
contained herein, to provide interim funding from time to time to finance
the origination of Mortgage Loans (as defined herein).
NOW, THEREFORE, the parties to this Agreement hereby agree as follows
(an index of certain capitalized, defined terms appears in Section 26 of
this Agreement):
SECTION 1. THE ADVANCES. Subject to the terms of this Agreement, the
Lender agrees to lend to the Borrower from time to time in an aggregate
principal amount not to exceed at any one time outstanding an amount (the
"Maximum Funding Amount") equal to (i) for the period from the date hereof
to and including the initial Termination Date, $10,000,000, and (ii) if the
Termination Date is extended in accordance with Section 2(a) hereof, for
each subsequent Funding Period the amount specified in the Notice of
Extension of Agreement delivered in accordance herewith in respect of such
Funding Period, to be made in one or more advances (each an "Advance" and,
collectively, "Advances"). Each Advance shall be made on a date other than
a Saturday, Sunday or other day on which banks in Los Angeles, California
are authorized or required by law to be closed (each such date, a "Business
Day") that is prior to the Termination Date (each such date on which an
Advance is made, a "Funding Date"); provided that:
(a) the representations and warranties of the Borrower in Section 7
hereof shall be true and correct on and as of such Funding Date as if made
on and as of such date;
(b) no Default or Event of Default shall have occurred and be
continuing or would exist after the making of any Advance on such Funding
Date;
(c) if requested by the Lender, the Lender shall have conducted a due
diligence review of the mortgage files relating to the Mortgage Loans, the
results of which shall have been satisfactory to the Lender;
(d) the Lender shall have received, in connection with the first
Advance, (A) a legal opinion from counsel to the Borrower, in the form of
Exhibit C attached hereto, and (B) the Secured Note (as defined below) duly
executed by the Borrower;
(e) the Borrower shall have delivered to the Lender all documents to
be delivered with respect to the Mortgage Loans being pledged on such
Funding Date, including without limitation the information specified in
Schedule 1 with respect to each Mortgage Loan;
<PAGE>
(f) The Lender shall have ascertained that there are no material
deficiencies with respect to the Mortgage Loan Documents (as defined below)
related to such Advance, by no later than 5:00 p.m. two Business Days
before such Funding Date;
(g) the Lender shall have received a guaranty (the "Guaranty")
substantially in the form set forth in Exhibit I attached hereto, fully
executed by each shareholder of Borrower;
(h) the Lender shall have received a copy of the Mortgage Loan
Subservicing Agreement, if any, in respect of the Mortgage Loans relating to
such Advance, which Mortgage Loan Subservicing Agreement shall be in form
and substance acceptable to the Lender;
(i) each rescission period, under applicable federal, state or local
law, in respect of the Mortgage Loans being pledged in connection with the
Advance being made on such Funding Date shall have expired, and the Lender
shall have received evidence satisfactory to it to that effect; and
(j) any general conditions for the making of Advances, specified in
Section 2 below, have been satisfied and will continue to be satisfied if
such Advance is made.
SECTION 2. TERMS AND CONDITIONS FOR ALL ADVANCES.
(a) Each outstanding Advance shall mature on the related Maturity
Date (as defined below), and the obligation of the Lender to make any
Advances hereunder shall terminate, on July 31, 1998 (the "Termination
Date"); provided, that the Termination Date may be extended from time to
time, in the sole and absolute discretion of the Lender, upon (i) the
execution and delivery by the parties hereto of (A) a Notice of Extension of
Agreement substantially in the form of Exhibit B-1 attached hereto, and (B)
an Endorsement to the Secured Note, substantially in the form of Exhibit B-2
and (ii) the delivery of an opinion of counsel to the Borrower substantially
in the form of Exhibit B-3 attached hereto; provided further, that such an
extension alone shall not be deemed an Event of Default hereunder.
(b) (i) If the Borrower wishes to receive an Advance in respect of
Mortgage Loans, then the Borrower shall give the Lender written notice
by no later than 12:00 p.m. two Business Days prior to the Funding Date
for such Mortgage Loans of the amount of such Advance to be advanced on
such Funding Date by delivering a Notice of Borrowing substantially in
the form of Exhibit D attached hereto ("Notice of Borrowing");
provided, that the Lender may, in its sole discretion, require, for any
one or more such Mortgage Loans, that as a condition precedent to
making an Advance with respect thereto the Borrower provide a written
confirmation of a guarantee to purchase the related Mortgage Loan
subsequent to the Funding Date ("Unconditional Commitment Letter"), in
the form of Exhibit E attached hereto. The Unconditional Commitment
Letter shall be provided to the Borrower by any entity which delivers
to the Borrower an Unconditional Commitment Letter prior to the Funding
Date and purchases the related Mortgage Loan(s) subsequent to the
Funding Date ("Third Party Buyer"). Lender shall, by the end of the
Business Day on which it receives a Notice of Borrowing, advise
Borrower of any Mortgage Loan(s) for which Unconditional Commitment
Letter(s) will be so required and which were not provided with the
Notice of Borrowing, and the Funding Date with respect thereto shall be
made as a separate Advance within two Business Days of the date on
which the Unconditional Commitment Letter(s) is/are provided as
required herein.
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<PAGE>
(ii) Each Advance shall bear interest from the related Funding
Date to but excluding the earlier of the date of its prepayment or the
Maturity Date, at a rate per annum equal to ten percent (10.00%) per
annum.
(c) Each outstanding Advance shall mature on the Related Maturity
date specified for such Advance as set forth in the related Notice of
Borrowing (the "Maturity Date"); provided, that the Maturity Date shall,
subject to the second succeeding proviso hereto, for any Advance be no later
than the earlier of (A) the Termination Date, (B) the date upon which the
Mortgage Loans funded by such Advance shall be sold to a Third Party Buyer
(but only with respect to that portion of the Advance related to Mortgage
Loans so sold), or (C) the date which is ninety (90) days after the Funding
Date with respect to such Advance; provided further, that the Lender shall
have the option, in its sole discretion, to extend the Maturity Date of an
Advance from time to time for a period of up to thirty (30) days by
delivering to the Borrower notice of such election in the form of Exhibit F
attached hereto no later than thirty (30) days preceding the then scheduled
Maturity Date of such Advance; provided further, that if the Lender chooses
to extend the Maturity Date of an Advance and such Maturity Date is a date
later than the Termination Date of this Agreement, then the Borrower shall
deliver to the Lender an endorsement in the form of Exhibit G attached
hereto. If no such notice or endorsement, as applicable, is delivered to
the Lender, such Advance shall automatically become due and payable without
any further action by the Lender on its respective Maturity Date, and in
such event the Lender may exercise all rights and remedies available to it
as the holder of a first perfected security interest under the Uniform
Commercial Code as in effect in the State of California (the "California
UCC"). The extension of the Maturity Date of any Advance beyond the
Termination Date of this Agreement shall not be deemed to be an extension or
renewal, beyond such Termination Date, of the Lender's obligations to lend
to the Borrower under this Agreement, and the Borrower's obligations in
respect of an Advance so extended shall survive the termination of this
Agreement.
(d) Interest shall be calculated on the basis of a 360 day year
comprised of twelve 30-day months, and paid for the actual number of days
elapsed. Interest is due and payable on the fifth day (or if such day is
not a Business Day, the first Business Day thereafter) of each calendar
month (the "Interest Payment Date") with respect to all Advances outstanding
during the previous calendar month.
(e) Advances are prepayable at any time without premium or penalty,
in whole or in part. Any amounts prepaid shall be applied to repay the
outstanding principal amount of any Advances until paid in full. Amounts
repaid may be borrowed in accordance with the terms of this Agreement.
(f) If an Advance is not repaid in full on the date when due such
Advance shall, commencing on such date, bear interest at a rate per annum
equal to eleven percent (11.00%) per annum for the period from and including
the due date thereof to but excluding the date the same is paid in full.
All such interest shall be payable on demand.
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<PAGE>
(g) The Advances shall be evidenced collectively by the secured
promissory note of the Borrower in the form attached hereto as Exhibit A
(the "Secured Note"). The Lender is authorized to record the date and
amount of each Advance and the date and amount of each repayment of
principal thereof on the schedule annexed to the Secured Note and any such
recordation shall be conclusive evidence of the accuracy of the amounts so
recorded (absent manifest error); provided, that the failure of the Lender
to make such recordation (or any error in such recordation) shall not affect
the rights and obligations of the Borrower hereunder or under the Secured
Note.
(h) Each Advance shall be repaid in full on the related Maturity Date,
and the Lender shall release its security interest in the Mortgage Loans
when the Advances are so repaid.
(i) If an Advance is not repaid in full when due, thereafter all
payments and prepayments of the related Mortgage Loans shall be paid to the
Lender as promptly as practicable following receipt of such payments but in
any event no later than fifteen days following Borrower's receipt thereof.
(j) If at any time the outstanding principal amount of the aggregate
of all Advances exceeds the lesser of the following:
(i) the aggregate market value of Mortgage Loans held as
Collateral (such amount not to exceed the par amount thereof), and
(ii) the aggregate par amount of Mortgage Loans held as
Collateral, in each case as determined by the Lender and notified to
the Borrower on the third business day of each week (or, in the sole
discretion of the Lender following notice to the Borrower, on any
Business Day), the Borrower shall no later than one Business Day after
receipt of notice of such excess and written demand by Lender, either
prepay such Advances (together with interest thereon) in part or in
whole or pledge additional Collateral (as hereinafter defined) to the
Lender, such that after giving effect to such prepayment or pledge the
unpaid principal amount of such Advances does not exceed such lesser
amount.
(k) If more than one monthly installment of a Mortgage Loan is
delinquent as of the end of any calendar month, the Borrower shall prepay
the amount of the Advances made in respect of such Mortgage Loan or pledge
one or more replacement Mortgage Loans having an aggregate unpaid principal
amount of not less than the principal amount of such delinquent Mortgage
Loan and otherwise meeting the requirements of this Agreement.
(l) Notwithstanding anything to the contrary in this Agreement, the
Lender shall have no obligation to make any Advance hereunder if (i) the
Lender is unable, after good faith effort, to obtain a source of funds for
the proposed Advance on substantially the same economic terms as are
available to the Lender as of the date of this Agreement, or (ii) there
shall have occurred any material adverse change in (A) the financial
condition of the Lender, (B) the financial markets generally or (C) the
secondary market for mortgage loans or mortgage-related securities. The
Lender shall promptly notify the Borrower of any such determination by the
Lender.
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(m) No Advance shall be made in respect of any Mortgage Loans unless,
if requested by the Lender, the Lender shall have reviewed a sample of the
Mortgage Loans to be funded by such Advance and been satisfied in its sole
discretion with the results of such review.
(n) No Advance shall be made in respect of a Mortgage Loan if the
aggregate principal amount of all Advances previously made and outstanding
in respect of Mortgage Loans, together with the amount of the Advance to be
made, exceeds $10,000,000.
SECTION 3. PURPOSE AND DISBURSEMENT OF FUNDS ADVANCED. Each Advance
shall be used to originate six-month LIBOR-indexed first mortgage loans and
fixed-rate first mortgage loans and such other loans (the "Mortgage Loans").
All Advances shall be disbursed by the Lender in accordance with wiring
instructions accompanying the daily Notice of Borrowing. For purposes of
this Agreement, "LIBOR" shall mean the London Interbank Offered Rate for the
corresponding number of months on the date of determination.
SECTION 4. NO COMMITMENT TO EXTEND MATURITY DATE OR TERMINATION DATE.
The Lender shall have no obligation hereunder to extend the Maturity Date of
any Advance or the Termination Date hereunder, and the Borrower expressly
waives, and agrees not to assert, any claim or cause of action the Borrower
may have in respect of any determination by the Lender not to extend the
Maturity Date of any Advance or the Termination Date hereunder.
SECTION 5. DELIVERY OF MORTGAGE LOAN DOCUMENTS. In connection with
each Advance the Borrower shall deliver, or heretofore has delivered, to
Lender, the documents and instruments listed in Schedule 1 hereto, all such
documents and instruments evidencing and relating to the Mortgage Loans
(collectively, the "Mortgage Loan Documents"), together with all computer
records and tapes relating thereto, and any proceeds thereof, being
hereinafter referred to as the "Collateral." Lender shall upon receipt
thereof review such Mortgage Loan Documents and identify any deficiencies in
such Mortgage Loan Documents as so reviewed.
SECTION 6. GRANT OF SECURITY INTEREST. The Borrower hereby pledges
and grants a security interest in all of its respective right, title and
interest in and to the Collateral to the Lender to secure the repayment of
principal of and interest on all Advances and all other amounts owing to the
Lender hereunder (collectively, the "Secured Obligations"). The Borrower
agrees to mark its computer records and tapes to evidence the security
interests granted to the Lender hereunder.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
(a) The Borrower represents and warrants to the Lender that:
(i) It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
California.
(ii) It is duly licensed as a licensee or is otherwise qualified
in each state in which it transacts business and is not in default of
such state's applicable laws, rules and regulations. It has the
requisite power and authority and legal right to own and grant a lien
on all of its right, title and interest in and to the Collateral, and
to execute and deliver, engage in the transactions contemplated by, and
perform and observe the terms and conditions of, this Agreement and the
Secured Note.
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(iii) It is solvent and is not in default under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money, and the execution, delivery and
performance by it of this Agreement and the Secured Note do not
conflict with any term or provision of its articles of incorporation or
bylaws or any law, rule, regulation, order, judgment, writ, injunction,
or decree applicable to any of them of any court, regulatory body,
administrative agency or governmental body having jurisdiction over it
and will not result in any violation of any such mortgage, instrument
or agreement.
(iv) All financial statements and certificates of the Borrower
or any of its officers furnished to the Lender are true and complete
and do not omit to disclose any material liabilities or other facts
relevant to the Borrower's condition. All such financial statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied. No financial statement or other
financial information as of a date later than December 31, 1996 has
been furnished by the Borrower to any lender that has not been
furnished to the Lender.
(v) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or
court is required under applicable law in connection with the
execution, delivery and performance by it of this Agreement or the
Secured Note, where the failure to obtain any of the foregoing would
materially adversely affect the business, operations, property or
financial condition of the Borrower taken as a whole, the ability of
the Borrower to perform its obligations under this Agreement or the
Secured Note or the validity or enforceability of this Agreement or the
Secured Note, except as have been obtained and are in full force and
effect.
(vi) There is no action, proceeding or investigation pending or,
to the best of its knowledge, threatened against it before any court,
administrative agency or other tribunal (A) asserting the invalidity of
this Agreement or the Secured Note, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or the Secured Note, or (C) which might materially and adversely affect
the validity of the Mortgage Loans or the performance by it of its
obligations under, or the validity or enforceability of, this Agreement
or the Secured Note.
(vii) There has been no material adverse change in the business,
operations, financial condition, properties or prospects of the
Borrower since December 31, 1996.
(viii) This Agreement and the Secured Note have each been duly
authorized, executed and delivered by the Borrower, all requisite
corporate action having been taken, and each is legal, valid and
binding and enforceable against the Borrower in accordance with its
terms.
(b) With respect to every Mortgage Loan for which Mortgage Loan
Documents are delivered to the Lender, the Borrower warrants to the Lender
that:
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(i) Such Mortgage Loan and all accompanying documents are
complete and authentic and all signatures thereon are genuine.
(ii) Such Mortgage Loan arose from a bona fide loan, complying
with all applicable State and Federal laws and regulations, to persons
having legal capacity to contract and is not subject to any defense,
set-off or counterclaim.
(iii) All amounts represented to be payable on such Mortgage
Loan are, in fact, payable in accordance with the provisions of such
Mortgage Loan.
(iv) No monetary default has occurred in any provisions of such
Mortgage Loan that has or will cause a prepayment of Advances made in
respect of such Mortgage Loan pursuant to Section 2(k) hereof, and no
non-monetary default has occurred with respect to any provisions of
such Mortgage Loan.
(v) To the best of the Borrower's knowledge, any property
subject to any security interest given in connection with such Mortgage
Loan is not subject to any encumbrance other than a stated first or
second mortgage.
(vi) The Borrower held good and indefeasible title to, and was
the sole owner of, such Mortgage Loan subject to no liens, charges,
mortgages, participations, encumbrances or rights of others or other
liens released simultaneously with such pledge.
(vii) Each Mortgage Loan has been originated according to
Borrower's underwriting guidelines previously provided to Lender, and
conforms to the description thereof as set forth on the related
Mortgage Loan Schedule.
(viii) All disclosures required by Regulation Z of the Board of
Governors of the Federal Reserve System promulgated pursuant to the
statute commonly known as the Truth-in-Lending Act and the Notice of
the Right to Cancel required by said statute and regulation have been
properly made and given.
(ix) None of the Mortgage Loans repurchased by the Borrower from
lenders were repurchased because such Mortgage Loans were in default to
such other lenders.
(x) Upon receipt by the Lender of the Collateral with respect to
any Mortgage Loan and for so long as the Lender maintains actual
physical possession of such Collateral, the Lender shall have a fully-
perfected first priority security interest in such Collateral;
provided, however, that until such time as assignments of mortgage with
respect to the Mortgage Loans are recorded in the appropriate office in
the name of the Lender, (A) the Lender may not be able to enforce a
mortgage against the related mortgage property or the related
mortgagor, (B) the Borrower could record an assignment of such mortgage
in the name of a third party or record a discharge and satisfaction of
such mortgage with the result that, in the former case such third party
could acquire the rights represented by such mortgage and, in the
latter case, the lien of such mortgage could be discharged, with the
result that such mortgage note would no longer be secured by the
related property, and (C) any notice which may be given to the record
holder of a mortgage including, without limitation, notice regarding
the non-payment of real estate taxes, would instead be given to the
Borrower.
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(xi) All payments required to be made through the related
Funding Date for each Mortgage Loan have been made and credited, and no
payment required under any Mortgage Loan was more than sixty (60) days
past due as of the Funding Date for such Mortgage Loan.
(xii) The additional representations and warranties set forth in
Schedule 2 attached hereto are true and correct with respect to each
Mortgage Loan.
SECTION 8. RIGHTS OF LENDER; LIMITATIONS ON LENDER'S OBLIGATIONS.
(a) Anything herein to the contrary notwithstanding, the Borrower
shall remain liable under each of the Mortgage Loan Documents to which it is
a party to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant
to the terms and provisions of each such Mortgage Loan Document. The Lender
shall not have any obligation or liability under any Mortgage Loan Document
by reason of or arising out of this Agreement or the receipt by the Lender
of any payment relating to such Mortgage Loan Document pursuant hereto, nor
shall the Lender be obligated in any manner to perform any of the
obligations of the Borrower under or pursuant to any Mortgage Loan Document,
to make any payment, to make any inquiry as to the nature or the sufficiency
of any payment received by it or as to the sufficiency of any performance by
any party under any Mortgage Loan Document, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.
(b) Upon the request of the Lender at any time after the occurrence
and during the continuance of an Event of Default, the Borrower shall notify
parties to the Mortgage Loan Documents to which it is a party that the
Mortgage Loan Documents have been assigned to the Lender and that payments
in respect thereof shall be made directly to the Lender. The Lender may in
its own name or in the name of others communicate with parties to the
Mortgage Loan Documents to verify with them to its satisfaction the
existence, amount and terms of any Mortgage Loan Documents.
SECTION 9. COVENANTS. The Borrower covenants and agrees with the
Lender that, from and after the date of this Agreement until the obligations
of the Borrower hereunder and under the Secured Note are paid in full:
(a) FURTHER DOCUMENTATION. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrower,
the Borrower will promptly and duly execute and deliver such further
instruments and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction
with respect to the security interests created hereby and the delivery to
the Lender of any reports or notices provided to the Borrower by the
Subservicer (as defined below) in connection with the Mortgage Loans. The
Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
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(b) LIMITATION ON LIENS ON COLLATERAL. The Borrower will not, nor
will it permit or allow the Subservicer to, create, incur or permit to
exist, will defend the Collateral against, and the Borrower will take such
other action as is necessary to remove, any lien, security interest or claim
on or to the Collateral, other than the security interests created hereby,
and will defend the right, title and interest of the Lender in and to any of
the Collateral against the claims and demands of all persons whomsoever.
(c) LIMITATIONS ON MODIFICATIONS, WAIVERS AND EXTENSIONS OF
CONTRACTS. The Borrower will not, nor will it permit the Subservicer to,
(i) amend, modify, terminate or waive any provision of any Mortgage Loan
Document to which the Borrower is a party in any manner which could
reasonably be expected to materially adversely affect the value of such
Mortgage Loan Document as Collateral, (ii) fail to exercise promptly and
diligently each and every material right which the Borrower may have under
each such Mortgage Loan Document (other than any right of termination) where
the failure to so act could materially adversely affect the Collateral
relating to such Mortgage Loan Document or (iii) fail to deliver to the
Lender a copy of each material demand, notice or document received by it
relating in any way to any such Mortgage Loan Document other than any such
demand, notice or document relating to the delinquency of a Mortgage Loan or
the bankruptcy of the obligor thereunder.
(d) CHANGE IN UNDERWRITING GUIDELINES. The Borrower will provide
Lender with a copy of any changes to its underwriting guidelines prior to
the effectiveness thereof, and will not make any adverse changes to such
guidelines without Lender's prior written consent.
(e) FURTHER IDENTIFICATION OF COLLATERAL. The Borrower will furnish
to the Lender from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
(f) LIMITATION ON DELINQUENCIES. The Borrower will not permit or
allow any payment under any Mortgage Loan to become more than sixty (60)
days past due.
(g) LIMITATION ON FORECLOSURES. The Borrower will not, nor will it
permit or allow the Subservicer to, take title to real estate mortgaged in
connection with a Mortgage Loan, whether by means of a foreclosure action
(judicial or non-judicial), acceptance of a deed in lieu of foreclosure, or
any voluntary transfer, without the express written consent of the Lender.
(h) LIMITATION ON COLLECTION ACCOUNT. The Borrower will not permit
or allow the Subservicer to establish a "collection account" with a
financial institution other than one acceptable to the Lender in the
exercise of its reasonable discretion.
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(i) NO VIOLATION OF LAWS. At all times after the Lender's receipt of
Mortgage Loan Documents from the Borrower and until payment in full of all
Advances, the Borrower will not commit any act in violation of applicable
laws, or regulations promulgated pursuant thereto.
(j) NOTICES. The Borrower will notify the Lender promptly, in
reasonable detail and in accordance with Section 24 of this Agreement, (i)
of any lien or security interest (other than security interests created
hereby) on, or claim asserted against, any of the Collateral; (ii) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on either (A) the business, operations, financial
condition, properties or prospects of Borrower or any subsidiary of
Borrower, (B) Borrower's ability to perform its obligations under this
Agreement or the Secured Note, or (C) the aggregate value of the Collateral
or on the security interests created hereunder; and (iii) of the existence
of circumstances requiring the Borrower, or permitting the Lender to require
the Borrower, to prepay the Advances pursuant to Section 2(j), Section 2(k),
Section 10(b) or Section 16 hereof.
SECTION 10. REPAYMENT OF ADVANCES IF MORTGAGE LOAN FOUND DEFECTIVE.
(a) Upon discovery by the Borrower or the Lender of any breach of any
of the representations and warranties listed in Section 7 hereof, the party
discovering such breach shall promptly give notice of such discovery to the
other.
(b) The Lender has the right to require, in its unreviewable
discretion, the Borrower to prepay the amount of any Advance made in respect
of any Mortgage Loan which breaches one or more of the representations and
warranties listed in Section 7(b) hereof, no later than five Business Days
after notice from the Lender to the Borrower of such breach.
SECTION 11. RELEASE OF MORTGAGE FILES FOLLOWING PAYMENT OF SECURED
OBLIGATIONS. The Lender agrees to deliver the documents and instruments
held by the Lender pursuant to Section 5 hereof upon request of the Borrower
upon payment in full of the Secured Obligations.
SECTION 12. SERVICING. The Borrower shall, or shall cause the
Subservicer to, service the Mortgage Loans in accordance with the standards,
covenants and terms set forth in Schedule 4 attached hereto. The term
"Subservicer" means a subservicer, satisfactory to the Lender, which
provides subservicing pursuant to a written agreement in form and substance
satisfactory to Lender. The Borrower will not, nor will it permit or allow
the Subservicer to, amend or modify such written agreement without the
express written consent of the Lender, which consent shall not be
unreasonably withheld.
SECTION 13. NO ORAL MODIFICATIONS; SUCCESSORS AND ASSIGNS. No
provisions of this Agreement shall be waived or modified except by a writing
duly signed by the authorized agents of the Lender and the Borrower. This
Agreement shall be binding upon the successors and assigns of the parties
hereto.
SECTION 14. WEEKLY AGING REPORT. The Borrower shall provide the
Lender, on the first Business Day of each week, with an accurate listing of
each Mortgage Loan maintained in the warehouse facility as of the last day
of the previous week. Such Weekly Aging Report shall be substantially in
the form set forth in Exhibit H attached hereto.
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SECTION 15. EVENTS OF DEFAULT. Each of the following shall constitute
an event of default (an "Event of Default") hereunder (a "Default" being any
of the following whether or not any requirement for the giving of notice,
the lapse of time, or both, has been satisfied):
(a) Failure of the Borrower to make any payment of interest or
principal or any other sum which has become due, whether by acceleration or
otherwise, under the terms of the Secured Note, this Agreement or any other
document evidencing or securing indebtedness of the Borrower to the Lender;
(b) Failure of the Borrower to prepay Advances or pledge additional
Collateral when required to do so pursuant to Section 2(j), Section 10(b) or
Section 16 hereof;
(c) Failure of the Borrower to observe or perform any other agreement
contained in this Agreement thirty (30) days after notice from the Lender of
such failure to observe or perform;
(d) Any representation or warranty made by the Borrower herein in
connection with any Advance made hereunder or in any certificate, document
or financial or other statement furnished at any time under or in connection
with this Agreement, shall prove to have been incorrect in any material
respect on or as of the date made;
(e) Assignment or attempted assignment by the Borrower of this
Agreement or any rights hereunder, without first obtaining the specific
written consent of Lender, or the granting by the Borrower of any security
interest, lien or other encumbrance on any Collateral to other than the
Lender;
(f) The filing by or against the Borrower or any subsidiary of the
Borrower of a petition for liquidation, reorganization, arrangement or
adjudication as a bankrupt or similar relief under the bankruptcy,
insolvency or similar laws of the United States or any state or territory
thereof or of any foreign jurisdiction; the failure of the Borrower or such
subsidiary to secure dismissal of any such petition filed against it within
thirty (30) days of such filing; the making of any general assignment by the
Borrower or any subsidiary for the benefit of creditors; the appointment of
a receiver or trustee for the Borrower or any subsidiary, or for any part of
the Borrower or such subsidiary's assets; the institution by the Borrower or
any subsidiary of any other type of insolvency proceeding (under the
Bankruptcy Code or otherwise) or of any formal or informal proceeding, for
the dissolution or liquidation of, settlement of claims against, or winding
up of the affairs of, the Borrower or any subsidiary; the institution of any
such proceeding against the Borrower or any subsidiary if the Borrower or
such subsidiary shall fail to secure dismissal thereof within thirty (30)
days thereafter; the consent by the Borrower or any subsidiary to any type
of insolvency proceeding against the Borrower or such subsidiary (under the
Bankruptcy Code or otherwise); the occurrence of any event or existence of
any condition which could be the ground, basis or cause for any proceeding
or petition described in this Section 15(f);
(g) Any materially adverse change in the business, operations,
financial condition, properties or prospects of the Borrower or of any
subsidiary as determined by the Lender in its discretion or the existence of
any other condition which, in the Lender's determination, constitutes an
impairment of the Borrower's or such subsidiary's ability to perform their
obligations under this Agreement or the Borrower's obligations under the
Secured Note;
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(h) Guarantors shall cease to collectively own, directly or
indirectly, 90% of the outstanding shares of capital stock having voting
power for the election of directors of Borrower, whether at all times or
only so long as no senior class of stock has such voting power because of
default in dividends or other default, or shall otherwise cease to control,
the Borrower; and
(i) Failure by the Borrower or the Subservicer to service the
Mortgage Loans in substantial compliance with servicing requirements
approved by Lender.
SECTION 16. REMEDIES UPON DEFAULT.
(a) Upon the happening of one or more Events of Default, the Lender
may immediately declare the principal of all Advances under the Secured Note
then outstanding to be immediately due and payable, together with all
interest thereon and fees and expenses accruing under this Agreement;
provided, that upon the occurrence of the Event of Default referred to in
Section 15(f), such amounts shall immediately and automatically become due
and payable without any further action by any person or entity. Upon such
declaration or such automatic acceleration, the balance then outstanding
shall become immediately due and payable without presentation, demand or
further notice of any kind to the Borrower.
(b) Upon the happening of one or more Events of Default, the Lender
shall have the right to retain physical possession of all files of the
Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come into the possession of the
Borrower or any third party acting for the Borrower, and the Borrower shall
deliver to the Lender such assignments of mortgage as the Lender shall
request. The Lender shall be entitled to specific performance of all
agreements of the Borrower contained in this Agreement.
(c) Upon the happening of one or more Events of Default, the Lender
shall have the right to collect and receive all further payments made on the
Collateral, and if any such payments are received by the Borrower, the
Borrower shall not commingle the amounts received with other funds of the
Borrower and shall promptly pay them over to the Lender. In addition, the
Lender shall have the right to dispose of the Collateral as provided herein,
or as provided in the other documents executed in connection herewith, or in
any commercially reasonable manner, or as provided by law. The Lender shall
be entitled to place the Mortgage Loans which it recovers after any default
in a pool for issuance of asset-backed securities at the then-prevailing
price for such securities and to sell such securities for such prevailing
price in the open market as a commercially reasonable disposition of
collateral subject to the applicable requirements of the California UCC.
The Lender shall also be entitled to sell any or all of such Mortgage Loans
individually for the prevailing price as a commercially reasonable
disposition of collateral subject to the applicable requirements of the
California UCC. The specification in this Section 16 of manners of
disposition of collateral as being commercially reasonable shall not
preclude the use of other commercially reasonable methods at the option of
the Lender. Upon disposition of the Collateral and repayment in full to the
Lender of all amounts owing hereunder plus the reasonable expenses incurred
(including fees and expenses of its counsel), the Lender shall promptly
remit any remaining proceeds to the Borrower or as required by law or as a
court of competent jurisdiction shall direct.
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SECTION 17. INDEMNIFICATION AND EXPENSES.
(a) The Borrower shall hold the Lender harmless from and indemnify
the Lender against all liabilities, losses, damages, judgments, costs and
expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender relating to or arising out of this Agreement or the
Secured Note, any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or
in respect of this Agreement or the Secured Note, or any transaction
contemplated hereby or thereby, resulting from anything other than the
Lender's gross negligence or willful misconduct. In any suit, proceeding or
action brought by the Lender in connection with any Mortgage Loan Document
for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan Document, the Borrower will save, indemnify and keep the Lender
harmless from and against all expense, loss or damage suffered by reason of
any defense, set-off, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by the
Borrower of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such obligor
or its successors from the Borrower. The Borrower also agrees to reimburse
the Lender for all its costs and expenses incurred in connection with the
enforcement or the preservation of the Lender's rights under this Agreement
or the Secured Note, or any transaction contemplated hereby or thereby
including, without limitation, the reasonable fees and disbursements of
counsel. The Borrower hereby acknowledges that, notwithstanding the fact
that the Secured Note is secured by the Collateral, the obligation of the
Borrower under the Secured Note is a recourse obligation of the Borrower.
(b) The Borrower agrees to pay when billed by the Lender all of the
out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to this Agreement or the Secured Note, or any other documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby
including, without limitation, (i) all the reasonable fees, disbursements
and expenses of Lender's counsel, and (ii) all the reasonable due diligence,
inspection, testing, and review costs and expenses incurred by the Lender
(or a third-party contract underwriter that is both acceptable to the Lender
and is acting on behalf of the Lender), with respect to Mortgage Loans
pledged as Collateral under this Agreement.
(c) The Borrower's agreements in this Section 17 shall survive the
payment in full of the Advances and the expiration or termination of this
Agreement.
SECTION 18. POWER OF ATTORNEY. The Borrower hereby authorizes the
Lender (without requiring the Lender), at the Borrower's expense, to file
such financing statement or statements relating to the Collateral without
the Borrower's signature thereon as the Lender at its option may deem
appropriate, and appoints the Lender as the Borrower's attorney-in-fact to
execute any such financing statement or statements in the Borrower's name
and to perform all other acts which the Lender deems appropriate to perfect
and continue the security interest granted hereby and to protect, preserve
and realize upon the Collateral, including, but not limited to, the right to
endorse notes, complete blanks in documents and sign assignments on behalf
of the Borrower as its attorney-in-fact. This Power of Attorney is coupled
with an interest and is irrevocable without the Lender's consent.
Notwithstanding the foregoing, the power of attorney hereby granted shall
only be effective during the occurrence and continuance of any Event of
Default hereunder.
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SECTION 19. AGREEMENT CONSTITUTES SECURITY AGREEMENT. This Agreement
is intended by the parties hereto to be governed by California law, and to
constitute a security agreement within the meaning of the California UCC.
SECTION 20. NO DUTY ON LENDER'S PART. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the
Collateral and shall not impose any duty upon it to exercise any such
powers. The Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and neither it nor any
of its officers, directors, employees, shareholders or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except
for its own gross negligence or willful misconduct.
SECTION 21. LIMITATION ON DUTIES REGARDING PRESENTATION OF COLLATERAL.
The Lender's sole duty with respect to the custody, safekeeping and physical
preservation of any Collateral in its possession, under Section 9-207 of the
Uniform Commercial Code or otherwise, shall be to deal with it in the same
manner as the Lender deals with similar property for its own account.
Neither the Lender nor any of its directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any
part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request
of the Borrower or otherwise.
SECTION 22. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers are coupled with an interest.
SECTION 23. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 24. NOTICES. All written communications hereunder shall be
mailed, telecopied or delivered to the respective addresses as listed below
or to such other address as shall be designated by a party in a written
notice to the other party. All such notices and communications shall be
effective when delivered to the party to which such notice is to be given.
If to Lender:
First Alliance Mortgage Company
17305 Von Karman
Irvine, California 92614-6203
Attention: Cassandra Fraulino
Telecopy: (714) 224-8366
Telephone: (714) 224-8357
-14-
<PAGE>
If to Borrower:
Coast Security Mortgage, Inc.
500 N. State College Boulevard, #800
Orange, California 92668
Attention: Mark Chisick
Telecopy: (714) 978-2334
Telephone: (714) 978-7770
SECTION 25. RIGHT OF FIRST REFUSAL. In consideration of Lender's
agreement to provide Advances as set forth in this Agreement, Borrower
hereby grants to Lender a right of first refusal to purchase all Mortgage
Loans with respect to which Advances are made hereunder, pursuant to which
no such Mortgage Loan shall be sold by Borrower to any third party (except
one from whom an Unconditional Commitment Letter has been obtained) without
Lender's consent, such consent not to be unreasonably withheld. Such
purchases shall be made pursuant to and in accordance with that certain
Mortgage Loan Purchase and Sale Agreement dated as of July 1, 1996 between
Borrower and Lender, as the same may from time to time be amended.
SECTION 26. CERTAIN DEFINITIONS. The following capitalized terms are
defined in the corresponding sections specified below:
"Advance" - Section 1.
"Agreement" - Introductory Clause.
"Borrower" - Introductory Clause.
"Business Day" - Section 1.
"California UCC" - Section 2(c).
"Collateral" - Section 5.
"Default"- Section 15.
"Event of Default" - Section 15.
"Funding Date" - Section 1.
"Funding Period" - Section
"Guarantor" - Introductory Clause
"Guaranty" - Section 1
"Interest Payment Date" - Section 2(d).
"Lender" - Introductory Clause.
"LIBOR" - Section 3.
"Maturity Date" - Section 2(c).
"Maximum Funding Amount" - Section 1.
"Mortgage Loan Documents" - Section 5.
"Mortgage Loans" - Section 3.
-15-
<PAGE>
"Notice of Borrowing" - Section 2(b).
"Secured Note" - Section 2(g).
"Secured Obligations" - Section 5.
"Termination Date" - Section 2(a).
"Third Party Buyer" - Section 2(b).
"Unconditional Commitment Letter" - Section 2(b).
SECTION 27. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
SECTION 28. NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by
any act (except by a written instrument pursuant to Section 13 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right
or remedy hereunder or to have acquiesced in any Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any right, or power
or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Lender of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy
which the Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by
law.
SECTION 29. ASSIGNMENT. Borrower may not assign its rights or
delegate its obligations under this Agreement without the express written
consent of the Lender. The Lender may assign its rights and obligations
hereunder to any affiliate of the Lender upon written notice thereof to the
Borrower.
SECTION 30. HYPOTHECATION OR PLEDGE OF COLLATERAL. Nothing in this
Agreement shall preclude the Lender from engaging in repurchase transactions
with any of the Collateral or otherwise pledging, repledging, hypothecating,
or rehypothecating any of the Collateral, but no such transaction shall
relieve the Lender of its obligations to the Borrower under this Agreement
with respect to the Collateral.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Borrower: COAST SECURITY MORTGAGE, INC.
By: ______________________________
Name: Mark Chisick
Title: President
-16-
<PAGE>
Lender: FIRST ALLIANCE MORTGAGE COMPANY
By: _________________________________
Name: Mark K. Mason
Title: Executive Vice President,
Chief Financial Officer
Guarantor: ___________________________________
Mark Chisick
Guarantor: ___________________________________
Brad Chisick
-17-
<PAGE>
NOTE SECURED BY DEED OF TRUST
$40,000.00 Irvine, California Date: February 21, 1997
On or before April 1, 2004, for value received, I promise to pay to First
Alliance Mortgage Company or order, 17305 Von Karman Avenue, Irvine,
California 92614 at the sum of Four Hundred Seventy Six and 20/100 - (476.20)
- --- DOLLARS, or more with interest from -0-, until paid at the rate of -0- %
per cent annum, so long as I remain an employee of First Alliance Mortgage
Company, payable monthly, first payment begins April 1, 1997.
Anything herein to the contrary notwithstanding, in the event of a voluntary
sale, transfer or conveyance of all or any portion of the property described
herein, any indebtedness or obligation hereunder, shall at the option of the
holder hereof, immediately become due and payable.
Upon termination prior to full repayment, the interest rate will change to
an annual rate of 10%, and as such time monthly payments will be adjusted to
a fully amortizing amount, which, when paid over the remaining term, will
fully repay all interest and the remaining principal.
Maker reserves the right at any time to repay, in whole or in part, the
principal or interest (if any) owing on this Note, which prepayment may be
made without premium or penalty.
Principal payable in lawful money of the United States of America. If
action be instituted on this note I promise to pay such sum as the Court may
fix as Attorney's fees. This note is secured by a Deed of Trust of even
date herewith, and the maturity of this note may be accelerated as provided
in that Deed of Trust.
_____________________________ ______________________________
Jeffrey W. Smith Date Marcie L. Smith Date
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<SECURITIES> 0
<RECEIVABLES> 14141
<ALLOWANCES> 0
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<CURRENT-ASSETS> 49098
<PP&E> 3739
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0
<COMMON> 148
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